we wouldn't be suffering from unemployment... labor would be redeployed to new ventures
Yes, but redeployment takes time -- especially when everyone looks around and sees all their assumptions about what profits different activities will return are wrong, and need to be recalibrated. That research -- which happens tentatively, experimentally at first -- means some capital/labor sits on the sidelines while the necessary information is collected or created.
Redeploying labor immediately at the first things you can think of might keep people busy but can worsen the wealth destruction, if those activities wind up being of net zero or negative benefit. (By tying up workers on make-work, they could also slow the rediscovery and restaffing of valuable projects.)
Those who have lost their jobs don't necessarily have the right skills for the more economically productive jobs that hopefully get created. Also, they don't necessarily live in the right places.
Not to mention that many who are in the right place and could profitably use new people are not sure of that fact, so they lack the confidence to bring in as many new people as they might otherwise.
Which is why fiscal stimulus is temporary. It's necessary while the economy is at less than full employment, but once the economy starts picking up fiscal stimulus should drop off.
That's the cover story. But how much of the $819 billion in the stimulus bill is set to automatically expire in 2 years, or when the economy reaches certain growth targets? Roughly: none. A lot of the spending won't even get flowing until 2010 or 2011, when the economy may be recovering just fine on its own.
Yes, but redeployment takes time -- especially when everyone looks around and sees all their assumptions about what profits different activities will return are wrong, and need to be recalibrated. That research -- which happens tentatively, experimentally at first -- means some capital/labor sits on the sidelines while the necessary information is collected or created.
Redeploying labor immediately at the first things you can think of might keep people busy but can worsen the wealth destruction, if those activities wind up being of net zero or negative benefit. (By tying up workers on make-work, they could also slow the rediscovery and restaffing of valuable projects.)