# Why not "demand-side economics"? **URL:** \ **Category:** Great Debates\ **Created:** [July 6, 2010, 11:06pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790 "2010-07-06T23:06:02Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [July 7, 2010, 11:36pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/41 "2010-07-07T23:36:03Z")
> [@Sam\_Stone](#): > > Um, I don’t think supply side economics is the cause of deficits. I think deficits are caused by a gap between government expenditures and revenues. I can just as easily blame deficits on large government costs. More specifically, I think deficits going forward are most specifically caused by governments having promised people more in entitlements than we can afford. Supply side economics cause those big gaps between revenues and expenditures though, right? I mean that’s what the numbers show. Cutting taxes does not stimulate enough economic growth to increase revenues to the level they would have been had taxes not been cut. In fact the evidence shows no real extra economic growth at all due to cutting taxes. And entitilement programs are easily affordable in the medium and long term. All that’s needed for instance in the US is to get the projected profit growth out of the Medicare system or ideally bring in a universal system like Frenace or Canada’s. Then the US deficit problem would disappear overnight. ---
**Author:** ![smiling\_bandit](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@smiling\_bandit](https://boards.straightdope.com/u/smiling_bandit)\ **Post date:** [July 8, 2010, 2:02am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/42 "2010-07-08T02:02:47Z")
> [@septimus](#): > > Wrong. It is right-wing ideas like “Greed is good”, “wealth creation implies value to society”, “government regulation is always bad” that lead to such mistaken priorities. > > So let’s start with you, **smiling bandit**. Was Greenspan’s cheerleading for the derivatives market a good thing or not? Was the _Greed is Good_ banking climate that led to the mortgage crisis a good thing or not? I’m not sure why my . Furst off, I am not finance expert. That said, I know there were several who did question his inflationary growt-at-any-cost approach. I consider it dangerous myself, but he was not the only problem. Congress- Right and Left, has unfortunately been encouraging bubbles for a while. IN some ways they still are. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 8, 2010, 2:36am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/43 "2010-07-08T02:36:12Z")
> [@Dick\_Dastardly](#): > > Supply side economics cause those big gaps between revenues and expenditures though, right? Supply side tax cuts from modest tax levels will not create enough GDP growth to cause government revenue to rise enough to recoup the costs, no. Both the Reagan and Bush tax cuts caused short and medium term government revenue to fall. That does not mean they are the cause of the gap between revenue and expenditure. Gaps are caused by the difference between revenue and expenditure. You can fix them by modifying either side of the equation. For example, it would be a ‘supply side’ move to cut business taxes and replace them with a VAT tax. Or to cut business taxes and adjust the spending of government to match the revenue picture. > [@](#): > > I mean that’s what the numbers show. Cutting taxes does not stimulate enough economic growth to increase revenues to the level they would have been had taxes not been cut. You’re taking a very narrow view of ‘supply side’. Not all supply-siders think that the Laffer Curve means you’ll always get back more in revenue than you cut. Hell, even Art Laffer doesn’t say that. What many will say is that the loss of revenue will be somewhat less than the total amount of the cuts because of revenue gains through increased GDP. It’s called “dynamic scoring”, and the Obama administration is using it now. > [@](#): > > In fact the evidence shows no real extra economic growth at all due to cutting taxes. Never? Really? You got a reputable cite for that? > [@](#): > > And entitilement programs are easily affordable in the medium and long term. All that’s needed for instance in the US is to get the projected profit growth out of the Medicare system or ideally bring in a universal system like Frenace or Canada’s. Then the US deficit problem would disappear overnight. Ridiculous. You do know that Canada’s health care budget is also exploding, right? The population is getting older, and new medical procedures and drugs are being invented every day to keep people alive and healthier longer. Both of those factors are contributing to an expansion of health care costs throughout the world. As for the U.S. not having a deficit problem if it can stop the growth of health care costs - the U.S has a deficit problem _now_. A big one. Are you contending that public health care would shave. 1.6 trillion dollars off the U.S. budget? I’d like to see how that works. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [July 8, 2010, 7:12am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/44 "2010-07-08T07:12:45Z")
Thanks for posting the synopsis of your political views, **Sam Stone**. I’ve bookmark’ed it, in case we join in debate again. 🆒 I didn’t get a clear answer from **Smiling bandit** when I posed the following question. Would you be willing to try, **Sam**? Was Greenspan’s cheerleading for the derivatives market a good thing or not? Was the _Greed is Good_ banking climate that led to the mortgage crisis a good thing or not? > [@Sam\_Stone](#): > > Post-literate is … For example, a society in which everyone gets their information from TV and communicates by phone or video. That’s why I said it was weird to claim that society was ‘post-literate’ while writing messages on a message board. Iron-age people who preferred bronze tools still lived in the Iron Age. My impression is that policy-making today is less competent than it was some decades ago, that (without writing a long essay to connect the dots) _listening_ to Limbaugh rather than _reading_ Buckley is part of the problem; I use “post-literate America” in an ironic way to reflect that. Although you and I may have other areas of disagreement, the focus in this debate is your faith in free unfettered markets. There are many reasons why such faith is unfounded, with the “Tragedy of the Commons” being particularly simple, important and easy-to-understand. I am also, believe it or don’t, an advocate of free-market methods but believe the free market can often be improved by government interventions, especially simple taxes. Fire protection, for example, is usually taxpayer-funded so if a product poses a fire risk, don’t prohibit it – tax it! with the tax commensurate with the fire risks. Similarly, if government by and for the people determines that tobacco or gasoline use has drawbacks not factored in to market prices, then tax tobacco or gasoline! [QUOTE=Sam Stone] I’m skeptical of these kinds of cool-sounding big ideas, because I believe that markets are complex and that when