In fact, the true cost of government programs, especially public investment, is much lower now than in more prosperous times. When the economy is booming, public investment competes with the private sector for scarce resources — for skilled construction workers, for capital. But right now many of the workers employed on infrastructure projects would otherwise be unemployed, and the money borrowed to pay for these projects would otherwise sit idle.
But how do we know it would otherwise sit idle next week? We don’t. It is precisely the deflationary correction that means that the labor will not sit idle. Investors will see in the labor, and in other under-utilized resources, an opportunity for investment.
But that won’t happen, at least not as soon or as widely, if the government uses debt or taxes to keep these resources scarce. But Krugman acts like there is no relationship in time. We simply now live in a world where there is less private spending. Someday we’ll suddenly be in the world of more private spending. But in the meantime, we are able to know everything there is to know about the economy by what we see now. And if we see a lack in private investment than we can simply fill in the gap without giving a thought to what we are doing to the possibility of ever seeing private investment recover.
Of course, a lot more could be said about the problems with Krugman. For example:
It’s true that the economy is currently shrinking. But that’s the result of a slump in private spending. It makes no sense to add to the problem by cutting public spending, too.
But public spending comes from private incomes. The government has to borrow or take money from the private sector. Unless it simply utilizes the counterfeiting option. Acting like “public spending” comes from some other different source is simply wrong.
A government-caused recession is about to be turned into a serious government-caused depression at taxpayer expense.