27 July 2010
Bankruptcy of Supply-Side Economics
Martin Wolf presents a pretty good analysis in the Financial Times on July 25, 2010, of how supply-side economics were created in a stroke of political genius to ensconce the Republican Party in power in the U.S. under Reagan. Reading it, I kept envisioning Boehner and McConnell spouting their nonsense in search of restoring their majorities in Congress. Their objective is so parochial--just like Wall Street, they seek to win for the sake of winning. In their minds the score is kept in numbers of seats rather than in bonus awards. Wouldn't it be refreshing if their objective were to create a better life for the people of the country?
Is fiscal stimulus better accomplished through cutting taxes or through increasing spending? This may seem to be two sides of the same coin. On the other hand, give a capitalist more money by reducing his taxes (i.e. give him a free lunch) and you can’t expect him to create more jobs just out of the goodness of his heart. More jobs (a.k.a. fiscal stimulus) result from increased demand, not the supply side. Employers do not increase their payrolls in order to grow their business empires. Their businesses expand when they can make more money by filling demand for their products. Yes, that is easier to do when the government doesn’t reduce cash flow through high taxes; but lower taxes won’t force investment in job-producing enterprise. Only successful enterprises hire wage- (and, for that matter, bonus-) earners.
Martin Wolf presents a pretty good analysis in the Financial Times on July 25, 2010, of how supply-side economics were created in a stroke of political genius to ensconce the Republican Party in power in the U.S. under Reagan. Reading it, I kept envisioning Boehner and McConnell spouting their nonsense in search of restoring their majorities in Congress. Their objective is so parochial--just like Wall Street, they seek to win for the sake of winning. In their minds the score is kept in numbers of seats rather than in bonus awards. Wouldn't it be refreshing if their objective were to create a better life for the people of the country?
Is fiscal stimulus better accomplished through cutting taxes or through increasing spending? This may seem to be two sides of the same coin. On the other hand, give a capitalist more money by reducing his taxes (i.e. give him a free lunch) and you can’t expect him to create more jobs just out of the goodness of his heart. More jobs (a.k.a. fiscal stimulus) result from increased demand, not the supply side. Employers do not increase their payrolls in order to grow their business empires. Their businesses expand when they can make more money by filling demand for their products. Yes, that is easier to do when the government doesn’t reduce cash flow through high taxes; but lower taxes won’t force investment in job-producing enterprise. Only successful enterprises hire wage- (and, for that matter, bonus-) earners.
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