It stimulates the economy. Question is, in what way?
It doesn’t generate capital.
It saves some jobs that were to be cut from spending cuts. It generates product demand, which creates the need for labor and other suppliers. It “borrows” that from the overall economy and the future.
Although the main reason for doing it should be that it’s worthy, that doesn’t mean it has no effect on stimulating part of the economy with corresponding dampening elsewhere.
“It stimulates the economy. Question is, in what way?
It doesn’t generate capital.”
If it fails to do that it is not a stimulus. The only true stimulus are those things that help generate capital, savings and investment. The Reisman article posted on FR yesterday has a good Austrian-school take on why this is the way out of recessions (because recessions are due to collapse in available savings ... its another way of looking at the ‘credit crunch’).
“It saves some jobs that were to be cut from spending cuts. It generates product demand, which creates the need for labor and other suppliers. It “borrows” that from the overall economy and the future.”
Correct, and the Keynesian error is to not subtract that ‘rational expectations loss’ of that borrowing from the gain you get. You do that, and the net benefit is ZERO. Actually negative, since you retard about $2 in economic activity for each $1 you raise in taxes, when you have rates at 35% or higher. The only way to get better than ZERO is if the govt project is SO VALUABLE to society, it beats out keeping the money in private sector hands and the costs in taxes and borrowing on the economy. (A threshold that Govt rarely meets, which is why 80-90% of Govt spending hurts the economy.)
“Although the main reason for doing it should be that it’s worthy, that doesn’t mean it has no effect on stimulating part of the economy with corresponding dampening elsewhere.”
Yes to the ‘dampening elsewhere’. The net effect is ZERO on the economic activity, which to normal people would mean ‘not a stimulus’. Hence, the ONLY real reason to justify this or any govt spending is that the expense is ‘worthy’ enough to displace priavte sector spending. The stupidest Keynesian idea is the idea that paying people to do something is a useful end in itself. Its not. Only the creation of wealth is useful. Economic activity that doesnt create true wealth is a waste of economic resources and thus causes poverty. Bubble economies have their type of waste - mal-investment. And socialist economies have a different kind of waste - govt spending on non-wealth creation.
Obama just sent up a $3.5 trillion budget. If you are Keynesian, you think this will make the economy boom. If you are a realist, you will have the same reaction asthe stock market: Doom and gloom over his attack on wealth-creation and prosperity by diverting valuable savings and wealth into non-wealth-creating govt spending sprees.