Wanted to get back to this but didn't end up having time last night. You are correct, using % of potential GDP is somewhat of a con game. I want to make a couple of points and then you can have at it calling me "part of the retard bar" and what not.
It's much harder for the US government to manipulate a global economy. Demand is still local but supply is global. The government can ramp up spending to stimulate demand (and I agree with you we definitely need demand) but it's met with global supply.
It would be nice to see the US find growth in something other than non-tradeable goods and services, such as housing and healthcare.
Lastly, I'm not here to argue that a completely free market is what we need because there is no such thing. Economics is now used largely as a political tool to further an agenda. Singapore being a prime example. Free market supporters will tell you the cause is a free market, with free trade and open arms to foreign investment have been key to success. They'll completely ignore the fact that the government in Singapore owns all land and that state owned enterprises comprise produce almost 1/4 of GDP. TARP is another prime example. George W Bush claimed himself a proponent of the free market, yet when necessary he (smartly I might add) approved nationalizing a large section of the financial sector.
See, you are much more educated and mature than these others. And I definitely get caught up in that constant name calling and bashing. So I apologize for that towards you, as you certainly don't deserve it.
My economic thought and understanding stems from a macroeconomic view of balance sheets and transactions between the various entities. So one of the premises is that in order for the private sector to have net financial assets (NFA), the government must be in deficit. So when you have a large decrease in the velocity of money, if the government doesn't increase the private sectors financial standing, they will be dependent on bank debt, which is not a net financial asset to the private sector.
This presents another problem, since our recent recession effected the banks themselves so we have a situation in which the private sector needs money, they don't want debt, banks don't want to lend to a shitty private sector, and you get stuck with menial growth.
And I know $1 trillion deficits or now $600 billion deficits sounds like a lot, but it truly isn't. The amount velocity has dropped created a $3 trillion+ hole. There is no mathematical way to cover that hole with a $600 billion deficit. Ronald Reagan's chief economic adviser and Paul Krugman actually agreed that the only thing that will get this country out of this mess is a WWI, WWII fiscal type expansion. But because of our current nature of politics, that level of expansion is impossible without another massive world war.
The private sector needs income, it needs to increase their financial standing. And as we continue to ship money overseas, it is even more paramount that the government spend more. As that affects the sectoral balances. The private sector is being starved of money. You pump money in to the machine, you get peoples balance sheets back up and running, the economy will be growing significantly again. Our output gap is over $1 trillion. We have a lot of room for spending a shit ton of money with out causing "hyperinflation".
The reason I advocate government spending has nothing to do with a political ideology. It is purely based on how our monetary system works. We are dependent on the government going in to debt in order for us to increase our financial standing.
