Also, replying to his points (I can't believe anyone would spend money on a book by this guy who clearly doesn't understand key fundamentals within economics).
Surely the project will draw on engineers, construction foremen, and other skilled workers, who were still gainfully employed even amidst the recession, and who therefore will not be able to work on as many private-sector projects as they otherwise would have.
In this case, the government projects will serve to raise the wage level of these occupations, increasing disposable income and thus aggregrate demand. That is the intended purpose.
But even if we conceded that the government could spend money in a way that only involved unemployed resources...'
Again he misses the point. It is to stimulate demand as I outlined above.
In short, people in the private sector made decisions as if there were far more real resources at their disposal to "fund" the projects to completion. When reality set in...
What is 'reality'? He says this as if there is some baseline level of capacity (supply) in the economy that is 'reality', the rest froth. Again, this is wrong. There is no concrete level of supply or demand that is right or wrong. Last I checked, there are billions (most) of people who live in abject poverty. I'm sure all of this extra supply could be increasing their quality of living. The whole point of 'economic prosperity' is to raise everyone's standard of living, ensuring they can eat, have work, and advance society. The Austrians are fixated on some arbitrary definition of too much and too little, and dictate policy that way.
Once people in the private sector realized they had made horrible decisions during the boom years, they needed to stop business as usual and figure out how to make the best of a bad situation...
In practice, the people in a market economy solve this fantastically complex problem by making profit-and-loss calculations, which in turn rely on market prices. For example, it is clear that a former Wall Street quant isn't doing anybody a service by cranking out models that give mortgage-backed securities a gold star for safety. But what should this PhD do now? Should he go into academia and teach thermodynamics (which may very well have been the subject of his dissertation)? Or is his impressive education really a complete waste, and he would â at this point, given the economic realities â provide the most service by working the register at Wal-Mart?"
I hate to say it, but this guy makes a great case that free market economies are great at sending false signals that cause copius amounts of malinvestment. He isn't far from implicitly suggesting central planning (done properly) may lead to great economic efficiency. Read in between the lines!
The restaurant owner isn't going to make a long-term investment based on the business of bridge workers, since they will be out of work once the bridge is finished.
He doesn't take into account the multiplier effect of investment. When the bridge is finished, new things are able to be accomplished that were not before. Better example: US railroads and US roads infrastructure projects. Before they existed, it was much more expensive to transport goods. Now with lower transportation costs and movement of goods actually being possible, money put into the pockets of the bridge and road builders can be used entreprenuerally(sp) to start profitable businesses. Furthermore, the bridge builders have money they wouldn't have had otherwise to spend in other areas of the economy. That is a simplistic explanation, but gets the idea across of why government investment can be productive and necessary.
