In contrast with the traditional economic thinking, which stresses the supply-side as the engine of economic growth, the Post Keynesian approach rests on the principle of effective demand. According to this view, in capitalist economies, output and employment growth are constrained by aggregate demand. Because capital is producible (and its production is induced by demand growth), the supply of factors is not the main constraint for economic growth – even in the long-run! The lack of demand, on the other hand, may reduce the incentives for capitalists to invest and, hence, de-stimulate the production of new capital. Thereby, Post Keynesian economics is mainly focused on the demand aspects of the economy and on the capacity of supply factors to react to demand stimulus.
Since the financial crisis of 2007/8, many countries – with special regards to developed economies – are facing a long-lasting recession period, which is definitely not cyclical. The traditional economic thinking has been struggling to understand the consequences of this process to countries’ long-term growth, as well as to purpose solutions. Post-Keynesian scholars, however, have been working on this problem since the 1960s, and have developed a set of analytical tools to deal with such phenomena. In this sense, this framework may lead to an understanding of how to find adequate policies for depressed economic circumstances.