Since no one else that I know of has said this, I will make my comment let the objections come in and then address them. I am by no means suggesting that this analogy is iron clad.

Lots of people think that if the government spends money hiring folks this will only crowd out other spending from the private sector and do nothing to bring down unemployment.

I would ask them: do you also believe that is true of Apple or Google or any other private firm?

If not, then why are they different? Lets discuss.

Well obviously Google and Apple are private firms. Government and private firms are not the same. However, that’s not enough.

Cardinals are not Robins, but they both lay eggs, fly and engage in other bird-like activities. Which is to say that we have to be explicit about how these two things are different and why that difference matters.

One guess might be the difference is that government must tax or borrow and this uses up real resources. Yet, in terms of resource tracking private firms are are also subject to an adding up constraint. This is different from value-add which I will get to.

The money to pay the workers has to come from somewhere. The money to buy the capital has to come from somewhere. Even if it comes out of Apple’s cash hoard that represents a decline in loanable funds. Ironically, much of it represents a decline in the demand for T-bills, which is basically the dual of the increase in the supply of T-bills that happens when the government borrows.

Why isn’t it the case that Apple or Google employing resources simply reduces the amount available to others. And if so, why do we think that would bring down the unemployment rate?

As a short way out I would suggest that at full employment we don’t believe that Apple or Google spending money would bring down the unemployment rate. We think they would, indeed, take away resources from other uses and we believe that in doing so they would bid up the price of those resources. That’s part of why we think full employment and wage increases go together.

What I think we believe – and this gets to the Cardinal/Robin thing – is that Google or Apple would only be able to do this if they were moving resources to better uses. That is, yes they are crowding out other types of economic activity but they are doing so in favor of a superior activities, types of activity that produce goods of greater social value.

Because the government faces no market test there is no assurance that when the government pulls resources out of society that it is doing it for purposes with greater social value. It could be doing it for “pork projects” or more generally it could just be making an honest mistake.  Policy makers really thought the universal combobulator was a good idea but they were wrong and since there is no market test, we will never know.

However, when we are away from full employment then it either seems that more spending on the part of private firms could not reduce unemployment or more spending by government could.

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