Generally, Keynesians believe that consumption is the driver of the economy. So the economy is a function of the consumer, even if consumption is driven by debt--regardless of the source of debt be it consumer or government. So the remedy to a recession is to increase spending--even if it raises deficits--in order to increase consumption, which will stimulate production, which will create jobs. On the other side of the economic equation/fence, “Austrian” economist Friedrich Hayek asserted that production is the element that stimulates the economy and production drives consumption. An entrepreneur fills a need, even a need that no one realizes they have until they see the product that addresses it. That creates production and consumption. For Hayek it is production that sets the wheels of the economy spinning, and increased production comes about because of innovation and free capital markets.
Economic cause and effect is complicated. And contentious.
Niall Ferguson has a TED where he ascribes growth to what he calls the “six killer apps of prosperity.” (His more general topic was the Great Divergence, why the East and the West had their economic successes diverge so dramatically around the 1700s).
His apps:
1. competition
2. the scientific revolution
3. property rights
4. modern medicine
5. the consumer society
6. the work ethic
If one looks at Greece, for example, one sees that it is a terribly inefficient culture and economy with little respect for many of the elements in Ferguson's list. Electing a communist to negotiate the state through this difficult time may work--bloodletting aside--but, again, the history of dialectic materialism has not emphasized many of Ferguson's qualities either. Stimulating that inefficient system with debt--personal or governmental--simply will not be successful if either Ferguson or Hayek is right.
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