you meddle in them you cause problems you never anticipated. You might convince me that your plan is a good one, but the burden of proof is on you and I set the bar pretty high for government intervention, given its track record. … I believe that the market is a complex, chaotic system with uncountable feedback loops and unpredictable actors. As such, I believe the only way for it to functional well is from the bottom up. I also believe that a modern economy is far too complex for a government to manage, and that government doesn’t have access to the information needed to efficiently direct markets, because the information is simply not available outside the boundaries of the choices of the public and the feedback of the price system. Government can _never_ know what’s best for people, because the people themselves don’t know until they are forced to make choices between all the options available to them - and to pay for them. …And when a government decides to meddle in that market by fiat, it causes outcomes it could not predict. So corn ethanol subsidies wind up causing the price of chicken soup to go up through some 5th order interaction, an outcome that was totally unpredictable. [/QUOTE] I think it is your faith in unfettered markets that is misguided. The program of mortgage delay I advocated would be rather simple compared with how the “free market” for mortgages developed: mortgages have been sliced, diced and traded to the point where homeowners literally have no one to negotiate with (and homeowners are even winning lawsuits because with all the slicing and dicing the free market sometimes can’t even prove who owns a given slice of mortgage paper!) I don’t like your “corn ethanol subsidy” example. I happen to think ethanol subsidies are foolish for _1st-order_ reasons. I don’t know if you can find a reference for even a “3rd-order” economic interaction causing trouble but if so, would guess that private enterprise was as likely to be to blame as government action. The almost-religious fascination with unfettered markets is, I think, a big flaw in today’s right-wing thinking. A few months ago, there was a thread about “High Frequency Trading” and I was almost a lone voice in that thread, claiming that such hyper-efficiency was more likely to be a problem than a solution. Today we see a new SDMB thread (sorry, I don’t have link handy) pointing to a video with allegations of HFT use to manipulate prices. (And let’s be clear: such shenanigans are _not_ victimless crimes.) ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [July 8, 2010, 1:20pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/45 "2010-07-08T13:20:09Z")
> [@Sam\_Stone](#): > > Supply side tax cuts from modest tax levels will not create enough GDP growth to cause government revenue to rise enough to recoup the costs, no. Both the Reagan and Bush tax cuts caused short and medium term government revenue to fall. > > That does not mean they are the cause of the gap between revenue and expenditure. Gaps are caused by the difference between revenue and expenditure. You can fix them by modifying either side of the equation. For example, it would be a ‘supply side’ move to cut business taxes and replace them with a VAT tax. Or to cut business taxes and adjust the spending of government to match the revenue picture. > > You’re taking a very narrow view of ‘supply side’. Not all supply-siders think that the Laffer Curve means you’ll always get back more in revenue than you cut. Hell, even Art Laffer doesn’t say that. What many will say is that the loss of revenue will be somewhat less than the total amount of the cuts because of revenue gains through increased GDP. It’s called “dynamic scoring”, and the Obama administration is using it now. > > Never? Really? You got a reputable cite for that? > > Ridiculous. You do know that Canada’s health care budget is also exploding, right? The population is getting older, and new medical procedures and drugs are being invented every day to keep people alive and healthier longer. Both of those factors are contributing to an expansion of health care costs throughout the world. > > As for the U.S. not having a deficit problem if it can stop the growth of health care costs - the U.S has a deficit problem _now_. A big one. Are you contending that public health care would shave. 1.6 trillion dollars off the U.S. budget? I’d like to see how that works. Short, medium and long term revenue to fall, not just short and medium. And of course supply side cuts are the difference between revenue and expenditure. Reagan made great big tax cuts and ended up with then record deficits because of it. Bush made tax cuts and tax revenue fell. Even just before the recesion hit it was vastly below where it should have been. Just compare revenue growth from the Bush years to revenue growth from previous decades. Whatever supply-siders think or claim it’s all turned out to be a bunch of crap. It’s really hard to look at the current economic situation and still support supply-side ideas. Not that it’s going to stop _you_ but for the non-ideological people over the last couple of years the facts and the evidence of what free-market deregulationism does to your nice economy are pretty clear. Just look at economic growth under various presidents to see how well supply-side works. Reagan’s economic growth was within 0.1 percentage poijnts of high-tax Jimmy Carter and tax-raising Bill Clinton, all three at or around 3.5% average GDP rowth, and all three well below the GDP growth trend of 90% marginal rate 1950s and 60s. George W Bush, the guy who inherited a budget surplus to play with and then pushed the strongest supply-side policies ever seen in America achieved whopping 1.9% average GDP growth and an epic financial meltdown caused by deregulating the economy. That’s pretty good evidence. That’s a modern mature economy with well-established growth trends and historical data to look at and the evidence couldn’t be more clear. Once economic growth returns and revenues come back and the deficit closes, America can actually have a budget surplus by setting up a universal healthcare system : It’s hard to constantly come up with new ways to say “America spends way, way, way, way, way more than any other country on health care.” But we do! Just look at the [National Geographic graph](http://blogs.ngm.com/blog_central/2009/12/the-cost-of-care.html) above, which puts per-person spending on one side of the chart and average life expectancy on the other. Or consider this: If we spent what Canada spends per person, our deficit problem would [go away entirely](http://www.cepr.net/calculators/hc/hc-calculator.html). And Canada’s per-person average is in a country where everybody is fully covered and so has full access to care. America’s is in a country with 47 million uninsured, and so many people skimp on needed care. So the comparison is actually _unfair to Canada._ David Leonhardt has another way of [making the point](http://economix.blogs.nytimes.com/2010/01/12/big-government-health-care/). We don’t have