What's at work here is the fundamental concept of Say's Law that Keynes failed to disprove: markets clear.  A perceived lack of aggregate demand doesn't mean products won't get purchased.  Every consumer good is bought if the price falls low enough.  Producers must find this price in order to adopt a new production structure to begin meeting this demand.  Most people aren't going to pass up a 36-inch television for $5 at Best Buy.  Sure, the television producer may fail to garner a profit on this new sales price, but that is why price signals are so important.  They tell producers the structure of production can be adjusted in order to meet this new equilibrium.  Capital not allocated to producing 36-inch televisions means investment in more profitable operations.

Armchair economists like to assume that human action is predictable and calculable.  But action, based solely on individual preference, isn't measurable with econometric formulae.     

Increased production financed through accumulated savings drives sustainable growth.  This goes hand in hand with entrepreneurial seeking of unmet demand, not aggregate demand in general.  Steve Jobs didn't create the iPod because consumers were spending at Walmart.  He speculated that there was a demand for a portable device that could store a massive amount of music, designed the product, determined the marginally profitable price it could be sold at, and decided whether or not to risk his capital and make the whole thing happen.  He could have been wrong, but thankfully for all of us, he wasn't.

Keynesian focus on aggregate demand misses the big picture.  Taken to its extreme conclusion, overconsumption can ultimately lead to higher prices as supply diminishes and production can't keep up.  Inflation only exacerbates the situation as wages and prices eventually adjust after distorting the structure of production.

Meanwhile, the real barriers holding back economic growth are unacknowledged by government apologists acting as economists.  The prospect is what Robert Higgs deems "regime uncertainty," where the threat of increased taxes and regulatory enforcement is simply tossed away with academic hand-waving.  Artificially low interest rates from the Fed have disincentivized savings and pushed investment toward riskier assets.  Capital becomes difficult to accumulate, and the economic pie is prevented from expanding.

Read more: http://www.americanthinker.com/2011/11/its_not_aggregate_demand_stupid.html#ixzz1csGcH3al