Capitalist economics doesn't work like that. Money that consumers don't spend doesn't contribute to GDP, but money they do spend does, and GDP is the magic number (remember, we're all happier when the numbers go up).

This highlights why OSS won't be a pillar of Obama's spending spree. Microsoft sell software made by developers they pay and these developers then spend their pay on other software (say). This moves money round the economy continuously and makes the GDP look great. Paying a developer to create a free piece of software is effectively a one off payment and doesn't contribute to GDP much (it mainly increases coffee consumption), in fact all it does really is inflate government spending/borrowing.

What about highway spending? If the government pays people to build highways does this money disappear? Do all the roads paid for by government need to be toll roads so we can employ toll collectors othewise no jobs are created and no GDP growth takes place?

No, companies are contracted, workers are hired, people are paid, infrastructure gets built enabling other companies to more easily and efficiently provide goods and services.

Likewise, this proposal says: pay people to produce free software. People are paid, a pool of talent and experience is built up. Businesses get software that will enable them to provide goods and services more cheaply and efficintly. At the end of the program we will have experienced programmers who may go on to create their own businesses, rather than unemployed road contstruction workers. There will also be an aftermarket for services of installing and maintaining this software.

This is an infrastructure program.

The downsides are to companies like Microsoft that sell boxed software but no services. They would be the only ones hurt by this program. All others would benefit.