a government-run system. But our system is so expensive that our government’s partial role is pricier than the whole of government-run systems. In per-person terms, government agencies spent roughly $4,500 on medical care, while the private sector spent roughly $3,000. Here’s what’s notable about that $4,500 figure: It’s more than what a lot of other rich countries spend on health care — including both the public and the private sectors. All told, Canada, Belgium and Germany each spend about $4,000 per person on health care. Australia and Britain spend about $3,500 each. Japan spends a little less than that. [http://voices.washingtonpost.com/ezra-klein/2010/01/america\_spends\_way\_way\_way\_mor.html](http://voices.washingtonpost.com/ezra-klein/2010/01/america_spends_way_way_way_mor.html) and [http://voices.washingtonpost.com/ezra-klein/2009/05/health\_care\_cost\_fallacies.html](http://voices.washingtonpost.com/ezra-klein/2009/05/health_care_cost_fallacies.html) ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 8, 2010, 3:31pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/46 "2010-07-08T15:31:34Z")
You changed the argument. I never argued that the U.S. spends less than other countries. I said that it would not fix the deficit just by adopting universal health care. Do you seriously believe that if the U.S. went to a single-payer system that health care costs per capita would drop to levels seen in Canada? This ignores the numerous factors that can go into health care costs. ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [July 8, 2010, 3:49pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/47 "2010-07-08T15:49:22Z")
> [@Sam\_Stone](#): > > You changed the argument. I never argued that the U.S. spends less than other countries. I said that it would not fix the deficit just by adopting universal health care. > > Do you seriously believe that if the U.S. went to a single-payer system that health care costs per capita would drop to levels seen in Canada? This ignores the numerous factors that can go into health care costs. And I’m saying it would turn the deficit into surplus and provided cites to back my claim up. As far as what I seriously believe I’m going to go with the opinions of actual experts who’ve looked at the situation. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 8, 2010, 4:31pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/48 "2010-07-08T16:31:27Z")
> [@toadspittle](#): > > Is that you, [David Brooks?](http://www.nytimes.com/2010/07/06/opinion/06brooks.html) > > He let forth with a flood of “Demand Siders” in this column. I’d never heard the term used by anyone before. Brooks is trying to legitimize supply side economics by making it sound like it is just the flip side of “demand side” economics. Of course nothing could be further from the truth. Supply side economics is to mainstream economics what unicorns are to horses. Sure it has magical healing powers and all that but unicorns don’t exist. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 8, 2010, 11:05pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/49 "2010-07-08T23:05:54Z")
> [@Sam\_Stone](#): > > Not really. Not if being a Democrat means I have to support big labor, large government, big education, and the rest of the baggage of the Democratic Party. So you don’t support the right of labor to organize and exercise countervailing power against corporations? Is it merely the fact that corporations cannot fire union members for joining a union or is it something more than that? Noone wants large government for the sake of having large government. I constantly point to our budget and ask “what would you cut” and the answer is “lets cut the pork, that’ll balance the budget” (which amount to about 2% of the federal budget) and then I hear “lets cut welfare” (I don’t know how much more you can cut welfare after the welfare reform act of 1996) I never hear a groundswell of support from the right for cutting medicare or social security (at least not around election time). The reason I mention the right is that they are the ones that carry the economic torch for libertarians (see Grover Norquist). > [@](#): > > - I believe in government, but no more than is necessary. Government is a last resort when markets break down, not a superior alternative to markets. You do not believe that there are things that the government can do better than the market under ordinary circumstances? Is the police department and fire department "last resorts? Is the FDA a last resort? Or do these things make sense without having to see if the market can’t come up with its own solution? > [@](#): > > - I believe in taxation, but only to the extent that it is necessary to fund government operations. I do not believe in taxation as a form of wealth transfer across income strata of society. Its not so much a matter of averaging income as trying to create a floor. Perhaps this war against poverty is misguided and it is simply too costly in terms of economic impacts to provide things like medicaid, food stamps and what passes for welfare these days. Perhaps the disincentives that go along with trying to fund these programs by taxing richer folks are too great a cost for whatever benefits medicaid, food stamps and welfare provide for a more stable society. If we were taxing the Ferrari driving rich so that the middle class could drive Honda Accords instead of Honda Civics, then I could see your point more clearly. If there are things like this going on, then I agree, its too much. > [@](#): > > I believe in social programs, but no more so than to prevent extreme economic hardship. I believe that societies function better when the poor aren’t starving and uneducated and sick. But social assistance should not be a way of life and should not extend to making the middle class more comfortable. I tend to agree and maybe things have gotten too far. Can you give me an example of social assistance to the middle class that allows them to live better than they earn (assuming we say that things like police protection and public education do not fall into this category). > [@](#): > > I generally believe in liberal social policies. I’m pro-choice, anti-capital punishment, pro-gay marriage, and support drug legalization. Thats funny I am slightly pro-life, slightly pro-capital punishment, ambivalent on gay marriage, and fairly pro-marijuana (but not other drugs). One of the benefits of being a Democrat and not an idealogue is that I can pick and choose the stuff that I want without having to be terribly consistent in what I support and do not support. > [@](#): > > I believe that business owners do not lose their rights when they engage in commerce. Therefore, I believe that business regulation should be kept to the minimum required to assure public safety, I think business owners don’t lose rights but I also don’t think that corporations have the same rights as individuals. > [@](#): > > I support the right of a business owner to hire or fire whoever he wants regardless if that person is in a union or not and