It's easy enough to dispense with this by simply mentioning public goods,
i.e. goods with high social value that, because of market failure, will not be produced without government
intervention. Producing these goods is just the opposite of "throwing towels on the floor," and the net benefits from these projects are particularly high now since input costs have fallen so much as the economy has weakened. There are other easy counterarguments as well, but rather than rehashing those, I want to play the window game.
Suppose there is an economy that is humming along at full employment. Then, all of a sudden, out of nowhere, a giant, extremely rare windstorm - it's like nothing anyone can remember - comes along
and blows out many of the windows in town's homes and businesses. The windows are broken.
This is
unfortunate. The town specializes in delicate goods that cannot be exposed to
the weather, and when the windows were broken and the weather rushed in all of the inventory, or much of
it anyway, was destroyed. In addition, since all of the town's wealth was
invested in the inventory, and then some (i.e. they had borrowed to finance some
of the inventory), the people of the town lost both their wealth and their
ability to borrow from residents of other towns.
So they are wiped out. With all of their wealth gone and no way to borrow, there
is no way to rebuild the town and go on as before. Most people are struggling
just to get by each day, they don't have time to repair the windows, let
alone the resources to finance the repairs and then restock the shelves.
Or maybe there is a way. Suppose the government steps in and hires people to
replace the broken windows, and then makes loans as needed (or makes loan guarantees, with an appropriate allowance for risk, or even outright grants in some cases)
to recapitalize the businesses and cover the cost of the repairs. That way, the business owners can purchase new inventory and go
on as before (well, not exactly as before, one condition of the government loan
is that windows of a certain strength are installed, by regulation if necessary,
so that the government financed inventory is safe from another disaster).
Thus, instead of destroying wealth, the government is essential in creating
it. After the economy-wide window disaster, the government ignores the advice to turn its back in a time of need, and instead steps in and provides the help
that is needed to get the economy up and running again. Because of the government action, the economy is revived, and
they all live happily ever after.
