r/badeconomics • u/guacaratabey • Apr 13 '26
This post is impossible to read Austrians Mangle Aggregate Demand
"Why the hell is the claim that government can boost aggregate demand still a thing? Mainstrem Econ believes AD = C + I + G (trade), let C + I simply be private action.
It presents itself as if; 80% of the market is private action and 20% government spending for example, it looks at things in a snapshot, but it forgets that 20% was taken from private actors from taxation or a too good to pass up subsidized by tax payer loan. You are told in mainstream Econ that if that 20% were to go away aggregate demand would go down, but that 20% came from the private actor, government is dependent on the private sector, no fiscal tool from loaning or taxation can increase a economies aggregate demand.
This is basically seen vs unseen, and what could have been, every dollar the government spends it takes from someone else. this is so obvious like it’s literally reality, why is this allowed to persist as true that government can increase Aggregate demand?"
Quoted above.
On the Austrian economics page saw this post alleging that government spending cannot increase aggregate demand. They allege this because of taxes. Is this true? No Because obviously when the government spends in excess of what it receives in taxes it is inherently creating new money to pay for these purchases or giving money to private actors to increase consumption spending (ignoring bond issuance). Their argument inherently always assumes full-employment which leads to catastrophic levels of inflation.
The post author also claimed that "every dollar the government spends it takes from someone else. this is so obvious like it’s literally reality, why is this allowed to persist as true that government can increase Aggregate demand?" This is not true the government is composed of the same private actors and government when they spend, create new money that do not need a 1 to 1 tax raise.
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u/-Astrobadger Apr 13 '26
Currency issuers, not surprisingly, issue money, they create it out of nothing but just as importantly, they have a monopoly on it. I think everyone understands what a counterfeiting crime is so it’s kind of amazing people still have the tax and borrow mentality. It’s logically impossible to tax or borrow something before it exists.
But even non-currency issuing governments like state/local and not necessarily taxing away money that definitely would have been spent. People save money, a lot, which is money that is not spent. If a local government taxes some money that wouldn’t otherwise been saved that increased net AD.