STIMULUS WITHOUT DEBT

Laurence Seidman

No 14-01, Working Papers from University of Delaware, Department of Economics

Abstract: A sobering lesson from the Great Recession is that widespread worry about government debt generates strong political resistance to enacting a fiscal stimulus large enough to overcome a severe recession. Fortunately there is a way to implement fiscal stimulus without increasing government debt. The purpose of this article is to explain the stimulus-without-debt plan, defend it, and urge Keynesian economists to advocate it in today’s weak recovery and in future recessions. Under the plan, in a severe recession, fiscal stimulus enacted by Congress should be accompanied by a “dual-mandate transfer” from the Federal Reserve to the U.S. Treasury of the same magnitude so that the Treasury does not have to borrow to finance the fiscal stimulus. This article contrasts this stimulus-without-debt plan with alternative stimulus plans.

Pages: 30 pages
Date: 2014
New Economics Papers: this item is included in nep-pke
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Journal Article: Stimulus Without Debt (2013)
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