Okay, let’s step back a second and look at some basics, before we get into the details of Keynesianism vs Monetarism and all that.
What is it that makes a society wealthy? What makes it increase in wealth?
The answer is that the wealth of a society is measured by the cumulative collection of things, by the quantity and quality of the infrastructure, and by the ability of the people to make more such things efficiently.
What makes a society increase in wealth? An improvement in the ability to make things that members of society want. Improvements in productivity. More efficient uses of existing resources. That sort of thing.
The engine of prosperity in our society is capitalism. That is, the organized competition of millions of people competing with each other in an open market, driving innovation and constant focus on making things more efficiently and making new things that people want.
That is, what makes us wealthier is trade. Trading amongst each other, trading wtih other people in other countries. Without trade, we would be forced to subsist on what we can make ourselves, which generally would mean subsistence farming. A life that’s nasty, brutish, and short. But when we trade with each other, we can specialize. We can learn to be really good at something, let someone else get really good at what they do best, then we trade our surplus for theirs, and we both come out ahead.
Money in an economy is an abstraction - without it, we would be a barter society. Barter is fine for villages, but it breaks down when you don’t know the people you are trading with, and don’t have access to their goods. Plus, barter would require far too many levels of indirection. I want a new car, but no one around here makes cars. So I trade for a new goat, whcih I give to a guy who’s got something that I can trade for something else that I know yet another person needs, so that i can trade for something else… Instead of doing that, we create a monetary system that allows us to use pieces of paper to represent things in general.
It’s easy to think that money is wealth, but it isn’t. Money is just the representation of wealth. That’s why printing money and handing it out doesn’t increase wealth. Ultimately, you still have the same amount of goods an services, but with more dollars chasing it you just devalue the dollar.
So, if we can understand that wealth really is things we have built and are capable of building, and not cash, you can start to see how wealth must increase - either we have to work harder to make more things, or we have to learn to make the things we want more easily, or we need to value new things.
When the government taxes money from one person and gives it to another, it is not creating wealth. If you go and spend that tax rebate on a shiny new car, you are not creating wealth. You are consuming wealth. You wear out that new car, and suddenly society is one car poorer than it was. And of course, the other guy doesn’t get to buy what he wanted to buy. If he wanted to buy the same car, then nothing is any different - one car gets made and sold - only to you instead of the other guy. There is one difference - there’s now a governmental middleman who also is getting paid, so overall, wealth goes down.
Now, let’s say that the other guy was going to blow the money on hookers and booze, and the government taxed that money away from him and gave it to you, and you use it to build a new factory which can make lots of beer. Now wealth has been created. We pushed the money from the demand side to the supply side.
That’s the key principle of supply side economics - if you want to build wealth, you create conditions by which people who are building the infrastructure to supply society with goods have an easier time doing so. Right now, they’re taxed, and we’re taxed. A supply-side economist would say that if we decrease their taxes, we’ll make it easier to build new things. And if we instead tax consumption, we won’t consume as many things. Thus, wealth will increase.
A Keynesian will say that this is all well and good, but when a recession happens and the demand side is depressed, suddenly you find that you’re building too many things. You’re building far more than you consume. Eventually, this will cause the builders to go out of business, and that will hurt the ability of the economy to create wealth. So instead, during the slow times, you create demand-side tax cuts or other incentives, which keeps the supply side afloat. Then when times are booming, you increase taxes to get the money back that you spent during the down times.
Now getting back to the OP - Let’s say you decide to cut taxes for consumers so they have more money. Consumption goes up. You’re now consuming more of your society’s wealth. But if this isn’t a Keynesian fix - you’re not correcting for an overabundance of supply - then you’ve got a big problem. The problem is that the tax money had to come from somewhere. If it’s not coming from consumers, it’s coming from producers. So you’re making it harder for people to make new things, and you’re stimulating the consumption of things. In the short run, this might work. Economic activity will increase as the inventory of things gets burned up. But then you find that there aren’t enough things any more, so prices start to go up. And the new things that are being made are more expensive because the taxes the producers pay are going to be passed down to you through the price of the products.
This is a bad way to go. Again, you’re trying to consume your way to prosperity, and the world just doesn’t work that way.
Trickle-down economics says that if you make it easier to produce things, ultimately your society will be better off. Will that show up in the form of higher incomes for low-income people? Maybe not. But it will show up in lower prices for goods, in higher quality of goods, and in increased standards of living. You may not be earning more money than you did five years ago, but five years ago a 36" Plasma TV cost $10,000, and today you can get one for $500. Now, the rich might get rich faster than your standard of living increases, so the gap between the richest and poorest might grow.
As Measure to Measure said, it’s not as simple as saying supply side is always right, or demand-side stimuli are always wrong. Much depends on the current state of the economy and the structural imbalances that currently exist between the two.
But ultimately, societies get wealthier because producers get better at producing. To get better, they need to invest in production. If you tax them too heavily, they won’t have the investment money, and the economy begins to stagnate.
Then there’s the whole complexity of world trade, which opens up a new can of worms. That’s too big a subject to continue with here, but ask yourself this question - what happens if we tax a widget maker 25% of all the money he makes from widgets, but a widget maker from Widgetstan only gets taxed 10%? If we’re both equally good at making widgets, but the government is taking 15% more off the top from my widget profits, how am I going to compete?