Nobody denies that this happens, we disagree why it happens. Demand drops because production has dropped and we dont believe that government is best at directing investment back to the places it needs to go because it is often the case that government has inadvertently directed it away precisely from where the demand was previously coming from.

Hard to say it better than this:

Why Your Grandfather's Economics Was Better Than Yours

But this is a pretty broad theory that ignores the differences in certain situations. The gov't does not need to be capable of determining which hi-tech industry or new production method to invest in (although our gov't does seem to want to make these determinations). The idea is feeding the demand side of the equation by providing payments to people who have lost a lot of money or their jobs and have not enough money to purchase food, clothing, and so forth. Will some malinvestment occur? Sure, it always does. But there's a world of difference between funneling billions of $ into failed production methods (which is essentially a supply side/"trickle down" stimulus cloaked in demand side rhetoric) and actually helping people who have no money make the purchases they need to retain some basic standard of living. The government does not need to know much about where the best investment opportunities are, because presumably after the recession is over there will still be demand for affordable staples, and if there does end up being some slight oversupply, that's really not the end of the world.

The point I was trying to address was that some people dont accept that aggregate demand falls. We do accept that but we think its more important to understand why it fell in the first place. Saying we simply need to return aggregate demand to previous levels regardless of the methods is what I disagree with.

And this is why I bolded that part. Priming the pump or jump starting the economy back simply assumes that reverse the direction of aggregate spending will cure whatever problem caused it. But if you have no theory of what causes a drop in aggregate demand and you have no theory as to what causes the recession to end, I find it very unlikely that simply pumping up AD is going to fix things in the long run.

So for example I think its totally acceptable to use government spending to help a country get through an exogenous shock like some natural disaster because presumably the infrastructure will recover to the previous point. But if your decrease in AD is caused by too much debt or institutional factors that arent being addressed than your country has taken the first step on the road to insolvency.

I'm not seeing the relationship between the country addressing institutional problems and providing aid to people who are suffering well beyond their own culpability in the creation of these systemic issues.

Give a man a fish and he eats for a day. Teach a man to fish and he eats for a lifetime.

I was just responding to your claim that some people denied drops in aggreagate demand because the market always clears.

I agree to some degree, the simple solution to slumps is to provide direct subsidies to the unemployed. The funny thing is that it never ends up that way. We always have to go through third parties like GM, unions, etc and prop them up at the same time we try and help the poor.

meanwhile that guy is too hungry and malnourished to learn how to fish

there is a disconnect between reality and theory in how labour shifts from unproductive to productive industries

destruction of the unproductive doesn't occur first, there is first the creation of the productive first

without that creation all you have is people with no income or prospects

I don't understand the West Side Story type of economic discussion on all sides

as in, why do everyone drink the Kool Aid?

Government funding and the Federal Reserve.

Don't think I will let you guys forget about Billy. A bumpage is in order as he continues his relentless assault against the deficit terrorists;




Governments around the world are being stampeded by financial commentators and international organisations (IMF, OECD, G-20) to implement austerity programs to get their “deficits under control”. All sorts of horrendous predictions are being touted in the press daily by the deficit terrorists who focus their gaze on charts showing movements in financial ratios – such as the deficit to GDP and public debt to GDP ratios. They largely ignore history and when they do invoke it the introduce erroneous analyses which do not apply to the issue at hand. They erroneously conflate the Eurozone with sovereign monetary systems. And they never let up. But in all the talk of austerity the real dimensions of the problem get lost. That is what today’s blog is about – getting our focus down to the fact that thousands of children will die as a result of these unnecessary austerity programs which are just designed to satisfy the ideological hangups of the (mostly) high income and wealthy elites in our societies...


..full blog
http://bilbo.economicoutlook.net/blo...239#more-10239

So he labels those he doesn't agree with as terrorists and uses "Think of the children"?