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IEET > Security > Eco-gov > Rights > Economic > Vision > Technoprogressivism > Fellows > David Brin

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A Primer on Supply-Side vs Demand-Side Economics


David Brin
David Brin
Contrary Brin

Posted: Feb 20, 2010

Let’s step back and examine how, in the U.S., Democrats and Republicans have become identified with two quite opposite economic theories.

We’ll start with the Republicans, who still clasp fealty to Supply Side Economics (SSE), a theory once labeled “voodoo” by the elder George Bush, but now mainstream conservative catechism for three decades.

Supply Side holds that you best stimulate economic activity by Increasing the net wealth possessed by society’s top echelons—people and groups who have no urgent material needs. Instead of spending it on direct “demand” purchases, these wealth-owners will invest any marginal wealth-gain (say from tax cuts) on things that increase “supply”—factories, new businesses, innovative goods and services. Thus the name Supply Side.
image
Interestingly, the most famous proponent of this approach was Karl Marx, who maintained that the owner-capitalist class propels industrial development by re-investing profits in plants and equipment, thus building up society’s capital stock and the means of production. SSE is, in that respect, an entirely Marxist theory.

Of course, Marx then looked farther ahead. He hypothesized an eventual “completion” of this capital-formation process, a final phase when all the factories are finished—an image we now find ludicrous, since productive capacity must be updated at an accelerating pace. (Hence there will always be a need for capitalists.) Still, it seems kind of sad that SSE supporters won’t ever acknowledge this fundamental root of their theory. They do not study their ideological forebear. Nor do they try, as Marx did, to extrapolate where their prescription may eventually lead.

But let’s examine the key SSE predictions. (All theories should make confident predictions that are clear-cut and testable.) For thirty years we have heard Supply Side zealots forecast that reducing taxes on the rich will:

1) result in direct investment of the released wealth into “supply” capacity for producing innovative goods and services.

2) stimulate so much new economic activity that even lower tax rates will rake in enough new revenue to erase any deficit caused by reducing taxes on the rich.

3) eliminate government debt, resolving any apparent conflict between reducing revenue and fiscal responsibility.


EFFECTS UPON POLICY

This lengthy definition is needed understand why a credibility deficit now burdens the Republican Coalition.  All through the 1980s, 1990s and 2000s, the mantra was:

- if the federal budget is in deficit, cut taxes on the rich, in order to repair that deficit.

- if the federal budget is in surplus, cut taxes on the rich, because it’s their money, not the government’s, and there will henceforth be no rainy days.

- in times of peace, cut taxes on the rich, because government has lower priority in peacetime.

- in times of war, cut taxes on the rich, because… well, this one never made sense even by conservative logic. Indeed, this was the first time in US history that the clade of uber-wealth demanded ever-increasing state largesse even while the nation was under deadly threat. 

In any event, we must admit that the core demand of SSE believers has been utterly consistent. Reducing taxes on the uber-wealthy is good for America, across all circumstances, under all conditions and without limit.



TESTING SUPPLY SIDE THEORY

For three decades, SSE proponents told skeptics “just watch and see what will happen!” (Whenever top tax rates were cut.) Okay, we’ve watched. And absolutely every large-scale forecast made by promoters of Supply Side Economics failed—diametrically—without major exception.

The uber-rich did not take their tax-break largesse and invest it in innovative/productive equipment. They poured it into either passive investments—what Adam Smith derided as “rent-seeking”—or else risky financial instruments and asset bubbles. Above all, the direct forecast that reduced revenues would erase federal deficits went directly opposite to observed fact. 


TESTING THE OPPOSING THEORY

The one period over which deficits decisively vanished came right after Bill Clinton got moderate increases in taxation on the rich, in 1991, followed by stringent pay-as-you-go budgetary management. What we saw then was a combination of budget balancing, strong economic activity and revenue-based debt reduction.

So now let’s examine the competing theory: Demand Side Economics (DSE)... also called modified-Keynesianism.
image
Named for long-ago FDR advisor John Maynard Keynes, this theory holds that economic activity is driven by demand for goods and services. Moreover, money in the hands of the middle and lower classes has greater inherent VELOCITY—meaning that a given dollar will be spent and then re-spent more often, if the middle class is passing it around with sequential purchases, than if it is stockpiled in a rich person’s portfolio. 

(Mind you, by this theory, tax cuts for the rich might actually make sense when rapid inflation in an overheated economy calls for decreased monetary velocity! I never said that such cuts are NEVER called for. Indeed, JFK’s tax cuts did achieve all of its intended goals.)

