You've misinterpreted what I've written. When I said that government produces nothing at all, I qualified that with "at least in a capitalist economy." In a capitalist economy, government does not own the means of production but rather pays the private sector to produce things. When I mentioned that defense and infrastructure account for most of the G component, yet they produce nothing, is because they pay private defense contractors and construction companies to build the products. The government merely acts as a conduit by taking money from the private sector and giving it to contractors. So you misread the intent of that statement. It sounds like you thought I was saying that to be derogatory towards government, which is actually not true. The statement is intended to show the differences between capitalist governments and socialist/communist governments. Since I was speaking of the United States, I didn't bother to explain further with regards to other types of economies.
In socialist or communist economies, governments DO own a large part of the means of production and therefore DO produce things. Since in a capitalist economy, the government DOES NOT own the means of production, that is why I said government produces nothing. That is not the case with socialist or communist governments where a large part of production is controlled by the government. If I were in France or Russia, for instance, I would never have made that statement. In socialist economies, government plays a large role in the I component and do contribute to the growth of the economy. In the United States, the government's contribution to the I component is negligible.
Without investment, the economy simply cannot grow.
I find it interesting your refutation is that the basics behind National Income Accounting are wrong and that all economists are dead wrong. Do you dispute that taxes play no part in businesses determining whether they should invest? If you do, you're on very shaky ground by basically saying all businesses are wrong in making their investment decisions. That businesses use ROI is not theory. That's fact.
You also are terribly wrong by blaming deregulation for the collapse on Wall Street. The only thing the Democrats can point to, in order to deflect blame from themselves is to blame Phil Gramm for the Gramm-Leach-Bliley Act, which permitted commercial banks to get into investment banking by repealing a restriction put in place during the Great Depression, the Glass-Steagall Act. The bill passed in 1999 in the Senate by a vote of 90-8, including a yes vote from Joe Biden, and passed the House with a 352-57 vote with over 150 Democrats voting yes. Bill Clinton signed the popular measure into law. Even the Democrats can't come up with anything else when asked for specifics on what they mean when they accuse Republicans of deregulation. If they could come up with something better to deflect blame, you can be certain they would have found something a lot less flimsy, and one that doesn't implicate themselves as well since Democrats overwhelmingly supported Gramm-Leach-Bliley. The only reason they do use this is because they know the sycophant press isn't going to call them on it and that most people won't know any of the details.
A large number of sources, including Bill Clinton and Bob Rubin, Clinton's Treasury Secretary, have said that the deregulation has actually softened the impact of the disaster. The main companies affected by the bill were commercial banks which bought investment banks. Yet it's the commercial banks that are rather healthy and the investment banks that are collapsing. One reason why Clinton and Rubin say that deregulation has actually helped is that it diluted the impact on the affected companies since their companies are more diversified. Second, commercial banks are able to buy troubled investment banks that they wouldn't have been able to without the law.
See this entry by Clinton Treasury official
Brad DeLong .
Here's the quote from Bill Clinton in an interview by Maria Bartiromo on CNBC:
Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill. ...You know, Phil Gramm and I disagreed on a lot of things, but he can't possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence. But I can't blame [the Republicans]. This wasn't something they forced me into.
So even Bill Clinton doesn't agree with you. He still blames Republicans but never says why.
You simply have no proof, and neither does anyone else, that deregulation has been the problem. The closest thing you can get to is the Democrats blocking increased oversight over Fannie Mae and Freddie Mac whenever the Bush Administration tried to do so. And that article from the New York Times on how Democrats tried to block the Administration's radical overhaul on oversight has already been posted twice in this thread.
By the way, your analogy of putting everything in one basket is flawed in that capitalism puts its eggs in millions of different baskets. For every failed bank, there are dozens of others that are not failing. For every failed business, hundreds of others exist. With communism and socialism, government is one big basket with very few other little baskets.
The lessons of this crisis are the negative impacts government can have when it distorts the markets.