regardless of the person’s skin color or ethnic background or sex. Are you saying that I should be able to fire people because they are black? > [@](#): > > I believe that the market is a complex, chaotic system with uncountable feedback loops and unpredictable actors. As such, I believe the only way for it to functional well is from the bottom up. I also believe that a modern economy is far too complex for a government to manage, and that government doesn’t have access to the information needed to efficiently direct markets, because the information is simply not available outside the boundaries of the choices of the public and the feedback of the price system. Government can _never_ know what’s best for people, because the people themselves don’t know until they are forced to make choices between all the options available to them - and to pay for them. When you talk about government telling industry how many shoes to make and how many shoelaces to make I hear you but governments can and have successfully directed economic activity towards prosperity. As an aside, when you have corporations that are larger than half the nations in the world, that have revenues that are larger than the tax revenues of all but a handful of nations in the world, how do you distinguish between their actions and governmental action? Is it the profit motive that keeps these megacorporations disciplined enough so that they do not disrupt the market mechanism while the lack of profit5 motive in government makes their involvement in the market distortive? > [@](#): > > These are not positions compatible with Democrats or Republicans. And not really with big L Libertarians, either. They’re generally classically liberal, pro-market, pro-freedom beliefs, but they don’t pigeonhole into any particular party. Well my beliefs don’t pigeonhole into any party either but I identify with Democrats these days. I voted Republican in every election before 1998 then I realized that the far right had taken over the Republican party and I started voting party line Democrat about 2002ish. > [@](#): > > That’s my whole point. Businesses can be stupid, businesses can over-produce or under-produce. But the price system connects them together in ways that correct the flaws. Let’s say someone invents a product made of plastic that is highly superior to its steel alternatives. Demand for steel will fall. There will be an overproduction of steel. But then prices for steel drop, signalling steel producers to eliminate their most expensive modes of production and stimulating demand at the same time. Now other steel-based products become cheaper, and people buy more of them and less of their own alternatives. That in turn causes other gluts and shortages. But through the price system, everything adjusts until the market clears. > > This is all so tremendously complex that there is no one person who can understand it. No one can look at an input and predict the outputs across the economy. Investors who spend their lives studying markets barely do better than chance when predicting market movements. > > And when a government decides to meddle in that market by fiat, it causes outcomes it could not predict. So corn ethanol subsidies wind up causing the price of chicken soup to go up through some 5th order interaction, an outcome that was totally unpredictable. > > In a mixed economy, these unintended consequences happen, but at least a market still exists to correct for them. As the government attempts to control more and more, and the market loses its ability to adapt because of high regulation, the whole process starts to break down. But even modest levels of interference in the market cause unintended consequences, and this usually results in government interference being less efficient than predicted. Yeah, we’re all familiar with the pricing mechanisms ability to clear markets and drive production towards equilibriums and all that but there are market shocks and market imbalances that however temporary cause real lasting but avoidable harm to individuals. Sure the market will eventually cull out the food processors that poison their customers but a lot of people will get poisoned before that happens and if the prevention of poisoned food is more expensive than the cost of compensating the poisoned customers, it may never happen. > [@](#): > > I don’t think mass transiton’t buy that mass transit is always a universal good - or at least it’s not clear that it’s always better than the alternative. And of course, there are degrees of mass transit - a basic bus system is a lot less intrusive and expensive as is Light-Rail transit, and LRT systems are a lot less expensive and intrusive than full-blown subways and high speed train links. There are a lot of examples of cities that have over-built their mass transit and as a result have under-utilized transit movements that actually slow down overall traffic flow, increase energy requirements, and cause high taxation which causes business flight and destroys jobs. I am trying to think of a large city that hat has overbuilt their mass transit system and I’m drawing a blank. When Homer Simpson’s Springfield buys a monorail system then sure I see the waste in that but otherwise, I’m pretty sure that mass transit makes sense for most large cities. > [@](#): > > We have been operating in this thread without a good definition of ‘supply side’. I’ve been using it as “government action that reduces the regulatory or taxation burden on producers”, as opposed to generalized demand-side policies which seek to stimulate the demand of goods and services. The way you define supply side is not how the right defines supply side. Supply side economics as it is commonly understood includes tax cuts that pay for themselves (e.g. the distortive effect of taxes are so great that you would create more than enough extra economic activity to overcome the lower rate of taxation) and deregulation that results in better self regulation by industry (e.g. if we didn’t regulate the oil drilling in the Gulf of Mexico, BP would never have drilled that far out because they would have drilled closer to shore and there wouldn’t be a crisis right now (of course thats Bullshit because BP would be drilling in both places)). > [@](#): > > As soon as you start talking about what’s ‘equitable’ you get into value judgments and decisions that are ultimately political and not economic. It is almost impossible to separate the two. When you are saying one economic system is better than another you are making value judgments. Is it better that society as a whole has more wealth even thought that wealth is concentrated ina few hands or is it better to have slightly lower aggregate wealth with better distribution? > [@](#): > > Um, I don’t think supply side economics is the cause of deficits. I think deficits are caused by a gap between government expenditures and revenues. I can just as easily blame deficits on large government costs. More specifically, I think deficits going forward are most specifically caused by governments