There's a meaningful stimulus and multiplier effect to be found when people who pretty much have to spend every single dollar they get to stay afloat get a few more dollars to spend.
I'm at a point where if I got a small increase in marginal revenue, it wouldn't really change my spending. I remember a time, however, when a .25/hour increase made a meaningful impact on what I could purchase.
Specifically: The authors examine 23 years of household spending data and find that for every dollar increase for a minimum wage worker results in $2,800 in new consumer spending by his or her household over the following year
So what's the overall stimulus effect on the economy? Unclear. It appears as if the second study on the page you linked to might try to address it, though it looks to me like more of an advocacy paper than an impartial study. That's just from a quick glance though. I will try to read further.
My overall impression of the minimum wage debate is that it has a very high ratio emotion :: impact. Whatever overall effects it has on the economy appear to be quite small (almost within the noise), and yet it always generates a lot of intense argument. There's lots of signaling going on here I think.
I've read a lot of the econ literature in this area, and have never seen a defense of the minimum wage on the basis of multiplier effects. Too few people are working at the minimum wage. And, the minimum wage is too blunt of a instrument to try to counteract business cycles.
The only advantage consumption has is that its easier for a politician to point to.
And there is no proof that consumption gets us out of a recession faster. It is an unproven assertion. Where is the double blind study?
And, yes, if government is going to use force on citizens to implement a theory, some proof is required. Especially if that theory selectively avoids effects that don't fit the goal of expanding government.
Dollars aren't resources. The resources exist and can be invested in different ways regardless of how many dollars there are.
When there is a bubble collapse, like the collapse of housing bubble, demand for the thing that is being overproduced collapses. That has to happen in order for the economy to get back to producing things people value and are willing to buy with their own money.
That collapse is a catastrophe for investors and workers invested in the bubble, but the other industries now can get all their raw inputs for less and can now grow.
Keynesians look at the collapsed industries as if they are the only source of growth for the economy. But those unviable industries have actually been diverting resources away from viable ones. The collapse of the artificial bubble is a much needed correction.
They do when they come out of the mattress. Hoarding money means playing a zero-sum game: "This won't circulate, so the currency won't inflate, but whenever I want, I can selectively release such huge injections of cash as to buy whatever I want at whatever price it's going for."
The amount of resources in the world available for either consumption or investment (future consumption) don't change when a bubble is collapsing. Resources are just more likely to be used to grow sound businesses. And that creates more resources and good jobs in the future.
Consumers curtail their consumption because they are no longer fooled into thinking that their wages and asset rices will be rising fast. They stop loading up on debt. They aren't bidding up prices and the factors of production are cheaper as a result, helping expand businesses that do make sense.