faking it

The "Economic Stimulus" Myth by Harry Binswanger:

For instance, I am now trying to spend less because I can't afford as much as I could (or thought I could) before the crisis. So what is the Keynesian solution? Fool me into thinking I can afford more than I can. Print up new, unbacked money and get it to me so that I will (mistakenly) think I can afford to buy more again. To the extent the "stimulus" package is getting inflated currency to consumers, it is attempting to fake them into making purchases that they can't actually afford.

Now take the business side of things. A car manufacturer has machinery laying idle. Why? Because they judge that they can't make a profit by using it to make more cars. The "stimulus" solution is to fool them into thinking there is a demand for those cars, so that they will produce them. It is supposed to work because the consumers will be fooled into thinking they can afford to buy them.

But the double-fake theory doesn't work. There's been no change in external reality. There's only an illusion created by expanded fiat money. The consumers can't actually afford to buy the cars, and the actual profits of the car producers isn't higher than it was. Yes the car-maker's nominal revenues, in dollars, goes up, but not their actual receipts in real terms. And their costs go up as the newly printed money circulates through the system.

For those who are fooled by the inflation, the net result, in real (not dollar) terms is that they make purchases they can't afford and the producers are fooled into producing at a loss.