having promised people more in entitlements than we can afford. If the budget was close to balanced in 1979 and had been in a surplus position for most of the post WWII period and then as a result of tax cuts driven by supply side theories we get huge budget deficits, do we say that the tax cuts caused the deficits or do we say the expenditures caused the deficits. It is clear to me that it is tax cuts in this case. If you have tax cuts without offsetting spending cuts then those tax cuts caused the deficit if you have expenditures without offsetting tax increases then those expenditures caused the deficit. Noone argues that the stimulus spending caused deficits why is it so hard to admit that the tax cuts caused deficits? > [@Dick\_Dastardly](#): > > Supply side economics cause those big gaps between revenues and expenditures though, right? I mean that’s what the numbers show. Cutting taxes does not stimulate enough economic growth to increase revenues to the level they would have been had taxes not been cut. In fact the evidence shows no real extra economic growth at all due to cutting taxes. Well there was probably some positive effect to reducing taxes. Even if it was mostly for rich folks, lower capital gains taxes made it cheaper to reallocate wealth to more to more productive investments, lower income taxes on the wealthy made them more likely to save a bit more and and increase productive capacity, etc. But it doesn’t even come close to creating enough additional economic activity to create more tax revenue than it cost. > [@](#): > > And entitilement programs are easily affordable in the medium and long term. All that’s needed for instance in the US is to get the projected profit growth out of the Medicare system or ideally bring in a universal system like Frenace or Canada’s. Then the US deficit problem would disappear overnight. True, but in about 50 years, without bending the cost curve we will be in the same situation we are in today. > [@smiling\_bandit](#): > > That said, I know there were several who did question his inflationary growt-at-any-cost approach. I consider it dangerous myself, but he was not the only problem. Congress- Right and Left, has unfortunately been encouraging bubbles for a while. IN some ways they still are. Bubbles are really good for politicians, they get the credit for economic growth and are already working as lobbyists on K street by the time the piper comes around to get paid. This political reality is supposed to be tempered by thoughtful technocrats like the fed chairman. He is supposed to be one of the adults in the room but when the Fed Chairman is caught up in trying to prove his ideology correct, he has become a politician. > [@Sam\_Stone](#): > > Supply side tax cuts from modest tax levels will not create enough GDP growth to cause government revenue to rise enough to recoup the costs, no. Both the Reagan and Bush tax cuts caused short and medium term government revenue to fall. Are you implying that those tax cuts might pay for themselves over the LOOOOOONG term? Perhaps what you are trying to say is that the Clinton economic growth is really the result of Reagan’s tax cuts and not as a result of Clinton’s looser regulatory policies combined with the communications act of 1996 combined with huge cuts in military spending? Lets face it, there is very littel good on a societal level about tax cuts for the sake of having tax cuts. > [@](#): > > That does not mean they are the cause of the gap between revenue and expenditure. Sure it does. > [@](#): > > Gaps are caused by the difference between revenue and expenditure. You can fix them by modifying either side of the equation. Yeah but when you have tax cuts without spending cuts then you are only modifying one side of teh equation (tax cuts without spending cuts) then those modification (tax cuts without spending cuts) resulted in deficits. If the Republicans were willing to man up and introduce spending cuts to go along with those tax cuts then fine, for decades Democrats introduced spending increases to go with their spending increases and they absorbed the political fallout of those tax increases. The republicans were not willing to do that, they wanted tax cuts but didn’t want to face the consequences of responsibly cutting spending along with it because the tax cuts were so fucking steep that they would have had to significantly cut medicare social security or military spending to offset the cost of the tax cuts. [/quote] For example, it would be a ‘supply side’ move to cut business taxes and replace them with a VAT tax. Or to cut business taxes and adjust the spending of government to match the revenue picture. [/quote] I agree that we can reduce friction by reducing business taxes but then we have to figure out some way to eliminate the tax deferral for the shareholders. If we aren’t going to tax corporate income at the corp[orate level when it is earned we have to tax it at the investor level when it is earned. Noone who proposes eliminating corporate tax cuts proposes that. In fact that is one of the reasons why people are proposing 10% corporate tax rates instead of 0% corporate tax rates, in order to preserve the income deferral for the shareholders. > [@](#): > > You’re taking a very narrow view of ‘supply side’. Not all supply-siders think that the Laffer Curve means you’ll always get back more in revenue than you cut. Yeah, the ones cutting the taxes do. > [@](#): > > Hell, even Art Laffer doesn’t say that. What many will say is that the loss of revenue will be somewhat less than the total amount of the cuts because of revenue gains through increased GDP. It’s called “dynamic scoring”, and the Obama administration is using it now. Everyone from Paul Krugman to Keynes agrees that lowering taxes by 50% will not result in a 50% decrease in collected revenues, there is nothing controversial about that. What is controversial is how much more than 50% you will collect, supply siders that push for tax cuts say that you can cut taxes 50% and colect more than you collected before the tax cuts. > [@](#): > > Never? Really? You got a reputable cite for that? Well that’s obviously not true but the effect is not nearly as pronounced as most people who support tax cuts seem to believe. In fact at these tax levels it is barely detectable. > [@](#): > > Ridiculous. You do know that Canada’s health care budget is also exploding, right? The population is getting older, and new medical procedures and drugs are being invented every day to keep people alive and healthier longer. Both of those factors are contributing to an expansion of health care costs throughout the world. > > As for the U.S. not having a deficit problem if it can stop the growth of health care costs - the U.S has a deficit problem _now_. A big one. Are you contending that public health care would shave. 