No economists believe that ridiculous straw man nor is it relevant to this article.
http://www.huffingtonpost.com/2011/08/15/paul-krugman-fake-a...
At that point somebody has to pay for that malinvestment through reduced future consumption. Make work projects are not a free lunch. They work by pulling demand from the future into the present via issuance of new debt.
How those costs are allocated in the future are delicate social issues with entrenched interests. In many cases these make work projects are themselves politically palatable ways to socialize losses by transferring bad debt from private balance sheets (households and corporations) to public balance sheets (government).
It could be argued that all economic cycles can be explained through malinvestment and then working through allocating losses.
My concern is that with activist central banks and fiscal policies that prefer to kick the day of reckoning into the future we have created a situation where allocating losses may lead to significant social and military confrontation (i.e. Revolutions and war).
All because a guy who actually didn't study economics waved away the long term structural issues by stating 'in the long run, we are all dead'
"If you take an economics course, they’ll teach you, correctly, that if the government spends n dollars to stimulate the economy, it doesn’t really matter what it’s spent on: they can build jet planes, they can bury it in the sand and get people to dig for it, they can build roads and houses, they can do all sorts of things—in terms of stimulating the economy, the economic effects are not all that different.² In fact, it’s perfectly likely that military spending is actually a less efficient stimulus than social spending, for all kinds of reasons. But the problem is, spending for civilian purposes has negative side effects. For one thing, it interferes with managerial prerogatives. The money that’s funneled through the Pentagon system is just a straight gift to the corporate manager, it’s like saying, “I’ll buy anything you produce, and I’ll pay for the research and development, and if you can make any profits, fine.” From the point of view of the corporate manager, that’s optimal. But if the government started producing anything that business might be able to sell directly to the commercial market, then it would be interfering with corporate profit-making. Production of waste—of expensive, useless machinery—is not an interference: nobody else is going to produce B-2 bombers, right? So that’s one point."
— Noam Chomsky, "Understanding Power"
But, probably not. Even "social spending" opens up lots of procurement opportunities for the corporate manager. There might be some crowding out in real terms (government having political authority to exclude activity it deems to be an interference), but it'll be offset by the likely benefits of ensuing expansion, corporate welfare grants and workforce mobilization.
The problem with Chomsky here and many others is that they have the causality backwards. They see corporations as evil entities that spontaneously emerged from the ground to usurp the state, when in fact they were explicitly cultivated by states looking for economic growth.
This is the problem in an HN culture where commenters don't support claims with cites. Chomsky frequently explains that corporations are creations of the state, and they share the same interests to a first approximation. You can find it in the book I referenced, or google for sources.
This comment seems to paint him as a liberal who favors the state (blaming everything on corporations), when of course he's an anarchist who sees both state & its corporate creations as illegitimate top-down power structures.
I know full well he isn't a liberal and never implied that he's one (in the modern Galbraith sense). Nonetheless, most analyses by the revolutionary left are definitely slanted towards a picture of painting the issue as being primarily one of corporate hegemony.
they’ll teach you, correctly, that if the government
spends n dollars to stimulate the economy, it doesn’t
really matter what it’s spent on
What you wrote is correct, the flaw is you put in the word 'useful'.
If it were just about bridges and railways, it wouldn't be so bad. But lately economic stimulus is used as the fig leaf for all types of whole scale wealth destruction like cash for clunkers, amongst countless other examples.
Where I live billions and billions was spent on water infrastructure. No actual improvements in supply were made- no additional catchments were built, because dams == bad. The money was spent in pipelines and a desalination plant that has never - and I mean never - been switched on. It's 5 years old and has never output water, because the cost is too high compared to dam water.
Now I have a 400% increase in water bills but no actual improvement in what I get. That money goes to paying the interest and running costs for that investment. That money goes out of my local economy. That, in aggregate, prevents and extra shop from opening, or causes an existing one to close. Most businesses run in thin margins and diverting cash away on pointless make work lingers long after the supposed boost happens.
Besides, it's not economists that matter here. It's talking heads who provide cover for politicians to create massive amounts of malinvestmemt of scarce resources, diverting from possible productive investments and leaving behind the interest payments as a drag on future investment.