Demand-side economics

Demand-side economics is a macroeconomic theory which maintains that economic growth and full employment are most effectively created by high demand for products and services.[1] 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 create a multiplier effect[2] that further stimulates aggregate demand, leading to greater economic growth.[3]

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 but is reinvested in an economy with low demand (which makes speculative bubbles likely). Instead, they argue increased governmental spending will help to grow the economy by spurring additional employment opportunities.[4] They cite the lessons of the Great Depression of the 1930s as evidence that increased governmental spending spurs growth. [5]

British economist John Maynard Keynes is the most celebrated of demand-side economic theorists. He was able to show there is no automatic stabilizing mechanism built into an economy[6] and because of that, economic intervention is necessary. 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.[7] 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.