Under Keynesian or Demand Side theory, the government should spend heavily, even deep into debt, when the nation is in recession, in order to get high-velocity economic activity going again. Hence the recent surge in stimulus activity, in the first year of the Obama administration… in sharp contrast to the equal-scale “stimulus” measures taken in the last year of George W. Bush’s term, most of which went to shoring up the positions of those at the top of the social-economic order.

Now, to a person who genuinely despises all deficit spending, both SSE and DSE methods may seem horrific. Both claim to use deficits and state-largesse to stimulate the economy, under a notion that economic activity will thereupon surge ahead and resulting revenues will later erase the incurred debt. Only there are some truly major differences.

1) Demand Side (Keynesian) deficit spending goes to where each dollar will have high velocity impact, as their theory predicts. In contrast, Supply Side largesse for the rich definitely did NOT go into predicted capital formation. (Marx was wrong.) It simply made the rich richer.

2) Completely aside from macro-economic effects, the beneficiaries of Demand Side largesse—the poor and middle class—may have some actual direct need. Fulfilling that need (if done well) may result in creation of either more-skilled workers or more small businesses. In contrast, it is hard to see how Supply Side sends the money to a place (the rich) where a direct need merits government intervention.

3)  Supply Side is a monotone. “Give money to the rich under ALL circumstances, at all times and conditions, no matter what. 

In contrast, Keynesians have proved that their policy is adaptable and variable, un-dogmatic and contingent upon circumstance. They spend lavishly in order to get out of recession, because that is what Keynesians do. (Right-wing rants and rails against the current governing party acting consistently with its own economic theory is simply hypocritical.  You had your turn, now it is theirs.)

But the 1990s prove that Democrats have credibility for being situationally flexible. When a recession ends, they spend more cautiously, remove the largesse, and start building up savings. In fact, had Bush continued the Clintonian policy of debt buy-down in good times, a considerable reserve fund would have been available to help us ride out the present crisis. 

4) The experts—professionals who have actually spent their lives studying this difficult field—generally despise Supply Side Economics. That may seem a good thing from the perspective of those who increasingly call expertise a disqualifying trait. From contempt for the Civil Service and the US Officer Corps to distrust of universities and the climate experts who have achieved miracles in weather forecasting, it’s become clear that one side in our tragic, debilitating “culture war” does not want to hear the professionals on any matter, least of all economics.

5) In fact the situation is not entirely black and white! Keyensianism has had its failures. Economics is a dismal “science” and Demand-Side has many problems dealing with a complex economy. Furthermore, pre-Clintonian Democrats sometimes acted as if the law of gravity did not apply. That potential always lurks on the left (witness Greece, today.) Moreover, Democrats did play some (lesser) role in the unleashing of our recent Asset Bubble.

Nevertheless, Keynesianism has a long, eighty-year record of being right in the most general sense.

Government should outspend its revenues in recession, directing high-velocity stimulus toward the middle class. Then, in good times, it should use adequate revenues to build up reserves. The Pharoahs knew this. It is even in the Biblical story of Joseph.  It is common sense.

What does not make sense is to hold fast to an alternative “voodoo” theory—Supply Side Economics—that has always and universally failed in every major prediction, after being tried repeatedly for three decades.

A theory that is quasi-Marxist, in that it openly aims to propel the rise of an all-powerful aristocracy of wealth in exactly the manner that Marx prophesied, taking us toward the sort of class divisions that had old Karl chortling and rubbing his hands, murmuring “Yessss!”


David Brin Ph.D. is a scientist and best-selling author whose future-oriented novels include Earth, The Postman, and Hugo Award winners Startide Rising and The Uplift War. David's newest novel - Existence - is now available, published by Tor Books."
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COMMENTS


This sounds very well thought out and logical.  The problem is that the bulk of the stimulus spending has been on the rich (banks and car manufacturers) and not the middle class.  I would have preferred seeing most of that money used to rebuild our infrastructure (roads, electric grid, natural gas, solar, wind) and put people who have lost their jobs back to work.





