Velocity

Former Treasury official under W, Bruce Bartlett opining in the Times, adds his voice to the borrow-and-spend chorus.

As he explains

This explains a great deal about what is at the root of the economy’s problem today. People are so risk-averse that they are hoarding money, refusing to spend; banks are refusing to lend even to their best customers; and businesses are so desperate for safety that they would rather get a negative return on a safe asset than invest in something remotely risky, no matter how high the potential return.

When everyone in the economy suddenly stops spending, the number of times that money turns over falls. Since the gross domestic product equals the money supply times its rate of turnover — something economists call velocity — this means that if the money supply is unchanged then G.D.P. must fall.
...
Under these circumstances, when the normal rules don’t apply, the government must find more creative ways to ease credit conditions and get the economy moving again.

First, it needs to increase the budget deficit. This expands the amount of Treasury bills in circulation and is the same as expanding the money supply, which is necessary to keep G.D.P. from shrinking due to a fall in velocity.

Second, the Fed needs to revise its operating procedures. Instead of buying only T-bills it needs to buy securities with positive interest rates...

Third, the government must try to raise velocity by stimulating aggregate spending in the economy. This is harder than it sounds... The trick is to find a way to get people and businesses to spend money over and above what they would have spent anyway.

Putting aside for the moment the question of how much the demand for negative yielding treasuries came from the private sector vs the Fed in its attempts to increase liquidity, the ultimate flaw in this sort of analysis is in the way it dismisses the free choices of market participants as fundementally irrational and in need of government correction. If one believes in free markets, and a conservative economist ought to, one should give more credence to the free choices of market participants.

The heart of the issue is the question whether the attempt by private actors to radically reduce their risk -- by radically reducing leverge and spending -- is rational and proper or not. Bartlet argues that it is not, apparently mostly because a reduction in risk leads to reduction in GDP, and we can't have that. On the other hand, its easy to argue that our economy is still by historical standards radically over-leveredged, and that it could use even more de-leveraging, even at the price of a longer-term drop in GDP (the old GDP was inflated, in any case, by bearing excessive=unsustainable risk).

This is all best understood from the micro- perspective. An economically sound individual or business accumulates assets in boom markets, such that it has a cushion ready when the economy, inevitably, cycles down. This minimizes the natural reduction in spending in a down-cycle which in turn, in aggregate, reduces the depth and breadth of any dip. On the other hand, if an individual or business spent an up-cycle accumulating debt, such that it has less of a cushion ready, it is rationally -- if it wants to survive -- going to tighten up much more dramatically in the face of a downturn. Which is all a long winded way of stating the should-be obvious that the lower the savings level of an economy the more at risk it is of deep and sustained downturn.

If one accepts (or at least suspects) that our economy is already over-burdened with risk, the likely, long-term, consequences of government policies aimed at, in effect, doubling down, are, frankly, scary.