1.6 trillion dollars off the U.S. budget? I’d like to see how that works. Well, first of all you don’t have another stimulus bill and that shaves off about 800 billion, so why don’t we use that as the number to shoot for? Federal healthcare outlays about 800 billion between medicare, medicaid, veterans, schip, etc. applying this universally without taking a look at what we are paying for is not going to save us any money, it is merely going to save society some money as we eliminate the needless overhead associated with private insurance companies. > [@Sam\_Stone](#): > > You changed the argument. I never argued that the U.S. spends less than other countries. I said that it would not fix the deficit just by adopting universal health care. > > Do you seriously believe that if the U.S. went to a single-payer system that health care costs per capita would drop to levels seen in Canada? This ignores the numerous factors that can go into health care costs. Yeah but per capita costs would drop significantly, neh? > [@Dick\_Dastardly](#): > > And I’m saying it would turn the deficit into surplus and provided cites to back my claim up. As far as what I seriously believe I’m going to go with the opinions of actual experts who’ve looked at the situation. I think society would save that much money but I don’t know if all those savings would inure to the fisc. ---
**Author:** ![Dick\_Dastardly](https://avatars.discourse-cdn.com/v4/letter/d/c4cdca/32.png) [@Dick\_Dastardly](https://boards.straightdope.com/u/Dick_Dastardly)\ **Post date:** [July 8, 2010, 11:58pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/50 "2010-07-08T23:58:06Z")
> [@Damuri\_Ajashi](#): > > Well there was probably some positive effect to reducing taxes. Even if it was mostly for rich folks, lower capital gains taxes made it cheaper to reallocate wealth to more to more productive investments, lower income taxes on the wealthy made them more likely to save a bit more and and increase productive capacity, etc. But it doesn’t even come close to creating enough additional economic activity to create more tax revenue than it cost. > > True, but in about 50 years, without bending the cost curve we will be in the same situation we are in today. All the cuts for big earners did was to unbalance the economy. Reagan cut taxes for the wealthy in 1981 then spent the next seven years raising them on low/middle income earners to try and make up some of the huge deficit he’d created. Bush 43 just cut taxes for the wealthy and ignored the deficit. This has left an increasing chunk of national income in the hands of the wealthy, they’ve more than doubled their share of national income since 1980. And they’ve basically invested all the extra money which has meant a big chunk of national income added to the speculative capital of the country which has helped create the bubble economy we have now. Take that money out of the hands of the wealthy and redistribute it downwards to low/middle income earners\* and they’ll spend it, creating jobs and economic growth in the real economy, 70% of which is consumer spending. That’s where the money should be going and that’s where it’ll have yo be redistributed before we see any real sustained economic growth in the future. \*Who responded to their flatlining wages and increased share of the tax burden by going heavier and heavier into debt. So both the wealthy and low/middle incomes have a higher demand for financial products/assets, which creates bubbles… BTW we were talking about mortgage lending standars the other day and during a post I remembered this amazing thing I read a while ago about mortgage standards then forgot to look it up. Here’s a legal officer from one of the banks that blew up : “Someone in Florida had made a second-mortgage loan to O.J. Simpson, and I just about blew my top, because there was this huge judgment against him from his wife’s parents,” she recalled. Simpson had been acquitted of killing his wife Nicole and her friend but was later found liable for their deaths in a civil lawsuit; that judgment took precedence over other debts, such as if Simpson defaulted on his WaMu loan. "When I asked how we could possibly foreclose on it, they said there was a letter in the file from O.J. Simpson saying ‘the judgment is no good, because I didn’t do it.’ " > **[The Seattle Times | Local news, sports, business, politics, entertainment,...](https://www.seattletimes.com)** > > Local news, sports, business, politics, entertainment, travel, restaurants and opinion for Seattle and the Pacific Northwest. 🙂 ---
**Author:** ![Bryan\_Ekers](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bryan_ekers/32/183_2.png) [@Bryan\_Ekers](https://boards.straightdope.com/u/Bryan_Ekers)\ **Post date:** [July 10, 2010, 4:28am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/51 "2010-07-10T04:28:47Z")
> [@Chronos](#): > > Henry Ford didn’t understand economics? Well, I guess that explains why he ended up living his life in miserable poverty, then. Another mystery solved! Nah… it was because of THE JEWS! ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [July 10, 2010, 5:09am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/52 "2010-07-10T05:09:06Z")
> [@Sam\_Stone](#): > > Yes, I can. Have a look at what happened to the ‘Asian Tigers’ when they liberalized their business regulations and lowered trade barriers. Look at the results of India’s market liberalization. Or China’s. Have a look at what NAFTA did for Canada’s exports and economy. Have a look at what what happened in Eastern Europe after the Iron Curtain fell. Have a look at Canada’s economy after we lowered businesses taxes, de-regulated a number of industries, and reduced the size of government from 44% of GDP to 33%. Look at the economy in Britain before and after the Thatcher revolution. > > There is a clear pattern that when governments lower barriers to business creation, innovation, and trade, the economy improves. Sam - I see where you’re coming from but I think you’re using an incredibly loose definition of supply side economics. At least in the US, the cornerstone of supply side is cutting taxes at the high end. Here’s Wiki’s take for simple [definition](http://en.wikipedia.org/wiki/Supply_side_economics): Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. Consumers will then benefit from a greater supply of goods and services at lower prices. Yoúr examples for emerging market economies isn’t relevant for a modern, large, developed economy like the US. Frankly, I think Canadian or English economies are apples and oranges compared with the US. Forget about China, that’s a whole 'nother can of mercatilistic worms. If you’ve got a large developed economy example, I’d like to see it. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 10, 2010, 6:30am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/53 "2010-07-10T06:30:55Z")
