Reducing Real Output by Increasing Federal Spending

"The belief that by spending more, the federal government can revive the economy by increasing aggregate demand is an example of the triumph of hope over experience. Many people excuse the recent failures of such stimulus spending with the claim that the spending simply wasn't large enough. This demand-side view is oblivious to the supply-side reality that demanding more does no good unless more has been, or will be, produced. The logic of this reality explains why trying to increase aggregate demand through increased federal spending is not the key to stimulating the economy. The problem is not that aggregate demand is unimportant—it is very important. The problem is that increased real aggregate demand is the result, not the cause, of an increasingly productive and prosperous economy."