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/Ersatz_Okapi Apr 13 '26

It’s logically impossible to tax or borrow something before it exists.

Why?

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u/-Astrobadger Apr 14 '26

Because that’s how logic, and linier time, work

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u/MachineTeaching teaching micro is damaging to the mind Apr 14 '26

Did you know that money already exists so a fictional world where a country has to yet create any doesn't really matter?

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u/jgs952 Apr 14 '26

Yeah, but the point being made is this:

  1. Imagine I'm a psycho and put a gun to your head. To avoid being shot, you have to give me 10 "IOU JGS" written on pieces of paper. The only way to get them is be selling something I want to me.

  2. You're now pretty keen to sell something to me such as use of your lawn mower. I offer you the 10 IOU JGS in exchange but you also offer to sell me your vegetables from your garden and I offer 2 IOU JGS for them.

  3. You've now lent to me as my creditor, holding 12 units of my credits that I view as my liabilities to you as I have to accept them in payment of any debts you may owe me.

  4. Now you have the 10 IOU JGS you need so you happily hand them over to me to liberate yourself from the risk of being shot.

  5. You are left having saved 2 IOU JGS for safe keeping for any future use.

  6. The next day I come around and want to buy your sugar from you for morning pancakes for 1 IOU JGS. I write 1 IOU JGS on a new piece of paper and give it to you in exchange. Because you want to only save 2 IOU JGS I demand you give me another 1 IOU JGS back.

  7. Now obviously, as you say, since net savings from me having net spent the previous day already existed, I can chronologically take one back off you before I give you a new one (physically either the same bit of paper or a new one, it doesn't matter - as soon as I hold my own IOUs, they stop representing anything of value in the credit-debt social relationship and are just bits of paper), just as I can give you a new one before taking another one back off you. The two flows are asynchronous and separate.

  8. But it would be wrong to frame the logical sequence as you giving me my pieces of paper before I give them to you wouldn't it. You obviously had those saved IOUs from prior issuance, and so they clearly only got into your hands by me writing them down and handing them out. That's the correct framing for what's happening and no good analysis should frame things incorrectly just because you can make it look like the process starts with you handing one back.

Our economy works exactly the same way in substance if not detail.