The only reason that Keynesian economics has survived for so long in western thinking is not because it works, or even makes any sense, but because it justifies what liberal politicians already want to do spend with reckless abandon, run bigger and bigger deficits so they dont have to explicitly pay for it with higher taxes today, and run up the national debt, which will be someone elses problem later. The truth is, as Fruits and Pozdena explain,
A large and long-standing body of literature finds that increased or higher government spending tends to reduce economic growth rather than increase it.http://www.forbes.com/sites/peterferrara...ong-the-states/The Progressive MYTH of Keynesian Economics !
But most fundamentally,
economic growth is not driven by increasing demand, which is insatiable, but by increased production or output (supply), which is driven by incentives for productive activity. In other words, just as an individual cannot spend himself rich, neither can a nation
Prosperity is determined by production, just as an individual increases his or her income by becoming more productive.
The myth of Keynesian economics is based on a failure to take into account basic double entry bookkeeping. If the government spends more, where does the money for that increased spending come from? Either from increased borrowing, or increased taxes, which both take an equal amount of resources and spending out of the private economy as they finance in increased government spending.
So not only can there not be a net increase in aggregate, or total, demand from these policies, the spending is in truth a net drag on growth, as the private economy spends money more productively and efficiently than the government. That is why this Keynesian nostrum never worked in the 1930s, as the recession of 1929 extended into the decade long Great Depression, and it hasnt worked anywhere else since.
