The following is a position on Keynesian economics, fiscal stimulus, and aggregate economic demand, from the point of view of a qualitative sociological macro-economics, held with little to medium confidence:
Under the current circumstances, I remain an advocate of fiscal stimulus in the Keynesian sense, with a number of qualifications, one of which is the following.
I depart from, or want to add to, contemporary Keynesian theory, promulgated by the likes of Krugman, in the following specific way. It is not the ‘aggregate level of demand’ (or total government spending) alone with which I am chiefly concerned. I am also chiefly concerned with the qualities of the spending. First, is the spending worthy as an investment? That is, will it produce further value down the line? Second, will the spending be likely to multiply? Will the spending spur further spending? In terms that can be empirically evaluated, will it create a greater measure of money velocity?
My interjection is that the numerical measure of money velocity rests on the qualitative character of the context in which money moves. The goal being, as M. Friedman and A. Schwartz put it, to “identify the factors determining the behavior of velocity” (link).
As such, in terms of stimulus, I am possibly less concerned with ‘aggregate demand’ and more concerned with the declining condition of the median US household. In this concern I tentatively hold a number of assumptions: (a) Our debt is manageable, if we are giving typical households opportunity to spend, circulate money, and create wealth. (b) It is hard to see how we can grow our wealth if American households continue to face such difficult obstacles in their ability to consume. (c) The US economy will not grow in real terms until the median household is again both a consumptive and a productive force in the economy. And finally, in sum, (d) The condition of the middle-class as a mover of money is the economic problem we must solve.
But here’s the qualification: I think improving the money velocity surrounding the median household requires more than indiscriminate fiscal spending, i.e. more than solely raising the aggregate level of demand. The initial Obama stimulus was good but not good enough. A future stimulus plan should be defined not by the price tag, but by the particular forms of spending: how empirically solid are the designed activities at improving middle-class money velocity.
So, put another way, the central derivative empirical question is: what kinds of designed activites (i.e., designed government spending) would lead to greater money velocity in middle-class social and economic circles?
The preceding point was, again, from the point of view of a qualitative sociological economics.