Briefly, what I mean by altering demand would include both policies that increase demand for something as well as policies that decrease demand. I will give examples.
I like to mention the 1933 criminalization of the possession of gold by US citizens. Most people today are not aware of this policy, which was not fully relaxed until 1975. It is an extreme case, which makes it very useful as a simple example.
Notice at the very bottom of the above document the penalties: 10 years imprisonment or a fine or both. In current 2016 dollars, the amount of the 1933 fine is equivalent to approximately $180,000.
What happened for demand for gold by the public when the US government criminalized the possession of gold? The demand for gold plunged.
Governments regularly reduce demand for certain markets by criminalizing involvement in that market, such as marijuana or the brief prohibition of alcohol or even possession of a gun. In countries where it is illegal for civilians to own guns, not only will the government take any guns found, but imprison and/or fine people for breaking the laws prohibiting the possession of guns.
So, governments may attempt to reduce or even eliminate public demand for a particular product or service. How can a government merely reduce demand for effective, scientifically-sound health promotion practices? Why not subsidize (or even mandate) other practices? In extreme cases, a government could even fine or imprison people who do not buy a mandatory health insurance plan or get a mandatory vaccination.
Governments can generate demand where none would otherwise exist, increase demand where some exists, plus reduce or eliminate competing demand. Governments can also launch publicity campaigns to drive up demand for their programs (like for mandatory vaccine programs or for launching an invasion of a far away continent).
Different industries and products can be taxed at different levels. Some markets can be favored with tax breaks (like tax deductions for health care spending) or even with tax credits (like for installing solar energy panels) that might result in a tax “refund” – perhaps even for someone who did not pay any taxes.
On the subject of taxes, those penalize economic productivity. Some tax plans penalize productivity a lot, some a little, and some none at all. Further, some tax codes are simple and some are a bit complex and some seem to be designed to be intricate and confusing.
Overall, the amount of economic productivity that governments confiscate through taxes and fines can be measured. Obviously, there is also a “disincentive” to discourage people from even being productive (and that can be compounded by subsidizing their economic dependency).
Of all the wealth taken by governments from the public, some of it will be spent for the operations of that government system of wealth extraction. Some of the wealth will be delivered to external parties, like Canada as a colony will send wealth to the British royalty or like after an invader bombs and occupies a nation, then they may impose “reparations” to create a flow of wealth from the nation that has been defeated and occupied to the victor.
Also, some of the extracted wealth will be spent locally by the government. Governments may pay certain companies billions of dollars to build special equipment for warfare. Without governments, how much demand would the average person have for a tank or a nuclear bomber or an assault rifle?
Governments order massive amounts of military equipment. Governments extract enormous amounts of wealth from the public and then pour a fraction of those confiscated resources in to the manufacturing of military weapons of mass destruction.
Who favors such policies? Those who run businesses that rely on government purchases pour resources in to lobbying for policies which keep the government sending huge amounts of wealth to their business, right?
Further, if someone can sell the US military a toilet seat for $300 and a hammer for $500, then why not sell them a submarine that costs $900,000 to build for the modest price of 12,000,000? In fact, why not sell them a thousand units of those submarines per year for the next 5 years? Maybe cut them a deal and only charge $11,000,000 per submarine based on a “volume discount.”
While many people may presume that there is some criticism or condemnation by this author of those patterns of behavior, I have made no criticism (nor glorification). I merely present the point that, fundamentally, governments alter economic demand.
If a government creates tax favoritism for people who borrow money on real estate, that increases the demand for real estate. If there is a new program that gives tax favoritism to dumping money in to special types of investment accounts, then that increases the demand for the kinds of purchases that are allowed in those accounts (such as stocks of ownership of a huge business ), which by default reduces demand for other possible investments (such as starting a small business).
I started by mentioning gold. What if a government invades a place and then invents a debt owed by the invaded population to the invading government? Those debts could be called reparations or tithes or taxes or fines or anything else. How does the ruling government select what forms of wealth can be used to repay the debts that they just invented?
If the government itself has hoarded a lot of silver, then they may want to increase public demand for silver. So, they accept payments of silver for the debts that they invent, which increases overall demand for silver.
Or, maybe they have hoarded a lot of diamonds, so then they may want to increase public demand for diamonds. If they only allow one form of wealth to be used to repay their invented debts, then that can massively increase demand for that form of wealth (if the size of the debts that they invent is enormous… and they have the military capacity to successfully extract all that wealth).