Increasing government spending either by borrowing money or increasing the taxes people and corporations must pay which in the end is the same thing, will not increase "Aggregate Demand" in a manner that creates jobs and prosperity. This economic theory is known as "Keynesian Economics". Increasing Aggregate Demand or the demands of consumers for products and services can only be accomplished by consumer spending.
When the people borrow the funds to purchase an appreciating asset their equity in the asset, a home, increases over time as the asset increases in value and the debt is reduced. When a home is purchased the owner is making interest payments and reducing principle on the loan with the monthly payments instead of paying rent. As a result the net worth of the owner increases as the value of the home increases and the debt is reduced.
When the government taxes and spends the funds go to pay direct expenses and for infrastructure. The government may own beautiful highways and bridges and other structures but that does not increase the net worth of the people. In fact the over taxing of the people reduces their ability to purchase an appreciating asset which is the key to creating a prosperous nation.
That is why during a housing construction boom the number of jobs increase in every industry and small businesses when the money spent from the home loan turns over as it moves through the economy. Keynesian economic theory where the government assumes control of the economy, even going so far as to take over the management of corporations, has been tried many times by many countries, including the United States and has failed each and every time to produce jobs. The people who advocate big government believe they know how to manage the economy and impose their theories through government regualtions and taxes in an attempt to achieve their own personal gain. Every time it has been tried it has been eventually abandoned. Germany tried Keynesian's Economic theory and found it to lead to a very poor economy. The Germans now have the strongest economy in Europe and practice principles of economist, Friedrich A. Hayek based on aggregate demand being created by the people through a more capalistic approach. In order to create aggregate demand by the consumers, which is what creates prosperity, the money to be spent must be money the people either earned or borrowed.
When the people borrow the funds to purchase an appreciating asset their equity in the asset, a home, increases over time as the asset increases in value and the debt is reduced. When a home is purchased the owner is making interest payments and reducing principle on the loan with the monthly payments instead of paying rent. As a result the net worth of the owner increases as the value of the home increases and the debt is reduced.
When the government taxes and spends the funds go to pay direct expenses and for infrastructure. The government may own beautiful highways and bridges and other structures but that does not increase the net worth of the people. In fact the over taxing of the people reduces their ability to purchase an appreciating asset which is the key to creating a prosperous nation.
That is why during a housing construction boom the number of jobs increase in every industry and small businesses when the money spent from the home loan turns over as it moves through the economy. Keynesian economic theory where the government assumes control of the economy, even going so far as to take over the management of corporations, has been tried many times by many countries, including the United States and has failed each and every time to produce jobs. The people who advocate big government believe they know how to manage the economy and impose their theories through government regualtions and taxes in an attempt to achieve their own personal gain. Every time it has been tried it has been eventually abandoned. Germany tried Keynesian's Economic theory and found it to lead to a very poor economy. The Germans now have the strongest economy in Europe and practice principles of economist, Friedrich A. Hayek based on aggregate demand being created by the people through a more capalistic approach. In order to create aggregate demand by the consumers, which is what creates prosperity, the money to be spent must be money the people either earned or borrowed.
Great post, David! Could you explain more about what is meant by Aggregate Demand? Thank you!
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