Government spending is not stimulative, because the inflation (or taxation if it is paid for that way) is detrimental to economic growth, as you have pointed ou

Government spending is not stimulative, because the inflation (or taxation if it is paid for that way) is detrimental to economic growth, as you have pointed out. The fear of deflation, however, is misguided and I think founded on a deception. I'm not sure the deception is intentional or not.... but politicians certainly benefit from it because it allows them to get away with more inflation. Deflation can happen in two ways. The first way is that there simply are no customers out there and so businesses start lowering prices desperately to cut inventory because of inventory carrying cost. In this age of just in time manufacturing, there is less of a risk of this... This is a bad situation and we can call it desperate deflation. But this kind of deflation is due to a serious structural problem in the economy, and it is not solved by monetary inflation. Keynes believed it could be, helped with short periods of monetary inflation, but nobody is actually following keynes prescription (Which calls for the government not running deficits and for the inflation to be absorbed when good times come back, which is effectively monetary deflation in good times.) Anyway, this "Bad deflation" is very rare, and is a symptom of another problem. The other form of deflation is the increasing purchasing power of money. This can happen in a robust economy, in fact it often happens in a robust economy. Imagine a country on the gold standard. The economy is growing well, but gold is coming out of the ground slowly (which it always does) so monetary inflation is low, while GDP growth is high. This means each year a given amount of gold will buy more stuff. Businesses make more profits, even as they lower prices, consumers can buy more for a given amount of gold, and the economy continues to grow, in large part because prices are going down. This is a good thing, and in fact this is the natural state of affairs in a free market, because productivity increases are always being created and technological advances are always being discovered, which means every decade the efficiency of the economy should be going up creating an increase in purchasing power. Governments, on the other hand, operate by promising programs to people in exchange for getting power. These programs are often not well managed because they are not subject to market forces. Further, since government has turnover of less than a decade, there are constantly new faces who want to make a name for themselves with new programs. Goernment thus has a strong incentive to inflate (because taxation is politically dangerous) to pay for these ever increasing new programs (they can't cut old programs because that's as politically dangerous as taxation.) Thus the governments spokesmodels (like Paul Krugman) are always pushing the idea that inflation is good and deflation is dangerous. Though it isn't difficult to see why the opposite is true.