The demand management (including demand-side economic policies ) assumes that the aggregate supply and thus the amount of production and the level of employment of the aggregate demand is determined. It is in direct contrast to Say's theorem and supply policy .
Demand politics draws on the theoretical foundations of John Maynard Keynes and is therefore also called Keynesianism . Under the impression of the stock market crash of 1929, Keynes developed the thesis that although there is a tendency towards equilibrium in the markets, this could also arise as an equilibrium of low production, a lack of investment and high underemployment. If consumer demand from private households declines, companies stop investing due to a lack of positive return expectations, which leads to a further drop in demand for society as a whole. In order to counteract the uncertainty in the markets, permanent and long-term investments by the state are necessary.
The demand policy is an anti-cyclical economic policy , the state acts anti-cyclical to the economy. The stabilization of the business cycle can be attempted through both demand-oriented and supply-oriented measures. Considerations of stimulating demand through deficit spending by the state have often been sharply criticized.
The strengthening of overall economic demand by increasing consumer spending can be achieved through the following measures:
- Support of private households through income tax relief or grants
- Increase the state's investments by increasing its consumption
- Increase in public sector spending
- Consumption-promoting framework conditions
Situation in Germany
After the ordoliberal phase of the social market economy, a phase of Keynesian global control began in the Federal Republic of Germany . This policy was enshrined in the 1967 Stability and Growth Act.
A typical representative of demand policy in Germany was Helmut Schmidt , who, during his time as Federal Chancellor, decided on several economic programs to stimulate the ailing economy. In the 1950s to the mid 1970s, most European governments followed demand policies. In the 1980s, there was again a stronger focus on supply-oriented economic policy in the FRG. In 2007, only Peter Bofinger represented partially demand-oriented positions in the Advisory Council on the Assessment of Macroeconomic Development of the Federal Government (“The 5 Economic Ways”) . In the 2008 autumn report "Mastering the financial crisis - strengthening growth forces", however, some recommendations on demand policy can be found again:
- The aim is to provide clear impulses to strengthen internal growth forces and domestic demand.
- The ECB should use the scope to lower interest rates.
- The fiscal policy should under the credit fund "Golden Rule of fiscal policy" investments.
- As long as the output gap is negative, spending on education could also be financed through government loans.
Against the background of the financial crisis from 2007 , government demand policy was increasingly classified as urgent in the situation at that time.
Criticism of the demand-oriented economic policy
Critics point to the inflation-driving aspects of monetary policy. Deficit-financed fiscal policy could lead to a weakening of private investment activity via rising interest rates ( crowding-out ).
In addition, the state can only react to an economic downturn with a time lag , so that the economy may already be on the upswing again before the measures take effect. Instead of having an anti-cyclical effect, the cycles would be intensified. One of these delays, the so-called time lags , is the inside lag : The point in time at which the measure would be necessary up to the point at which it is recognized as necessary is the recognition lag , until the measure is taken the action was . Then the outside lag begins until the point in time at which the measure finally takes effect. Furthermore, there is a dosage problem as to whether, for example, 1, 2 or even 5% of GDP should be spent as an economic driver.
Furthermore, counter to the demand theory, circular considerations are put forward: An increase in government demand is at the expense of private savings, which in turn finance investments through the banking system. Demand policy therefore changes the structure rather than the overall level of aggregated demand. Rather, the domestic demand is always given by the domestic (real) money supply, multiplied by the velocity of the money . More modern forms of demand theory are therefore more likely to be linked to the ability of the central bank to increase the real money supply. However, since the central bank can only control the nominal money supply, the effectiveness of monetary policy depends crucially on how quickly the price level reacts to changes in the nominal money supply. From a New Keynesian perspective, there are short-term price rigidities that make it appear possible to influence demand with monetary policy means. According to the neoclassical view, prices adapt sufficiently quickly to new circumstances; there is also the risk that inflationary expectations would arise. As a result, prices could rise more sharply than is actually justified on the basis of the change in nominal money supply, so that overall economic demand will fall instead of rise.
Deficit spending , d. H. the credit-financed expansion of government demand in a recession implies that government demand is reduced and taxes increased in boom phases. From a political and economic point of view, this is unattractive for the government, which wants to be re-elected, so that there is a risk of increasing national debt .
In addition, in the opinion of the opponents of demand policy, it is very difficult for the state to even react to structural changes in the world economy . Since the consequences of such a structural change are mostly sales problems in individual branches of industry , these branches should react and adapt on their own (increase product diversity, downsizing). If the state were to intervene here, however , there would be structural distortion effects and a delay in the necessary adjustment processes, which would only increase the problems.
- Peter Bofinger: Fundamentals of Economics , Pearson, Munich 2007
- Peter Bofinger: We are better than we think. Prosperity for All , Pearson, Munich 2005
- Jürgen Pätzold: Social market economy
- ZB “Nevertheless, in the current situation, a state demand policy is proving to be urgent. The fact that it was used inappropriately in the past few decades is not a serious counter-argument. " Michael Hüther :" Three measures against the crash "in: iwd, Institut der deutschen Wirtschaft Cologne, vol. 35, January 1st, 2009.