The issue is that it's claiming to be a reductio ad absurdum -- paying people to do useless things is an improvement, therefore paying them to do something is useful is even better than that.
But the first claim only holds under conditions of high unemployment, and if it doesn't hold then it doesn't prove the second one. Paying people to do "something useful" is better than having them not get paid and not do anything useful, but that doesn't prove that it's better than what they would be doing in the alternative, which could be getting paid the same to do something even better.
Proving that your something is better than nothing doesn't get you out of proving that it's better than the status quo, unless the status quo is people doing nothing. And even then it's only if people are actually doing nothing, not just not having a job and using them time to learn a new skill or start a business that doesn't produce revenue yet or do volunteer work etc.
> The reality is that politically there are only two acceptable ways to spend money. Either you spend the money with an expectation of profit (Investing) or you spend it with the expectation of losing it entirely (Welfare).
The only thing governments should spend money on is in the category of welfare. Having roads or subways paid for with taxes and not fares is "welfare" because it's not profitable. But "welfare" can increase efficiency because the existence of transportation benefits everyone (even indirect users), and the expense is dominated by fixed costs which makes charging usage fees inefficiently discourage use of a resource that has been paid for regardless, and fare collection itself is a major cost center that can be eliminated when they're funded through taxes.
If something is profitable then you don't need the government to do it because private companies will do it anyway. The only way out of that is to start classifying welfare as investment when its positive externalities exceed its costs. But by that point the only categories you're left with is "profit" and "waste", because welfare programs that cost more than the benefits they produce shouldn't exist either.
> Once the government uses that money to subsidize a money losing state owned company, private interests will raise their voice and heavily criticize the unfair competition and use it as an excuse for layoffs or pay cuts.
If your town wanted to install municipal fiber, Comcast would whinge about it so hard you could hear it from space, which is the primary reason it hasn't already happened in most places. But just because hiring people to build a fiber network would be productive and we can't do that as a result of lobbying, doesn't prove that hiring people to do some less useful thing would also be productive.
If you think there was a false dichotomy then you never understood Keynesian gold digging. Just read Keynes' quote:
>If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again… the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.
The emphasis should be on the last sentence. Do you really think nobody thought of something as simple as "pay them to do something useful"? The reality is that politically there are only two acceptable ways to spend money. Either you spend the money with an expectation of profit (Investing) or you spend it with the expectation of losing it entirely (Welfare). Once the government uses that money to subsidize a money losing state owned company, private interests will raise their voice and heavily criticize the unfair competition and use it as an excuse for layoffs or pay cuts. Again, just read Keynes' quote
>It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly 'wasteful' forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict 'business' principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions."
Gold digging has always been about finding a solution that people will vote for. It has never been about the most efficient way of restarting an economy.