While I’m not the biggest fan of the Fed (and their infinite money printing machine), Brad DeLong’s description of monetary circulation is a clear and simple rebuttal for anyone who might be nodding along to John Cochrane‘s recent paper, Fiscal Stimulus, Fiscal Inflation, or Fiscal Fallacies?

Actually, Brad DeLong’s post is worth reading if you have any interest in why stimulus works. To sum up, Cochrane argues that stimulus creates public debt that offsets private spending, but DeLong describes exactly how this flow will create the same amount of debt, but gets people that would otherwise be sitting around doing nothing to do something (the definition of recession basically being underutilized capacity).

What surprised me this morning was reading Krugman’s followup this morning. Not that he agrees with DeLong, but rather I hadn’t known that Eugene Fama (yes, the Fama-French Fama) apparently also voiced the same thoughts as Cochrane did.

Now, I’m not a business genius, so it puzzles me how Fama and Cochrane can believe what they’re saying when it’s so obviously (and easily proven) wrong, even to a layperson like myself (and even without Krugman’s mathy deconstruction).