Brin, a good post, but Keynesianism has hardly been proven “right” in any sense. I’m a bit disappointed you conflated government policy with economic theory, even for a primer. For a quick counterpoint, a fun little ditty about Keynes vs Hayek on youtube.

http://www.youtube.com/watch?v=d0nERTFo-Sk





And then you have the Austrian economics doomsday cult which keeps predicting the collapse of the U.S. dollar and the destruction of the American economy. Austrian economics organically lends itself to people running investment scams, as you can see from this article in Time magazine originally published in 1981. The two speakers receiving top billing in those fraudulent conferences 30 years ago, Doug Casey and Howard Ruff, to this day tie their forecasts to Austrian economics:

Good Profits from Bad Times

http://www.time.com/time/magazine/article/0,9171,949094,00.html#ixzz0g0vUDxpe

Austrianism sounds like the right’s version of global warming apocalypticism. I wonder how many Austrianists dismiss global warming as Chicken Little, stuff, while hoping that people forget their own failed predictions of doom?





“Of course, Marx then looked farther ahead. He hypothesized an eventual “completion” of this capital-formation process, a final phase when all the factories are finished:an image we now find ludicrous, since productive capacity must be updated at an accelerating pace. (Hence there will always be a need for capitalists.)”

This is obviously a misunderstanding of Marxist theory.  Please provide a quotation where Marx stated this.  The fundamental premise of Marxism revolves around the labour theory of value, and that as machines replace living labour, the capitalist system will be brought into crisis.  This represents the basis for a new type of social formation, made possible by the technological developments arising out of the class struggles of capitalism.

Freed of the constraints of wage labour by more intelligent machines, the greater portion of humanity that is now marginalized will be able to fully participate in the further development of the productive forces, eventually freeing man from the constraints of nature.

Marx was one of the early Transhumanists.  No, capitalists are no longer necessary.  In fact, they are part of the problem.





The issue that is missing here is Capital formation and Capital allocation. Keynes idea that buying things, consumer side driven economies work best ignores the real value of allocating capital to those businesses and individuals who produce new products, create new services, innovate, discover, etc., something a buyer with money going to the local Wal-Mart will never have a chance to help.

Those with capital, and knowledge of how to make that capital produce even more capital, will allocate their investments in a way that benefits EVERYONE through improved products, research and development, creative solutions, etc., all things that depend on rewarding the developers and creators of innovation, new products, new drugs, new things in general, and taking capital investment away from those who produce shoddy products, or who don’t produce something people need or want.

What supply side does for an economy is assure that capital allocation produces the things we want—innovative products, improved medicines, etc.  Giving money to the public to buy goods, and taking it from the capitalists who allocate capital for their own benefit (with the result being that we ALL benefit) is wrong. This is why Keynes and other progressives are just plain wrong.

Supply side economics benefits everyone, demand side programs just increase taxes, and encourage the snake oil salesmen among us to sell S*() to idiots.





To the author of this article:

Reagan’s preference for tax cuts on R&D and adding tjhings like the more immediate expensing of assets, lowering taxes, etc., brought us out of the Jimmy Carter Malaise, measured by the Misery Index period and gave us an economy that grew much faster than Carter’s dismal economy, and grew faster than the Keynesian apologists predicted.  Obama is a Keynesian, which is why we are headed for a huge decline in innovation and new products under his leadership. Not to mention the obvious class warfare dimension of his policies.

After Reagan’s tax cuts, the payoff of all the new technoology was the rapid growth of labor saving approaches that came out in the 1990s, with computers, software, networking of computers, etc., all the result of startup companies funded by the nasty capitalists that Keynesian supporters despise. Most of these products were the result of R&D started during the Reagan period.

We ALL benefit when innovative products are put out there for us to buy, people like new medical treatments, advances in automobile technology, improved products of all kinds, the things that result when people risk their capital to form new companies with new ideas, many of which fail, but some of which succeed. Without the large pools of capital needed to keep the capital markets vibrant, our economy would become a stagnant cesspool of boredom, like the economies of Cuba, or the former Soviet Union. We are the richest nation on the planet because of investment risk taken by people with capital to invest in new technology, not because people had more money to spend at K-Mart.





Henry Ford was an innovator who produced something people wanted and needed.  But he also realized the importance of demand-side economics.  He paid his workers $5 a day, more than the going rate, and was highly criticized for it at the time.  You might consider this income redistribution and class warfare, but Ford knew it was a way of making a lot of money.  He knew that, if he were going to successful at selling cars,  the people putting those cars together at least had to be making enough money to buy them. 

You may have one of the most innovative products there is, but if you put your product out there for people to buy, and no one has the money to buy it, you will end up a failed innovator and your product won’t see the light of day. 

If there is no demand (in terms of buying power), many of those with money will tend to hang on to it by putting in safe, secure investments.  That money will be essentially lost to the economy, resulting in idle productive capacity and waste, not real growth.

Capitalism is driven by demand not by supply; supply just responds to demand.





