Jon Chait defends waste in the stimulus package
Read him here, commentary from Matt Yglesias. I know all about Keynesian ditch-digging but we should keep a few points in mind:
1. Some of these expenditures will end up being permanent or at least long-term.
2. Government expenditure does increase monetary velocity in a way that boosts aggregate nominal demand. But these higher velocity effects may not last for more than a single round of spending, which is to say they won't last long at all.
3. The second- and third-round stimulative effects of productive investments are much greater. Production begets further production through the complementarity of the capital structure and through its ability to create profitable, sustainable jobs.
4. A lot of the stimulus will shift people from one job to another, rather than simply employing the current unemployed. We really don't want to take people from producing something useful to producing something wasteful.
5. Many on the left are boasting that the U.S. government could borrow lots more (look at the current T-Bill rate), forgetting they used to warn us that international capital flows, as amplified through noise traders and speculators, mean that crises can arrive in a single, whiplash moment, bringing countries from riches to rags virtually overnight. Somehow those old narratives are being forgotten, I wonder why.