Should we support fiscal stimulus?

Whenever the topic of stimulus comes up — fiscal or monetary — there are people who argue that it’s pointless because you can’t create wealth simply by printing money out of thin air. This is an understandable intuition for people to have, since one use of money is just to “keep score” of things. If you went to a basketball game for kids, and made each basket count for 10 points instead of two, the scoreboard would be higher, but it wouldn’t mean that the kids were any better at shooting baskets. We’ve all seen currencies of countries (e.g. Venezuela) that added a bunch of zeros to their currency, and those countries are not rich. So from this perspective, no, printing money cannot make a society wealthier. 

But when you think about the purpose of money on a society-wide scale, it’s a lot more than a score-keeping device. What makes a nation wealthy? Is it the amount of cash it has? Of course not. (Again, Venezuela.) What makes a nation wealthy are things like natural resources, a robust and fair rule of law, the level of education of its people, and the robust functioning of a range of institutions, whether they be governmental, corporate, non-profit, or social. Some of these institutions don’t require money to operate, but for many institutions (particularly companies), money is their lifeblood. Money is what keeps people showing up and working together towards some productive enterprise. Without money the people will stop showing up, and they’ll never reassemble again. 

And so we get to the crisis at hand… a crisis that requires us, for a period of time to not show up. If the crisis is left to rage, untold number of businesses will run out of money, lay everyone off, and it will be virtually impossible to put them back together. As such, money isn’t a scorekeeping device, but a relationship-preserving device or institution-preserving device. And, for at least a temporary period, simply creating money out of thin air can preserve socially productive relationships. 

The new stimulus bill contains $350 billion for aid to small businesses which employ an overwhelming number of Americans. That sounds like a lot of money, but if it’s not enough to prevent relationships of people from disintegrating and never returning, we’ll all be left unimaginably poorer.