The Keynesian Demand Fallacy

Keynesian economists often attribute economic downturns to insufficient aggregate demand, arguing that government intervention is necessary to boost spending and restore growth. However, this theory fails to recognize that consumer demand is not an independent variable but rather a consequence of prior production and savings.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

Most experts believe that the key driver of economic growth is total demand for goods and services. Whenever an economy shows signs of weakness, experts hold that strengthening total demand is required to prevent a recession. 

Thus, according to this viewpoint, if the private sector fails to increase demand, then it is the role of the government to increase government demand in such a way that the total economy’s demand is going to strengthen.