Thomas,

Henry Ford would never have become successful without the capital provided by investors who saw the potential of the automobile. It was his innovative ideas combined with capital from investors that created the foundation for his company.

His initial focus was NOT on paying high wages so they could buy his cars, his initial focus, the innovative process coupled with supply side capital investment was the reason for his success.

You have, as they say, put the cart before the horse. Your focus is on wages as providing the demand for Ford autos, but misses the key idea that it was the capitalist investors combined with genius and hard work that created the auto industry, not consumers.

Furthermore, he sold automobiles to people who were not employed by his company.

Question:

What if Henry Ford came up with a way to mass produce buggy whips and paid his employees high wages. Do you think he would have been as successful? Do you think anyone would have invested in the Henry Ford Buggy Whip company?


Capital and Innovation, management and engineering, all supply side issues are what makes our economy successful, not just consumers with money.

 





@ Dr T

And we’ve tried 30 years of supply side economics, to our current failure.

What is needed is a balance. Capital is needed to drive innovation and support new product development, BUT UNLESS THE DEMAND SIDE HAS MONEY TO SPEND THERE IS NO MARKET.

The economy needs that “top tier” the way a tree needs a canopy, but the canopy CANNOT EXIST WITHOUT A TRUNK.

What “supply side economics” has forgotten is that the trunk can always grow a NEW canopy, but the canopy will die if it kills off the trunk.  Both are needed, but their dependencies are NOT EQUAL. The trunk can and has shed it’s top and survived, leaving just enough “leaves” to regrow. But NEVER in all of human history has a canopy survived eliminating the trunk.

Money flows from the bottom to the top. Period. Argue for “supply side” all you want, but you argue for a ideology that has been DIS-PROVEN BY REAL WORLD EVIDENCE.





Dear DR. T:

You’re right.  Henry Ford did depend on the capital that investors provided.  However, those investors, besides seeing the potential of automobiles, had to expect a sufficient demand for automobiles—not just in terms of consumers wanting and needing them, but also in terms of their having the money to pay for them.  If that demand is not there, investors will be reluctant to fund a project, no matter how innovative it may be, choosing instead to put their money in investments that offer lower return but are safer and more secure.  That’s in keeping with what Mr. Brin has indicated in his discussion above: Supply Side largesse for the rich might not go into capital formation, but might simply make the rich richer.

A similar thing can happen if the ownership and management of corporations don’t recognize the essential importance of demand and keep most of the profits for themselves.  Ford built a successful business by developing efficient mass-production techniques that made it possible to build inexpensive cars in volume.  But he also realized that more cars could be sold if employees could afford to buy them. His paying $5 to help create demand set an example for other industries to follow.  His concept of increasing demand helped better the lot of all American workers and set the stage for an emerging middle-class.

The point to be made here is that, while investment capital is extremely important in getting an innovative process started, it is consumer demand, not supply, that drives the process and keeps it going. 

The inherent fallacy of supply-side economics is evident in the current financial crises left to us by the Bush administration.  Much of the prosperity created under the Bush administration came from credit-card purchases.  That kind of spending can be kept up only until the point is reached where people end up paying only the interest on those cards, and cannot pay down the principle or have any money left over for other purchases. When that happens, demand dries up, which is the problem we’re now having.

As for Reagan, if you look closely at the economic policies he followed during his administration, you’ll find that he was essentially a Keynesian.  He favored tax cuts, but they didn’t really work the way they were supposed to.  They resulted in less tax revenue, not more: Revenue from personal income taxes (per person, adjusted for inflation) fell by 9 percent from 1980 to 1984, even though average income (per person, adjusted for inflation) grew by 4 percent over this period.  But he also seemed to favor budget deficits, which did work.  Much of the R&D started during the Reagan period was the result of the record budget deficits the Government ran throughout Reagan’s two terms in office.  These deficits put more money into the economy, thereby increasing demand substantially (a Keynesian concept). 

You are wrong in saying that I’m putting the cart before the horse.  I don’t have the cart before the horse; I want to put the horse (demand) in front of the cart where it can pull. That’s the gist of demand-pull economics, which I think you’ll find is favored by most economists.  In your scheme, you want build the cart first, which is fine.  But you still have to find a horse to pull it.  If you can’t find such a horse, your cart won’t be going anywhere.

Now don’t get me wrong.  I’m not for paying employees excessively high wages (as you seem to imply in your buggy whip example), but I am against managers and investors keeping most of the profits of a business and not leaving enough for the workers to use for consumption—for buggy whips and other purchases.

