If we increase the supply of money in the economy, you will see a temporary increase in the amount of overall economic activity. However, you must realize that this is a bubble.
Thinking in terms of "bubbles" misunderstands the nature of the problem, in my view. The psychological dynamics of capitalism favor instability, and from what I've heard (the economists I look up to/ read), the greatest statement of this is the Minsky Instability Hypothesis. This formerly obscure hypothesis is the foundational work on whose basis Steve Keen has created his critique of neoclassical/neoliberal economics (the dominant school of economic thinking for the last 50 years).
The business cycle (aka bubbles, but really we mean 'downturns') is always going to be with us. It can, and I believe should, be ameliorated by stimulus programs, which is also one of the cornerstone beliefs of Keynesian economics. Its thought that the main reason for the divergent economic paths of America and Europe after the crisis of 2008 (where America's trajectory could roughly be categorized into "half decent, still more unequal recovery with an overall downward trend" and Europe's trajectory could be categorized as "screaming peripheral recession/depression, debt-crisis, political uprising and anemic growth, the first complete sacrifice of a nation (Greece) on the altar of economics") - the main difference was that America pursued "inadvertant Keynesianism" whereas Europe pursued a policy of capital-A Austerity. This has had terrible consequences and I mention it because some of your thinking seems to dovetail with the Austrian school of thought, which implicitly believes that what it calls 'market discipline' is a salutary force. Policies following this line of thinking have traditionally exacerbated the downside of the economic cycle, and not lead to the growth which Austrians typically promise. One particularly egregious example is when an Austrian-aligned consensus has led to depth-repayment, e.g. minimizing the government Debt (which in my view is not debt), e.g. reducing a meaningless number, but this has had very real economic consequences. Just thinking about why clearly reveals it: The government's deficit is the private sector's surplus, and it follows that the government's surplus is the private sector's deficit.
Literally a large part of the entire modern conundrum of economics can be resolved by staring at this single graph and meditating for long enough on its meaning: the graph of graphs. The only money that exists is what the government (and banks, but that is more complicated, and has to be repayed with other money) creates. Knowing that, do you want them to create 3 trillion this year, or do you want them to create $100 ? Possibly in order to put the Austrian/Keynesian debate to rest? It would be very quickly solved, I believe.
That's why politicians and policy makers, who generally follow a blind consensus in a blind and groping way (which is far, FAR better than following a principled stance when their foundational principles are wrong: see Schaeuble's example of Germany's treatment of Greece, horrific), these groping politicians end up naturally evolving to a form of outwardly reticent Keynesianism. They understand (some of them do) that everything stalls to a standstill when they remove the lubricant from the engine (stop money issuance/creation), but they act outwardly like prudes and like Austrians, to prevent stoking the fans of our national consciousness, which is literally completely wrong in terms of economics.
Its because the mass mind views economics as a morality tale of single households and prudence. That's fine for microeconomics, but once you enter the macro world, you need a currency issuer who behaves precisely opposite to that: a very spendthrift currency issuer.
This is also a side tangent, but there are very real issues with Austrian economics and libertarianism in general as a school of thought that ends up circuitously advocating fascism and market fascism. The authoritarianism and market authoritarianism that is allowed in many of their arguments have caused people to suspect that there is a subconscious pull towards elitism and its resulting enshrinement of fascist figures, e.g. Rand's beloved heroes. This can seem upon first glance to be the least substantiated of what I've said so far, but after years of observing people commenting on the internet I feel confident in saying that Michael Hudson's characterization of the Austrian school as 'proto-fascist' is actually accurate. I believe adherents to these schools of thinking have failed to acquire the spiritual perspective which cements the belief in universal ideals / universal values, and instead they believe that entrepreneur-like savior figures or Titans can somehow redeem the human race from the pool of contempt which elitist/authoritarian thinking takes as its default position on Man.
Now back to what you are saying..
The bubble sows the seeds of it's own collapse, and the cost of housing plummets while construction companies go under.
You are sketching out one macroeconomic scenario based on a microeconomic example, and it is plausible that that could happen. But I think there is generally good data of how well economies fair under what types of fiscal policy, as evidenced by the historical evidence of wartime I alluded to earlier, Thayer's description of the impact of public debt repayment, and the graph above by Kelton. We don't have to reason from individual examples, which can be confusing or illuminating. Taking money out of the economy, or failing to supply it, is bad for the economy. At some point, when we reach max capacity, there are bidding wars which cause inflation. That is however at a point at which we've already achieved optimal money issuance, so it is a good place to be. This is different than hyperinflations in places like Zimbabwe or Weimar or Venezuela, which are not monetary events (e.g. there causes do not lie in the increase in the money supply, but rather in the collapse of industrial sectors / war / political instability / resource constraints). Here is a Cato institute paper which demonstrates this.
In other words, malinvestments wreck the economy.
I disagree. I think lack of investment causes economic stagnation. Public investment does not have to succeed and get a return on investment, so malinvestment is an acceptable outcome in the public sphere. The Austrian thought leaders who concoct these explanations have never run economies nor do they have examples of what Austrian economics does when implemented, unless they look to Europe's experiment with Austerity, which went horrifically wrong.
the amount of wealth generated by McDonalds in the form of hamburgers and french fries is decreased.
But whatever the person chooses to do with their free time represents another form of wealth, and one that I feel will be increasingly more interesting to everyone than the burger-flipping kind of wealth, which honestly is not a form of wealth at all. That entire institution is an unhealthy, economic vampire, that should not be supported simply because its viable. McDonalds continuing to thrive would signal for me the failure of our system to transition to something more meaningful. I put Nike sweatshop labor in the same camp. These are abominations of 20th century culture and economic conditions that should be constrained to the past.
Throwing off the facade of economic jargon for a moment: is your vision for humanity really constrained to keeping McDonalds in business into the 21t century?
