Fiscal Stimulus of Consumption and the Keynesian Black Hole

Abstract

It is shown empirically that, for the US economy, fiscal stimulus has increased total consumption, but has depressed economic growth. Therefore, decades of fiscal stimulus has been a continual depressant on US economic growth and moved the economy closer to the Keynesian singularity defined as the situation where the Keynesian multiplier approaches infinity. At the singularity, an economy has a propensity to consume equal to unity and therefore consumes all its output, leading to a potential collapse into a Keynesian economic black hole. A theory of economic growth is proposed to explain how fiscal stimulus can lead to the Keynesian singularity and the black hole, based on the differences in the structures of aggregate demand between the private and government sectors.

Keywords: Keynesian, macroeconomics, fiscal policy, consumption, aggregate demand

JEL Classification: E12, E20, E62, H30, H50, H62