I would also like to make a point about innovation.  Not all jobs are created by innovators who introduce new methods, ideas, or products; a great many jobs are created by people opening businesses that market established products, such as grocery stores, hardware stores, restaurants, etc.  For the most part, these businesses produce more of the same and don’t necessarily require much innovation.  Moreover, jobs created by innovation can be fleeting: jobs created when the business is started can be lost when the business fails, producing no net increase in jobs.  That is not to say that innovation is not extremely important to a thriving economy, but it is not to be considered the sole producer of jobs.  Expansions in existing industries also create jobs.

Sincerely yours,

    Thomas G.





“When that happens, demand dries up, which is the problem we’re now having.”

Is this called “overproduction”? too much has been produced for an economy of tapped-out middle class and proles?





Valkyrie Ice writes: “And we’ve tried 30 years of supply side economics, to our current failure….Money flows from the bottom to the top.”

Can you tell us which country or countries ran on demand-side economics, to their currect success, where money flows from the bottom to the top? Thanks.





“Can you tell us which country or countries ran on demand-side economics, to their currect success, where money flows from the bottom to the top? Thanks.”

Perhaps China?
Don’t really know; if you were to place a number of economists in a room together, there might be little consensus. BTW, economics isn’t a science, Veronica.





Excellent point, postfuturist. I’m sure we’d also agree that for a country to qualify as a “success,” there are things other than economics to consider.





Seriously, do NEITHER of you study history?

Demand side economics HAS BEEN THE DOMINANT FORM OF ECONOMICS SINCE MANKIND HAS DEVELOPED “AN ECONOMY”

So… SINCE EVERY COUNTRY IN HISTORY has run on it until the Industrial revolution it’s a 4000+ year success story vs a 30 year FAILURE.

Historically speaking, every time a “switch” to a “Supply side economy” has been attempted, it MARKED THE COLLAPSE OF THE COUNTRY OR EMPIRE THAT HAS ATTEMPTED IT.

So, I think I’ll stick by the economic theory that works, in which money flows from the individual, UP the economy through collectives that merge individual contributions into large amounts of “capital” that the collective is SUPPOSED TO USE to help the collective, but which (as we see today) other individuals HIJACK into personal profits. “Supply side Economics” DOES NOT WORK BECAUSE INDIVIDUALS DIVERT CAPITAL INTO PERSONAL GAIN rather than putting it to use to benefit the collective. THIS HAS BEEN PROVEN TRUE TIME AND AGAIN IN HISTORY.

Now, Veronica, how about you actually STUDY HISTORY rather than blindly follow your ideology and it’s “pseudohistory” that tries to whitewash it’s unending record of failure?





Valkyrie, why so testy? I asked a simple question without any sarcasm. Not to challenge, but to get your insights. Why should I “study history” instead of asking you for a short, one sentence answer?





*sigh* why Veronica?

Maybe because you blindly parrot the talking points used over and over and over and over and over by the anti-progress retro “conservative” movements that Brin has pointed out time and again? Because your questions are the same rhetorical BS that has been answered over and over?

Simply put, Veronica, you come across as a cookie cutter conservative SHILL instead of a real live person asking questions, because your questions almost always seem to be cut and pasted from some “Talking Points Memo” or another.

IF this is NOT the case, you have my apology. But be aware, I’ve been having discussions nearly identical to this with hundreds of people across the internet, and they ALL claim to be asking “innocent” questions which are nearly word for word copies of yours.

In this case, Veronica, knowing ANY history at all should illustrate that we have TRIED SUPPLY SIDE ECONOMICS FOR 30 YEARS.  The result? The VAST MAJORITY OF AMERICAN WEALTH has been sucked OUT of the economy and funneled into PERSONAL BANK ACCOUNTS.  The CAPITAL so loved by DR T and others is SITTING IDLE in an INDIVIDUALS “Horde”, and thus is neither being invested in “innovation” or invested in business growth, which is THE ENTIRE POINT OF CAPITAL TO BEGIN WITH, it is instead being siphoned OUT OF THE COMPANIES and INTO A FEW INDIVIDUALS POCKETS.

IF capital were NOT being sucked out of “The Market” by these individuals, then the claimed benefits of “Supply side economic theory” would have materialized. However, because it is human nature to seek to escape any accountability while maximizing personal gain, we once again have reached the point of collapse, as so many other historical societies have. The Roman patricians did it to Rome, the Aristos did it to France, and now Wall street and Corporate CEOs are doing it to America. This cycle has occurred TIME and TIME again in history.

