I feel that this bites into the old Keynesian broken window paradox: Breaking all the windows in a neighborhood would generate economic demand and make everyone better off in the long run. This is also the same concept as the "Modest Proposal to Boost the US GDP by $852 Quadrillion By Building a Death Star". Both concepts are intuitively unrealistic because they force individuals to take away capital from productive projects to those less desirable projects. Replacing windows would require homeowners to take away money from repairing their houses. Building a Death Star would require the US to take money away from repairing our crumbling infrastructure. Economic demand can't be artificially created.
All of that paragraph is absolutely correct except for that last line, which is absolutely wrong. Economic demand is being "artificially created" every single minute, it's what humans do every single day of their lives. There is something metaphysically suspect in this very word "artificially", and I know where it comes from, it comes from the idea that the "private" investment is "natural", while the "public", governmental investment is "artificial". The public investment is "unnatural" then, a degeneracy, a kind of a corrupted beast that is destroying the paradisiacal and naturally correct private economy. This kind of sleazy language do your ideas no good, because in principle I really agree with what you began saying.
Destroying windows in order to "create an economy of rebuilding them" is indeed irrational, and while Krugman is well known for his flamboyant ridiculous over-the-top examples (convince humans about aliens something something so we can kickstart an economy, etc.), the point that is being missed is not about the waste of the whole exercise (which is obvious and therefore we gain nothing by saying it as if it's a finding), but about the unexpected surplus that comes with that exercise. That is, such "destroying windows to rebuild them" will indeed "artificially create" an economy. It will just completely fail, as you correctly put it afterwards, to be a better substitute than the
pre-existing economy, the "GDP" will actually drop if you do this and the whole population will be worse off, for instead of building tvs and computers and all sorts of things we also need, now we need to waste time rebuilding windows.
Now here's the main rub, the main reason why I utterly disagree with you:
If anything, the militarized economy of the GTVA would have taken away resources from productive civilian purposes. I imagine that the tax rate would be almost confiscatory, and economic mobility would be impossible. There would be a huge gap in quality and life expectancy between those on the Board of Directors of Morgan Technologies and those that work in its manufacturing department. Not to mention that military spending is inherently inflationary. A good example might be Japan of late-WW II with significant shortages, inflation, and currency devaluation.
Why is this wrong? Well, because a Depression, and a big one to boost, I mean, it's not only written as such in the canon, it is also quite the expected result from having a whole system wiped out, millions of businesses destroyed, whole swaths of debt unpaid, huge fallout in every other system, is a very different beast than a functioning economy. The main difference is, there is a huge gap between productive capacity and actual aggregate demand. Demand has dropped sharply. Factories and whole companies are without customers. Investors and entrepeneurs have nothing to do because all of their markets are falling through a black hole of nothingness. Unemployment goes through the roof, behaving like a huge feedback to the decreased lack of demand, destroying even a bigger part of it. Empty factories everywhere, machines resting doing nothing, people at home sitting quietly waiting for the economy to go back up so they can get a new job.
So when you say "taken away resources from productive civilian purposes", you are still thinking in terms of a functioning normal economy, when the one we have in our hands is anything but. Huge keynesian projects do function exactly like a kickstart to an economy precisely because they put all of these unused resources (and work time of an unemployed population is a *huge* resource being wasted in a depression, for example, let alone all the productive capacity being unused) to work, and by doing so, they recreate demand. Another aspect of depressions is the amazingly low rates of borrowing that exist. It's easy to see why: lone investors are shy of investing anything in a depressed economy, and thus demand of debt is at record low. There is just no better time for a government to borrow debt and start investing, for the private economy just doesn't kickstart itself. Once the economy is going (reaching something relatively close to "full employment", etc.), then I absolutely agree with you, the government should lay back and stop investing in keynesian projects (mainly for Hayekian reasons). The problem we have is that at this point,
it rarely does so, and we end up with a huge government filled with pet projects and industrial complexes and so on and so on.
Another point: I don't agree with your japanese analogy. Japan was losing a war, fast. Every part of the economy was being funneled in an emergency state to the war. They were losing territory and income. Look instead to the US. They invested much more than Japan and there was a giant boost to their economy, which proved not to be a bubble because they inherited a bright future for themselves: to be the predominant economy of the world.
And another final point: Instead of "broken windows", think about Bridges. The Solgate is a bridge. Bridges are public investments, and they are definitely great investments. This particular Solgate investment would bring about the access to a system that has an incredible wealthy market, incredible new technologies and an amazing morality boost to a sharp demand of such in the Colonies. If I were a Tev, I would be a huge apologist of this project.