Demand-side economics

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Demand-side economics is a macroeconomic theory which argues that economic growth is most effectively created by high demand for products and services. According to demand-side economics, output is determined by effective demand. High consumer spending leads to business expansion resulting in greater employment opportunities. Higher levels of employment creates a multiplier effect that further stimulates aggregate demand leading to greater economic growth.[1]

Demand-side economists argue tax breaks for the wealthy produce little, if any, economic benefit because most of the additional money is not spent on goods or services. Instead, they argue increased government spending will help to grow the economy by spurring additional employment opportunities.[2] They cite the lessons of the Great Depression of the 1930s as evidence increased government spending spurs growth.

British economist John Maynard Keynes is the most celebrated of demand-side economic theorists. Keynes saw his theories successfully demonstrated in the 1930s when they helped to end the Great Depression and into the 1950s and 60s when capitalism experienced its Golden Age.[3] Additional proponents of demand-side economics include Leon Keyserling, John Kenneth Galbraith, Hyman Minsky, Joseph Stiglitz, James K. Galbraith, Steve Keen and Nouriel Roubini.

Demand-side economics is held in opposition to supply-side economics which argues that economic growth can be most effectively created by stimulating business through lowering tax rates on business and decreasing regulation of corporate and financial activities.

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References[edit]

  1. ^ Liu, Eric; Hanauer, Nick (2011). The Gardens of Democracy. Seattle, WA: Sasquatch Books. p. 11. ISBN 978-1-57061-823-9.
  2. ^ McEachern, William (2009). Economics: A Contemporary Introduction (Eighth ed.). Mason, OH: Southwest Cengage Learning. p. 430. ISBN 978-0-324-57921-5.
  3. ^ Palley, Thomas (July 1996). "The Forces Making for an Economic Collapse". The Atlantic Monthly.