"Fascinating how the meaning of the word 'austerity' has drifted away from the meaning of 'austere'. A balanced budget doesn't seem very 'austere' to me."

But it is. Money is used to do productive things. Money is created when a bank issues debt. If no one is spending money, and paying down their old debts due previously reckless lending and borrowing, you have a depression, where lots of people want to work, but can't, because no one is buying anything. The only people making money are the lenders - until people start defaulting. Who is to kick start the engine?

Well, you've got four choices;

- the government, which works well if it is quality spending, ie. it's channeled towards infrastructure and/or consumption (see the U.S. vs Europe). but it is politically unpopular among the rich because it is theoretically inflationary.

- Or the central bank can buy up debt on the market (quantitative easing), but with everyone paying down their debts, this doesn't actually help the economy as much. Also not popular with the rich because it's inflationary.

- Wait it out, ie. Stop spending money and make everyone pay down their debts. This is the "austerity" plan, where a generation of people will be unemployed because of the supposed sins of the past - a cleansing ritual approach to the economy. Popular with the rich because they can afford to sit back and wait.

- Option four is a debt jubilee where creditors get a haircut and we all feel spurred to spend money again because we aren't so far in debt. This is popular with the masses and (obviously) unpopular with the rich. This is what happened to some degree in Iceland. And this is in effect what Greece is asking Europe to do as the most realistic outcome from the 2008 crash.

"But it's a false dichotomy that these are the only choices"

Actually, no, it's a real dichotomy. Either you believe in balanced budgets at all times, or you believe that deficit spending is justified sometimes. Similarly for occasional debt jubilees vs the sanctity of the bond holder. These are stark choices as they have major implications on entitlements like medical and social insurance in a crisis.

"Then there's the economists, who will pull out some toy model and claim xyz is good/bad. Too me it seems more like religions (being a Keynesian, Austrian, etc), where people search for facts that confirm their positions."

A model is just a consistent logical argument. Because economics is so tied to politics, the logical arguments get religious fast. That's kind of human nature.

Searching for facts to confirm (or contradict!) your position is usually a good thing - we call that empiricism. I'd note that not all economic traditions believe in empiricism (the Austrians do not, for example - they believe their system is axiomatic).

"The problem with most macroeconomic theories is that they ignore too many important details."

The point of a model is to have predictive power without being so complicated that it's impossible to use. There's some subjectivity as to what is "important" in making an argument.

"So for example, you can borrow money to invest in the future which is usually good in the long run, or you can spend it on things you don't need ..... In the words of Warren Buffet, we don't talk about 'quality' of GDP enough."

That would be because we are still stuck in debating whether government spending helps at all, which is anathema to a large number of property holders. Among those that want stimulus - look at the Econ blogosphere! - there have been endless debates circa 2008-2009 about quality stimulus vs. pork spending stimulus.

Those discussions have ceased because austerity has become the political rule in Europe (and to a lesser degree but still strong in a polarized US electorate). No point debating what to spend money on if there's nothing to spend. So debates have turned to QE and debt writeoffs - two of the other four tools left that I mentioned above.