Well done on the explanation of increases in the quantity of money without corresponding increases in the supply of desired goods, which is what government expenditure is all about. The Government increases the money supply with all its newly created Treasuries and adds little or nothing to aggregate supply.  Here is how it happens:  The Keynesian prescription has always been to engineer an increase in aggregate demand for an ailing economy. The flaw in this reasoning is not found in aggregate demand, which can be easily manipulated by the dearth or superfluity of money. The flaw is found in aggregate supply.  In economic hardship, the Keynesians inevitably select their preferred remedial lever: augmented government expenditure to utilize idle resources. Suppose the government requires $1 billion for some public venture: a job creation project consisting of workers digging holes in the morning and filling them in during the afternoon: an undertaking of overtly little worth. The government borrows $1 billion on the markets for the diggers’ project. There is an effect upon interest rates, but it is negligible given the size of the economy. The borrowing rate is 6%.  At the end of the project, idle people were paid to produce nothing for the $1 billion received. They did not build any houses. They did not build cars. They did not enforce the law. They did not create any saleable or valued product. If none had bothered to show up while still receiving pay, the result would have been the same.  The flaw in Keynesian reasoning is located within the factor of production. When the nation initially earned the $1 billion, value was given for the income received. The worthy employees gave the economy $1.0 billion worth of production. They built, designed, engineered, insured, piloted, manufactured, performing a variety of economically worthy pursuits and supplying goods that the markets demanded. The earners produced valued goods and services and were rewarded for their efforts. With the earnings, they retired debt, consumed, invested, saved.  The Dig and its assorted workers certainly consumed materials, equipment, and domestic goods. But the good offered by the project no one needs, no one values. The entire project yielded nothing of value, nothing for consumption or service. The effort’s value comes to naught.  The productive workers have supplied a certain amount of saleable goods. The unproductive workers have supplied no saleable goods. But both have the means of competing for a diminished supply of goods. With 90% of the nation employed in worthy pursuits and the idle remainder hired for the worthless Dig, 100% of the nation’s workers will compete in markets for only 90% of the goods, the other 10% being valueless. Too much money chasing to few goods, or by another name – Inflation.  If the numbers of idle workers climb because of the severity of the recession, the situation aggravates accordingly: less saleable goods available among consuming competitors. The problem in the Keynesian prescription is not a shortage of aggregate demand, but surprisingly a shortage of aggregate supply.  Our present rate of inflation in a severe recession no less is quite high at about 5% or more.
A reader asks why people believe that “the printing of money by the U.S. government is such a bad idea.” It seems to her that it would not cause inflation “in a society that is glutted with goods, services, capacity and unemployed people as is America today.” Let us set aside [...]