“And why compare GDP numbers from the boom to the bust?”
GDP numbers have a lot of problems, especially when used as indicators of economic health, or of productivity of goods and services versus investment vehicles, but they are a decent measure of overall economic productivity. I don’t really understand why you think government spending shouldn’t count in GDP. It employs people and results in actual goods and services, which seems to be what we want GDP to measure.

“The boom was an artificial economy anyway, so everything was distorted.”
It was one of the least regulated economies since before the Roman empire, so if you call it artificial, then you’re calling everything artificial. Check out this timeline for the 1920s: http://www.huppi.com/kangaroo/Timeline.htm It demonstrates pretty clearly that deregulation was rampant and played a big role in creating the bubble.

“If you lost your job, wouldn’t you have to cut your expenses and rethink your spending strategies? Why does this thinking change when we talk about countries? Logically it makes no sense to me…”
The illogical part is where you assume that people and countries are equivalent.

“the other thing is that the economy is a very, very, very complex creature.”
And that is why it drives me nuts when people tell me that every problem with this very, very, very complex creature can be fixed through deregulation.

“I suppose you think a broken window is a good thing because it stimulates the economy.”
You suppose wrong. The fact that disaster relief feeds GDP as much a true productivity is one of my beefs with GDP.

“But on the other hand, if that window owner didn’t have to replace the window they could have spent the money on something else.”
I suggest reading about the velocity of money. This idea that if money isn’t spent on one thing, it will be spent on something else has popped up a couple times in our conversations, and it doesn’t make sense once you know a thing or two about velocity of money and how it affects economic activity.

Oh, and now she’s comparing GDP numbers, and you know my feelings on GDP! And why compare GDP numbers from the boom to the bust? The boom was an artificial economy anyway, so everything was distorted. The recession is when the world rebalances the imbalances that occurred during the boom. I don’t understand why Keynesians have such a problem with people increasing their savings during a recession. If you lost your job, wouldn’t you have to cut your expenses and rethink your spending strategies? Why does this thinking change when we talk about countries? Logically it makes no sense to me…

Yaacov, the other thing is that the economy is a very, very, very complex creature. Every transaction plays a role, and for every transaction that does occur, there are countless other transactions that could have occurred if it didn’t. I suppose you think a broken window is a good thing because it stimulates the economy. But logically this makes no sense, because something was destroyed. Sure the window owner now has to spend money to repair it, and the window maker now has more money to spend, etc, etc. But on the other hand, if that window owner didn’t have to replace the window they could have spent the money on something else. Destroying something is not productive for society. If that were the case we could employ half of society digging ditches, and the other half filling them in. Sometimes as economists we need to think about things logically and stop looking at the numbers.

“And as much as you say the Canadian economy is fairing better, well, we’re still waiting for the housing bubble to pop here.”
But we’re not expecting the housing bubble to have the knock on effects that wrecked the U.S. financial services sector.

“Let’s face it, the US money printing is affecting all of us too, as it is driving up the prices of everything, no matter what currency you use.”
Absolutely. They need to stop printing money and instead finance their activities via reductions in military spending and increases in high bracket taxes.

I’m happy to hear you are against money printing. I was wondering how you felt about central banks.

And as much as you say the Canadian economy is fairing better, well, we’re still waiting for the housing bubble to pop here. Let’s face it, the US money printing is affecting all of us too, as it is driving up the prices of everything, no matter what currency you use.

Yeah, I agree that the U.S. economy is doing poorly on the basis of the combination of those indicators. The Canadian economy is doing somewhat better, though certainly not well on the employment numbers.

Historically though, government spending has pulled recession economies back on track on the basis of all four of those indicators. So the general principle of government spending as a method of reanimating economies does hold.

In the current case, one big problem is that “quantitative easing” in the U.S. is essentially printing money. So it’s unsurprising that their economy is not recovering well. If they paid for stimulus by raising high bracket taxes instead, they’d be in a much better situation.

Well, government spending is still increasing, and the central banks are still printing money, so I wouldn’t say they’re still not the main factor in GDP growth.

I don’t think I understand the background of the second link well enough to see how it is an argument that savings will increase economic activity during recessions. I get that he’s saying the arguments against Austrian school are unfounded because they don’t differentiate consumer goods from capital goods, but I’m missing the savings-recession connection.

“Again, why do you refer to GDP numbers?” Because they are the best proxy I’m aware of for the level of economic activity. Remember that GDP dropped significantly during the government actions to prop up the economy, but with the stimulus spending largely finished, we are now seeing continued GDP growth. As a result, it’s unlikely that government spending continues to be the main factor in that growth. Do you have a different indicator of economic activitiy that you think is more accurate?