This is why I recommended studying history, and why the retro-cons are trying so desperately to rewrite it, in order to prevent people from realizing that collapse is inevitable UNLESS REAL ACCOUNTABILITY IS ENFORCED, which is the heart and soul of this debate.

Demand side economics ENFORCES ACCOUNTABILITY and BUILDS ECONOMIES. Supply side economics REMOVES ACCOUNTABILITY, and enables small groups of individuals at the top to SUCK THE ECONOMY DRY.





Some just don’t understand how the capital markets work when the government isn’t interfering with them. Marxism is a failure, labor theory of value, consumption driven economy, etc., these economies do NOT produce innovation. The only reason the Soviets were able to keep up with technology was to steal if from the west, the same is true of communist chinese and others.

Supply side economics is responsible for innovation, new drugs, net technology, none of the things that consumers would even know how to define or describe, let alone produce. It’s people taking risks with the potential for profits that creates new products.

Marx and other socialists don’t understand markets, they view them as static, and once there is sufficient supply, that’s all that matters. Marx and other socialists and anti-capitalists had no idea how innovation could keep expanding the markets, creating new markets, new opportunities.

People like Valkirie Ice and others are so caught up in their hate for capitalism that they will believe that anything is better.

Once you believe in the unbelievable, like demand driven economies, it’s easy to make you believe in the unthinkable, like government run economies. There goes your freedom to succeed. If you’d prefer to complain rather than create something new, innovate, create a business, or service, use your own talents, then you will always be dependent on government for your well-being. What a sad state of being to rely on government to provide for you.

Provide an example of how demand alone has created an innovation ?

How many anti-capitalists would have invented the iPhone ? Or the internet? Or new drugs or medical procedures?  Demand driven economies produce food and clothing, but rarely anything really innovative or creative.





Yes Dr T. We see how well it has worked at bringing America to it’s economic knees while WallStreet has made out like bandits.

The point that your IDEOLOGICAL BLINDNESS is preventing you from see is that your THEORIES are very well thought out, and very well reasoned, and that in an ACCOUNTABLE WORLD, would work exactly as you say.

The PROBLEM is that WE ARE NOT LIVING IN AN ACCOUNTABLE WORLD.  As such, individuals gaming the system are draining the economy dry while all those “benefits” you are a die hard believer in HAVE NOT BEEN REALIZED. 

It’s not the economic theory that is the problem. Never has been. It’s the HUMANS WHO ARE SCREWING THINGS UP, like always.

A supply side economy DOESN’T WORK. It WILL NEVER WORK UNTIL THE ENTIRETY OF HUMAN SOCIETY IS ACCOUNTABLE. So long as it is possible to “game the system” there will be individuals who will siphon off all the “wealth” they can to personal hordes, and KILL OFF THE ECONOMY.

ONLY in a DEMAND SIDE ECONOMY is enough accountability MAINTAINED to make an economy actually work. Historically speaking ONLY DEMAND SIDE ECONOMIES HAVE A PROVEN RECORD OF GROWTH.

I have no hate for capitalism, Dr T. In fact I view capitalism as the most beneficial economic system we humans have so far created. I also think that we will function as a capitalist economy even once we have transitioned to a non-material economy in which material resources have lost all value and only knowledge based resources have value.

Which is why I’m not attacking CAPITALISM, but your economic stance, which has been PROVEN TO BE INVALID.

Still, you’ve done a good job of proving that the facts are meaningless to your beliefs, so feel free to continue to believe what you wish, just as I will continue to look at the real historical evidence and go with WHAT ACTUALLY WORKS.





oh, and an example of “Demand” creating an innovation? We liked the “Communicators” from Star Trek. We DEMANDED them for decades. As Cell phones were created, we looked at them and said “THIS ISN’T WHAT WE WANTED” and eventually we got EXACTLY what we demanded.

Do you seriously think that cellphones would have evolved AWAY from the phone handset of the original towards the clamshell “communicator” format had the public not demanded a “Communicator” instead of a “portable phone”?

Of course you do, because to you there can be no examples of “demand” driving innovation. Your worldview won’t allow one to exist.





Valkyrie - The fact that you are putting a message on a website using a computer and software through the internet is proof of the validity of capital driven supply side innovation.

Nobody who wanted a Start Trek communicator ever created the concept of cell sites using spread spectrum technology and interconnected through the internet or microwave towers.

To say that demand created cellphones is absurd. Without capital, and lots of risk taking by those with capital, and the innovative people willing to work for these companies, you would have no cell phone, no laptops, no home computers.

