Another shotgun reply to various folks:
Goldenboy219 in post 121: You forget that during this contraction: "out of thing air" growth is greatly diminished, or even regressive.
Yes that is something that helps define a recession. Recessions occur when investment has not followed the optimal path or when technological advances begin to leave part of the economy behind. So I agree that this 'contraction' had diminished growth. The 'out of thin air' portion of my discussion is where the economy grows. When this is slowed down by investment in non-profitable investments, the economy slows down or shrinks. My contention is that investment in government is non-profitable and thus slows down or shrinks the economy. This investment can take either the form of taxes or that of buying government debt.
Misterman in post 124: A note - I'm not claiming the government is better than the private sector. All I'm saying is that when the private sector is in a slump, it needs the government to step in, temporarily, to get it going again. That's a stimulus.
Noted. There are many economists, particularly Keynes, who totally agree with you and feel that the government actually creates the economy itself. Others do not. I fall in the party that does not and I feel that allowing the private sector to recover on its own is better than having government intervention. Previous to the Great Depression, the majority of the recessions in US history were of 6 months or less followed by greater productivity increases, increased employment, and higher wages. Since the Great Depression recessions tend to be over 12 months and usually 18 or more long. Since the 1980s recoveries have been even slower and the increased employment and higher wages portions have been missing. This is what has led us all to feel that the economy has failed to do much for everyone and just a few have benefited.
Misterman in post 126: How does one make any bank loans without fractional-reserve banking?
It doesn't very easily. Which is why banking did not really take off until the 1680s and later when the Bank of England 'invented' fractional reserve banking. Without the fractional reserve banking, loans were between individuals (either people, companies, or nations).
And now a few more notes in passing.
I do believe that there is a function for the government and government spending. It is even possible that extended and deficit spending in economic downturns helps us get over the downturns. But a better rational behind the 'stimulus' spending is that costs are down and I would rather the government got a better deal for my tax money than spending in a boom economy.
That said, the government has to reign in its spending during good times and pay down the debt in order to help the economy even more. This has not happened in a very long time in the US and both parties are guilty of it and will most likely continue to do so.
I would also like to thank everyone on this discussion for making an effort to actually debate the issue raised in the article and not degenerating into sniping s**t that you can get from just turning on the TV and listening to CNN or Fox.