Does Government Spending and Money Expansion Create New Wealth or Destroy It?
2024-01-19
Many economists claim that economic growth is driven by increases in the total demand for goods and services, additionally claiming that overall output increases by a multiple of the increase in expenditures by government, consumers, and businesses. Thus, it is not surprising that most economic commentators believe that a fiscal and monetary stimulus will strengthen total demand, preventing the US economy from falling into a recession.
These economists believe that increasing government spending and central bank monetary pumping will increase production of goods and services and strengthen total demand. This means that demand creates supply. However, is this the case?
Why Supply Precedes Demand
In the market economy, producers do not produce solely for their own consumption. Some of their