To follow up on the post from Saturday, here’s a column by John Lott, which makes the very sensible point that shifting resources from the productive sector of the economy to the government necessarily will cause dislocation in the short run. There also would be inefficiency in the long run, but that’s a separate issue:
…the stimulus created higher unemployment. In fact, my columns in this space predicted that during at the beginning of February 2009 that would be the case. Moving around a trillion dollars from areas where people would have spent it to areas where the government wants to spend it will move a lot of jobs away from those firms that are losing the money to those who are now favored by the government. Since people won’t instantly move from one job to another, there will be a temporary increase in unemployment.
Playing Devil’s Advocate here.
The Keynesian response to this is that: sure, during a period of full employment govt is likely to cause disruption through crowding out of the more productive private sector. But this is a recession, resources (including workers) are idle, they are not employed in the private sector, they are unemployed. So diverting these resources from idleness to the govt sector is a net positive outcome.
Your response?