First off, I have no objection to deficit spending if it helps save or restore jobs that would otherwise be lost.
The problem is mal-investments. By bailing out companies and industries that should otherwise fail, you are artificially propping up failure. Allowing companies to fail cleanses the economic system of mal-invenstments which are then replaced by more efficient and productive investments.
For a real world example, consider the massive success that VHS tapes had when they were first introduced. It gave rise to video rental giants like Blockbuster and Hollywood video.
As technology progressed, the VHS was replaced by DVD's and these companies managed to stay with the times and remained in business. Once the internet became fast enough, and computers powerful enough, for streaming video to become popular, new rental giants like Netflix, who revolutionized the industry by doing mail order DVD's and streaming online movies.
The dinosaur brick and mortar stores that used to employ people for video rental went out of business and those people are now employed somewhere else. Had government stepped in with bailouts and deficit spending to save those jobs, it would not have turned around the brick and mortar video rental industry, it would have only prolonged the inevitable closings at a massive cost to the taxpayer.
The biggest problem with propping up failed industries with government money is the fact that they will fail the moment that money is removed. That makes for a political third rail because the politician who concerns himself with the deficit spending, is praised by his side for wanting to end the deficit spending but attacked by his opponents for knowingly putting people out of work as a result of his actions.
His opponent, who wants to continue deficit spending to prop up a failure, is praised by his side for wanting to save jobs and attacked by the opposition for continuing the deficit spending.
Such circumstances make ending expensive government policies very difficult politically and more painful than if government had allowed nature to run its course without literally wasting all those precious funds.
*EDIT*
You might be interested in watching a short 7 min music video on my blog called
fear the boom and bust, it is a lesson on the two competing economic theories. It is very educational, well made and incredibly accurate. It is not slanted on way or the other, the makers wanted to make it as fair as possible to the theories of both men and by all accounts, they accomplished that while still managing to make learning economic basics enjoyable.