> [@Damuri\_Ajashi](#): > > So you don’t support the right of labor to organize and exercise countervailing power against corporations? Is it merely the fact that corporations cannot fire union members for joining a union or is it something more than that? I support the right of labor to organize. I support their right to strike. But they already have that. The power of the labor union is therefore the power of the entire workforce to walk off the job, leaving the employer without means to carry out his business and imposing high replacement costs on him if he chooses not to hire back the union employees. What I do not support: - Government forcing employers to deal with unions by refusing to allow them to hire replacement workers. - Laws which say that once a union forms, all employees of the company must join the union. - Government arbitrators who will settle disputes between unions and employers, rather than allowing the employer to just find new employees. The Democrats want all three of those things. They want to make it easier to unionize, they want to make union membership mandatory if any union exists within a company, they want to prevent employers from firing striking workers, and they want to set up government mediators who will have binding powers of arbitration over labor disputes. These ideas are economically destructive, infringe on the rights of employers, impede job creation, and punish people who do not wish to deal with unions as either employer or employee. > [@](#): > > Noone wants large government for the sake of having large government. Sure they do, in the sense that they are biased towards choosing government solutions over private market solutions whenever possible. There are plenty of people who simply think that life would be better if government did more controlling of wide swaths of economic life. There are people on this board who make blanket statements like, “The market is too unregulated. We need more regulation.” That sounds very much like wanting large government simply because they think countries with large, intrusive governments are better. > [@](#): > > I constantly point to our budget and ask “what would you cut” and the answer is “lets cut the pork, that’ll balance the budget” (which amount to about 2% of the federal budget) and then I hear “lets cut welfare” (I don’t know how much more you can cut welfare after the welfare reform act of 1996) I never hear a groundswell of support from the right for cutting medicare or social security (at least not around election time). The reason I mention the right is that they are the ones that carry the economic torch for libertarians (see Grover Norquist). I’m not defending Republicans. I’m speaking for myself. And I could tell you exactly what I’d cut. I’d start by means-testing social security and Medicare. I’d scrap the health care plan and adopt a system of catastrophic coverage only. I’d eliminate half the federal agencies, starting with the Department of Education. I would eliminate any sort of subsidy going to anyone who makes, say, more than 150% of the minimum wage. That means no more home ownership tax credit, no farm subsidies, no business subsidies of any kind, no health care subsidies for the middle class, no subsidies for Priuses or Chevy Volts, and so on down the line. But I will say that as every year goes by, it’s going to get harder and harder to fix the deficit. You can reform medicare and Social Security now, but once the baby boom is fully retired, you’ll have no chance. The interest payment on the debt consumes an ever-greater share of the discretionary budget, and that gets worse every year. It’s not as if I’m heartless, by the way. These cuts WILL happen. The question is whether they will happen in controlled fashion, slowly over a period of decades until everything is in balance, or whether in the name of ‘compassion’ you let an imbalanced system get worse and worse until it crashes suddenly and catastrophically. > [@](#): > > You do not believe that there are things that the government can do better than the market under ordinary circumstances? Is the police department and fire department "last resorts? Is the FDA a last resort? Or do these things make sense without having to see if the market can’t come up with its own solution? I don’t believe there are things that a government can do better than a well-functioning, competitive market. Governments can do better than markets when there are known market failures or barriers to well functioning markets. Natural monopoly situations, management of truly public resources, areas where markets cannot function without externalities, areas where we need sovereign power to avoid conflict. Take the police, for example. Some libertarians think privatized police forces and courts would work. I do not. A valid purpose of government is to act as a sovereign, impartial agent to settle disputes among men. You can not have a well-functioning society were groups employ their own police and courts, because there would be disagreements which would cause order to break down. Theoretically, I have no problem with private fire departments, and they exist in many places. But in those cases, I see nothing wrong with government demanding that everyone in a populated area actually be contracted to a fire department because of externalities (i.e. if my house fire rages on because I was too cheap to pay for fire service, I could burn down the neighbor’s homes). And once government mandates that you be covered, it’s hard for a market to function well. So I have no problem with government fire departments, either. I would turn the FDA into an advisory-only agency. Or as a first step, I’d eliminate its ability to regulate drugs for efficacy. I don’t think the FDA is necessary. I think the doctor-patient relationship is perfectly capable of dealing with the drug issue, and I would point out that many, many drugs that people take are not regulated at all. The FDA has stifled innovation, increased barriers of entry for pharmaceutical startups, and killed a lot of people by withholding life-saving drugs long after they have been available in other countries. I would much rather see a system wherein people are free to take whatever drugs they want. They have a right to make decisions about their own bodies. As a compromise, I would allow doctors to prescribe any drug they want, while keeping them out of the hands of people without a prescription. I think the market can handle this just fine, and would do a much better job. > [@](#): > > Its not so much a matter of averaging income as trying to create a floor. Perhaps this war against poverty is misguided and it is simply too costly in terms of economic impacts to provide things like medicaid, food stamps and what passes for welfare these days. Perhaps the disincentives that go along with trying to fund these programs by taxing richer folks are too great a cost for whatever benefits medicaid, food stamps and welfare provide for a more stable society. I’ve got no problem with welfare as it’s currently constructed, or with food stamps. > [@](#): > > If we were taxing the Ferrari driving rich so that the middle class could drive Honda Accords instead of Honda Civics, then I could see your point more clearly. If there are things like this going on, then I agree, its too much. That’s _exactly_ what we’re doing. For example, the new health care bill provides subsidies for health care for people making