Economic Advice For Everyone

TW: Would have been nice if folks had paid attention to this concept at various points over the past thirty years and it makes sense at the individual level everyday. I realize reconciling this concept to the notion of Keynesian stimulus confuses many. But yesterday's GDP report bears out what would have happened without the stimulus.

GDP= personal consumption (PCE)+ investment (I)+ government spending (G)+ net imports/exports (X)

PCE and I were down, net exports up slightly and G up greatly. Without G the overal GDP would have plummeted reinforcing the dreaded paradox of thrift whereby everyone in the face of economic contraction and uncertainty seeks to save at the same time, killing asset values and reducing wages.

Which leads to even less PCE and less investment, in other words a deflationary spiral and an economic depression.

The fair question is what happens when the G spending train slows in 2010.