A common counter argument made by those who deny the benefits of Keynesian spending is that if you lower taxes, entrepreneurs and the holders of capital will invest more and become more productive.  The idea is: instead of government spending money to make up for a lack of consumer demand, if more money is placed in the hands of individuals, and a lesser tax burden is placed on entrepreneurs and the holders of capital, a similar (or even better) effect will ensue. However, how do we know that individuals will spend the money? How do we know that entrepreneurs will work harder? And how do we know that the holders of capital will invest more?

The basic idea of Keynesian economics is this: decisions made by the private sector often lead to deviations in the business cycle, and the public sector must make policy decisions (both monetary and fiscal) in order to stabilize the business cycle over time. Keynesian economics has made a resurgence in the years since the 2008 global financial crisis, and with it has come much argument, largely ideologically based. Those on the left, as is expected, tend to opt for increased government spending to make up the short fall in private sector spending. Those on the right, also as is expected, tend to opt for slashing tax rates, hoping that by increasing the amount of money available to the private sector, they will in turn increase their spending and productivity.

However, there is a problem with the idea that slashing tax rates will lead to increased spending and productivity. When the government increases their spending, depending on the way they spend the money, there is a definite influx of money (and therefore demand) into the economy. However, there is absolutely no guarantee that giving consumers extra money in a time when unemployment is likely to be high and the media are fear-mongering, will lead to them spending their money. Similarly the owners of capital may not want to immediately invest in a time of heightened uncertainty. And what about the entrepreneurs? What if the entrepreneurs decide after their tax windfall that they have enough money? What if entrepreneurs decide to work less? Bupkis.