Donald Boudreaux | An unhappy alliance

Keynesian economics is now resurgent. However, one of its fundamental flaws is its assumption that private citizens routinely spend too little – that they work and produce to earn incomes and then neither spend nor invest those incomes. According to Keynesians, it’s this failure to spend and invest that keeps “aggregate demand” too low. And with total demand too low, businesses can’t sell all that they produce. So the economy contracts and unemployment rises. The solution recommended by Keynesians is for government to spend whatever private citizens don’t – for government to buy what private citizens won’t. Read more