From Econtalk
(http://www.econtalk.org/archives/2010/11/don_boudreaux_o_4.html)

Important dichotomies to be precise about:

• Trade balance: Import vs. Export
  • Having a trade deficit does NOT mean you are incurring debt.
• Financing: Equity vs. Debt
  • Debt is NOT necessarily tied to consumption or investment, it is tied to leverage. Debt financing brings cash flow obligations capable of triggering defaults. With equity financing, there is no obligation, just an allocation of returns.
• Production: Consumption vs. Investment
  • This is NOT pegged related to imports or exports, but rather to the decision to benefit now or benefit later. Investment is delayed consumption.

http://2010.therussiaforum.com/news/session-video3/

Hugh Hendry @ 55:00: "I don't know if there is a confucius saying [now] but I certainly know that in the future there will be a confucius saying 'the wise man not invest in overcapacity' - the flaw of the Asian business model is that at the center of it is a craving for power as opposed to profit. We have spent centuries dictating their affairs - they want to dictate our affairs. They achieve that through current account surplus - they get to tell us what to do, but that is brought about by the subjugation of profit, the socialization of bank lending. In calling upon history and its portents, I am concerned because there are two previous episodes which cast a shadow over today - there are periods in time which we describe as economic disequilibrium, when a country becomes a creditor to the world and continued to run consistent trade surpluses - that is not meant to happen, trees are not meant to grow to the sky, there are meant to be countervailing forces, mainly the currency rises - that happened in America after the first world war, it became a creditor nation, Europe was bankrupt and America lent the money, and America was the economic powerhouse, the engine, and America liked it, and there was a fixed exchange rate called the gold standard. What happened was that the gold standard was pro-cyclical, and it created liquidity which went into assets and what happened was that first became last - economics is an unkind profession. It took 50 years, but then it happened again - Japan became a creditor nation - Japan ran and continues to run a series of trade surpluses but what happened? The liquidity went into the Nikkei, and Japan has gone from being number one to pretty much last over the last two decades. So I see the Chinese model, and I see its creditor status, and I see the reality of these persistent trade surpluses which are nothing but mechanisms which create credit that goes into asset prices - I fear the consequences, China could go from being first to last - consider that when you look at your portfolios"

In How Not to Argue for IP, Kevin Carson invokes the broken window fallacy, the idea that breaking a window will increase the GDP because of the money spent on repairing the window and the string of payments that results, but not actually improve the standard of life for people.

In the article, Kevin claims that

Anything anyone can do to make it more costly to produce anything, to increase the amount of money you have to pay to receive a given good or service, or in general to increase the cost of living our daily lives, will show up as an increase in the GDP.

An increase in voluntary non-coerced transactions leads to an increase in both the GDP and the standard of living; the situation depicted above is different because it applies to an increase in coerced spending.

1) This raises a more general question around whether government spending to increase GDP can be considered an increase in coercion. After all, any increase in government spending has to be made up by an increase in taxation, which is redistribution of income under coercion.

2) Consider the case of the mother who starts working and hires a nanny. The amount she makes from work must exceed the amount paid to the nanny, enough to compensate her for unhappiness (let's say $X) from now being able to spend less time with her children. In this case, the GDP goes up by the amount of the two wages (nanny + working mother) combined, but the actual increase in net benefit is actually the difference in the wages minus some amount X corresponding to the unhappiness.

Edit: case (2) is wrong. I will figure out a way to fix it later.