Professor Cochrane writes "Every job created by stimulus spending is one job not created by the private spending it must displace."
But he is wrong to claim that crowding out has to be one for one. Again look at WWII -- yes GDP went up less than government spending, but it still went up. The adverse wealth effect of taxes is one mechanism by which it can happen. An intertemporal substitution effect is another.
Of course, the fact that public spending can increase GDP does not make it desirable! But let's get the positive analysis right.
Professor Cochrane writes "The only thing that matters is new debt, not who takes the hit for old bad debt"
It DOES matter who takes the hit for old debt: if the hit taken is a function of income, then debtors have little (in some cases, zero) incentive to work. I have noted this several times as relates to "mortgage modification" and tax debt forgiveness.
Also note that construction spending (including nonresidential) is higher in Q4 than it was in Q3. How does this happen if savings-investment intermediation is so terribly broken as Cochrane says?