Does Spending Cause Growth, Or Does Growth Cause Spending?

Keynesian economists tend to focus on stimulating spending, as Keynes’s central argument was that consumer spending generally lags, causing aggregate demand to be depressed. Most economists nowadays believe that this is wrong, and that spending is the effect rather than the cause of economic growth. Hiwa Alaghebandian of the American Enterprise Institute explains:

One would think that the events of the last decade have refuted Keynes once and for all. If stimulating consumer spending were the key to prosperity, we should all be in clover.


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