And behind the successful cellphone manufacturers, service providers, retail distribution system, etc., are numerous failures and capital risk taking that lost people money as well. The fact that innovators who need capital can work together is what makes for new products and technology.

You fit the description of someone who is “down on what you’re not up on”—you simply don’t know how the economy works, and why our US economy has produced such a high standard of living, and those in demand driven parts of the world (lack of capital, or government controlled economies) are typically poor countries that depend on US technology to keep them from slipping further into the dark ages.

PS: You should do some research on the number of corporations and capital driven enterprises we have in the USA, compared to the relatively small number of thieves in business, and the large number of ignorant twits in government, and working for outfits like SEIU and ACORN, and the other anti-capitalist groups, including those who think demand produces new products without knowing anything about product development. Include yourself in that latter group, because clearly you have no idea what’s involved in developing new products or services, or who takes the risks, and who funds these ventures.

The reason people are reluctant to hire employees, and start creating new businesses is because our government, and especially the jerks at the top, know as little about creating jobs and businesses as you do, and it makes no sense to take such risks without knowing what else the liberals have cooked up to further screw up what was a vibrant economy, even under G.W. Bush.

It was, by the way, the liberals and their need to dictate lending policies to banks that created the ridiculous “lend to anyone” environment that got us into the home mortgage crisis and all the other problems that created. Democrats created these problems by trying to tinker with a system they didn’t understand, it wasn’t G.W. Bush’s strategies, it was Barney Frank, Chris Dodd, Maxine Waters, Chuck Schumer, and a host of other bleeding liberals who have destroyed the free enterprise system due t o their ignorance and pompous attitudes toward the sources of our prosperity.





I gave you the answers to the questions you asked Dr T. The fact that you chose to rationalize them away because they fail to fit your ideological belief system is a sign of your mental issues, not mine.





“it wasn’t G.W. Bush’s strategies”

Because the Bush family is strategically incoherent, relying on Karl Rove’s demagoguery. Starting with Bush 41’s disingenuous “read my lips, no new taxes”, the Bush League failed to build on the end of the Cold War. I wrote Rove an email (his address available from NRO, where Rove is a regular) on August 12th, asking “why is it you don’t like the Kennedy’s power obsession but you don’t mind such a trait in the Bushes?” Rove wrote back a few weeks later: “What, you don’t like families?”
Rove is a Chuck Colson sort who will do anything to elect his people, regardless of lack of scruples involved.





Valkyrie writes (after several accusations): “IF this is NOT the case, you have my apology.”

I sincerely accept your apology.





Valkyrie - Your example simply demonstrates your lack of knowledge.
The personal attack on my “mental state” typifies the approach used by folks who don’t understand the issues, so they resort to name calling or attempts to marginalize the arguments by attacking the messenger.

Perhaps one day you’ll be in a position to want help developing a product or service, and will need financial backing, and who will provide it? A bank? I think not. But it’s useless to argue about the role of capital with people like you who have so little knowledge of the subject. This isn’t an attack on you personally, it’s just clear that your understanding of the subject matter is a bit sophomoric.





No, Dr T. I answered your questions, and I predicted your response exactly. Like all ideological fundimentalists, you refuse to let the facts interfere with your beliefs.

I get that you are a zealot. I get that this is a tenet of your faith, and that you must defend it at all costs regardless of it’s validity. It still doesn’t change the facts. Like your opposite number in the “Marxist” camp, your only response to the 30 years of failure of your beleifs is “WELL THEY HAVEN"T BEEN ALLOWED TO ACTUALLY WORK!  GIVE THEM ANOTHER CHANCE!! I KNOW THEY’LL WORK THIS TIME!!!”

A good definition of insanity is continuing to try the same thing over and over even when you know it didn’t work the last eighty times.

40 years from FDR till Reagan under demand side economics, fourty years of America being the largest economic success in the world. Then 30 years under supply side economics to bring America back to the great depression.

Reality = History = Fact

And V, you only get my apology if you ARE NOT a shill. Prove to me you aren’t one first by not using cut and past talking points.





Doc,
I can see why you might like Reagan, his policies bankrupted the Soviet Union, which had become by the time of its invasion of Afghanistan the premier imperialist power. But since then
it has been a GOP nothingburger time and again: Bush 41 was clueless after the Cold War finished; Gingrich’s “revolution” fizzled out due to lack of a direction; and Bob Dole was a dork; America would never be so foolish as to elect a dork for president. Jack Kemp, a far better candidate was relegated to the bottom of the losing ticket. Bush 43’s administration went nowhere, Dubya will have more influence when his mendacious memoirs are published next month. John McCain was a replay of Bob Dole: another elderly war hero too bored to retire so he runs for president.
The GOP says ‘trust us’, but they give no reason to trust them; they keep saying “vote for us, send donations to us”, but they are merely stringing us along.
But go ahead, keep screwing it up, never underestimate the ability of the GOP to shoot itself in the foot.





