John Papola writes: "To illustrate the point, isn't it the case that in most recessions, profits and business investment collapse first, only followed by consumer spending's fall and then profits and business investment recovery first, only followed by consumer spending. Isn't that exactly what's happened in this recession?"
And then shows that it is the case, as we all know I hope.
Hard to know what to make of this except to say "right - what did you think we all thought?"
He then gets at what he thinks we thought: "How do you account for this if consumption drives growth in the economy (or is a key to restoring monetary equilibrium) rather than investment and production?"
Well we are confusing a couple points here. First, demand seems to drive short-run fluctuations in the economy (there's no reason supply couldn't - but it makes sense that demand is going to be more volatile). So I account for what John observes in the data by saying that investment is a particularly volatile part of demand - more than consumption - and it's the one that sets these things in motion. That's how I account for it. When were you ever under the impression of a different story?
Now I say he confuses a couple points. I'm referencing the phrase "rather than investment and production". So to me "production" sounds like "supply". Producing something is and then taking it to the market is supply. Investing is going to the market and demanding certain equipment. It's almost as if rather than income/expenditure or demand/supply, John wants a "household/firm" dichotomy of the economy or something like that. Maybe this is possible but my brain doesn't work like that. Households do some demanding and some supplying. Firms do some demanding and some supplying. Anyway I'm lost. I'm not sure what the value of throwing a component of demand in with a component of supply is in explaining the business cycle. But perhaps I'm missing something.
He also seems to be mixing together a lot of thoughts on the long-run and the short-run. Take this: "So decided to focus on the great fallacy of our age: that we can consume our way to a brighter tomorrow. We can't. We have to work, save and invest our way out." I think there's a big difference between saying that demand side solutions like investment and consumption can get us out of short-run problems and saying that they are a "way to a brighter tomorrow" (which has a long-run feel to it for me, but maybe that's not what John intended)