Government economists justify stimulus as an effort to reinforce demand when the private demand volume is insufficient to maintain growth. But demand varies by industry and is often only a partial explanation of the incentive to invest. Stimulus policies assume that demand is the primary if not the only variable.
Few businesses invest in machinery or inventory to provide a product or service that is not currently available. While a business may feel that there is a demand he is most likely seeking to take business from a competitor. His incentive may be that he feels he can control expenses better, provide a better quality, or he may feel he has a better sales force or a better relationship with the customer. Often these advantages are presumed and he finds himself struggling to compete in a new market, but little business growth would happen without a bit of excess confidence.
In most businesses the customer is already buying the product you sell from a supplier they are already satisfied with. If you try to buy the business with lower prices, the existing supplier will likely respond with a price war and your budgeted profits will evaporate.
In other words, most businesses invest for growth before the demand is ever certain. They are taking a risk. When the friction costs such as taxes, regulation, uncertainty, and higher mandated costs such as higher minimum wages and health care costs grow sharply, these businesses will be ever more reluctant to accept the risk of new investment. In fact these friction costs may drive many who are currently in that business to cut back and idle machinery that may have been marginally profitable before the increase in friction costs.
But when your only tool is a hammer, every problem looks like a nail. Demand prone economists will contend that the drop in demand is the dominant reason for slow growth and will insist on just stimulating demand more. The problem with stimulus is that it must eventually end. The reduction of friction costs, however, will pay benefits far into the future.