Sorry to ask a fundamental question, but

What is growth?

(And what is it needed for (in developed countries)?)

All I observe is the growth of people’s midriffs, since they already got everything they need and 10x more junk they don’t.





“Maybe because you blindly parrot the talking points used over and over “
“your questions almost always seem to be cut and pasted from some “Talking Points Memo” or another.”
“Prove to me you aren’t one first by not using cut and past talking points. “

Yet V.I. wrote: “SINCE EVERY COUNTRY IN HISTORY has run on (demand side economics) until the Industrial revolution it’s a 4000+ year success story vs a 30 year FAILURE.”

Wow, talk about talking points!





@ Alex.

I’m using the terms AS DEFINED in this thread, and examples from historical study. I am not quoting or copying and pasting from a “liberal” blog, nor following a “liberal script”. If you don’t like me using the phrase “demand side economics” then blame those people who created the term to differentiate simple economics from the convoluted juggling act that “modern economics” has become.

And if you don’t like historical fact? Not much I can do for you there.





I know the thread is pretty much dead, but I just have to address something:  “After Reagan’s tax cuts, the payoff of all the new technoology was the rapid growth of labor saving approaches that came out in the 1990s, with computers, software, networking of computers, etc., all the result of startup companies funded by the nasty capitalists that Keynesian supporters despise. Most of these products were the result of R&D started during the Reagan period.” and “The fact that you are putting a message on a website using a computer and software through the internet is proof of the validity of capital driven supply side innovation.”

First, Reagan did cut taxes, but didn’t he also agree to cut $3 in spending for every $1 he cut in taxes?

But to a larger and more important point:  You’re wrong about computers.  We got the computer industry we do today because of the space race (LONG before the 90s).  NASA provided millions of dollars to come up with a computer that could run the necessary programs and would fit into a small enough space.  Government money has actually fueled most of our modern innovations because they had a DEMAND for it.  Then when the private companies had stuff up and running, they looked at the products and figured out how the general populace could make use of the same or similar products and then marketed it to them.  Then as the general public got ahold of the products, they also made demands for more specific innovations to those products, etc.  But it started with a demand from somewhere, and later when they marketed to the wider public, that public had to have the ability to buy the products or it wouldn’t have mattered, and then demand is what maintained the continued advanced.  Capital outlays are necessary, but they are not the actual drivers.





Dr T. wrote: “Supply side economics is responsible for innovation, new drugs, net technology, none of the things that consumers would even know how to define or describe, let alone produce. It’s people taking risks with the potential for profits that creates new products. “

I’d like to point out that if it were not for the buying power( Medicare) given to the Baby Boomer generation, the advances in medicine, drugs, knee relacements,etc…. would not have grown as quickly as they have. We have a whole sector ( the medical sector) that has advances because of gov’t spending. If the Boomers did not have that buying power given to them via SSI/Medicare there would be not market for these innovations.

Just some food for thought….





The question of which starts which (supply side or demand side) seems to be a “chicken & egg” problem. Which comes first? It appears that an either/or mentality will never solve such a complicated economic problem. I think we need to frame some important questions concerning what our economic objectives are and what they should be. For example, “What is/are our primary objective(s) in current economic policies?” Is it getting the economy going again? Is it getting people back to work? Is it controlling the deficit? Is it preventing inflation/stagflation/deflation? Is it keeping our country safe from terrorist activities? Is it all of the above? Are we focusing on objectives that we actually can control with specific policies or are our objectives out of our control? Can we try some new incentives to get the economic engine running again? Can we try a variety of approaches to see which will work better under which conditions? Let us please think before we jump at simplistic either/or solutions to our economic problems.





One thing is clear: infrastructure spending by the government creates jobs and will stimulate the economy.  It is amusing how so many people change the story to suit their own political preferences. 

It is obvious that 10 years of the Bush tax cuts has not produced any jobs.  Of course, this is what the supply siders want: cheap labor.

Oh and about Reagan and his booming economy: he spent this country into the hole with massive defense spending.  This helped the economy, which many have noted, yet his tax policies did not increase revenues (even with his supply tax policies).  Remember, they were supposed to magically increase revenue, but in reality didn’t.





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