up to $88,000. That’s WELL beyond poor, or even lower middle class. There are subsidies for families with children which extend well into the middle class. And it’s not just subsidies - it’s reduced taxes on the middle class, well below the level that could reasonably said to represent the true cost of their government services. The bottom 50% of taxpayers in the U.S. only pay 3.3% of the total income taxes collected. The middle income quintile in the U.S. ($39,000 to $59,000 personal income) earned 14.3% of all income, and only paid 5.9% of all income taxes. This is because the progressivity of the tax code extends all the way up the income ladder. I would flatten it for everyone in the middle class and above. > [@](#): > > I tend to agree and maybe things have gotten too far. Can you give me an example of social assistance to the middle class that allows them to live better than they earn (assuming we say that things like police protection and public education do not fall into this category). The new health care bill is a big one. It doesn’t just cover the poor and people with pre-existing conditions - it contains big, big subsidies to the middle class worth thousands of dollars per year per person. Federal aid to middle and upper class public schools. Post-secondary education grants. Student loans made available to the children of the middle class. Agriculture subsidies. Home ownership tax credits. Child tax credits. Government subsidies for opera houses and museums. Governments paying for sports stadiums and entertainment extravaganzas like the Olympics. Subsidies for buying a Prius. The list goes on, and on. The progressivity of the tax code itself is a subsidy that extends from the rich down to every class below. > [@](#): > > Thats funny I am slightly pro-life, slightly pro-capital punishment, ambivalent on gay marriage, and fairly pro-marijuana (but not other drugs). One of the benefits of being a Democrat and not an idealogue is that I can pick and choose the stuff that I want without having to be terribly consistent in what I support and do not support. We all do that to some degree. > [@](#): > > Are you saying that I should be able to fire people because they are black? In my ideal world, I think the only constraint on your ability to fire someone should be the contract you signed with them. The world isn’t ideal, and I still have misgivings about the ability of the market to inhibit discrimination. Some libertarians would tell you that businesses that discriminate would be punished by the market - they’d have a smaller pool of employees to pick from, and active discrimination would be punished by customers because they don’t like the company. I am not convinced of this. So this is an area where I refuse to dogmatically say that the government should have no say in discrimination. I do, however, oppose affirmative action. And, I oppose sweeping regulations that mandate accommodations for people, such as the Americans with Disabilities Act. I think they do more harm than good. > [@](#): > > When you talk about government telling industry how many shoes to make and how many shoelaces to make I hear you but governments can and have successfully directed economic activity towards prosperity. I think this is highly debatable. I’m familiar with the standard examples, such as Korea and Japan. I think the claims made for government intervention in these cases is over-stated, and there are many, many more cases where well-intentioned government intervention was disastrous or at least counter-productive. > [@](#): > > As an aside, when you have corporations that are larger than half the nations in the world, that have revenues that are larger than the tax revenues of all but a handful of nations in the world, how do you distinguish between their actions and governmental action? They’re pretty easily distinguishable unless the big corporations are allowed to imprison or kill people who don’t do as they say. > [@](#): > > Is it the profit motive that keeps these megacorporations disciplined enough so that they do not disrupt the market mechanism while the lack of profit5 motive in government makes their involvement in the market distortive? Competitive markets correct. It wasn’t that long ago on this very board that people used to debate Microsoft’s unassailable stranglehold on the market. How are they doing now? Still plenty profitable, but their market share is declining in almost every market they participate in. Now people are wondering if Microsoft can survive at all in the medium-to-long term. If the markets truly aren’t competitive (and again, I agree that there are many market failures - health insurance is one of them), then I see a role for government. But that role should be to merely correct the market failures and enable competition to flourish - not to enter the market as a competitor. That should be an absolute last resort in the case that a market is unable to form at all. Sorry I didn’t get to your entire message. I’ll try to answer the rest later, but I’m burned out. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 10, 2010, 6:44am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/54 "2010-07-10T06:44:00Z")
> [@Dick\_Dastardly](#): > > All the cuts for big earners did was to unbalance the economy. Reagan cut taxes for the wealthy in 1981 then spent the next seven years raising them on low/middle income earners to try and make up some of the huge deficit he’d created. I don’t know how to say this but Reagan never increased taxes. He closed a few loopholes in 1986 and tinkered with social security a little bit but he never raised income taxes on anyone. > [@](#): > > Bush 43 just cut taxes for the wealthy and ignored the deficit. This has left an increasing chunk of national income in the hands of the wealthy, they’ve more than doubled their share of national income since 1980. And they’ve basically invested all the extra money which has meant a big chunk of national income added to the speculative capital of the country which has helped create the bubble economy we have now. Take that money out of the hands of the wealthy and redistribute it downwards to low/middle income earners\* and they’ll spend it, creating jobs and economic growth in the real economy, 70% of which is consumer spending. That’s where the money should be going and that’s where it’ll have yo be redistributed before we see any real sustained economic growth in the future. Baby Bush’s tax cuts were about as irresponsible as they come. He had no idea what he was doing so he just did whatever Grover Norquist told him to do. The really wealthy didn’t invest in the speculative bubble. Thats not what really rich people do. Really Rich people invest in treasuries, not muni-bonds (really rich people get AMT’d out of the tax benefits on munibonds), not hedge funds (they are not trying to get rich, theya re already rich, theya re trying to grow wealth and not lose capital). So what these really rich people do is take the money they save on taxes and instead of paying it to the government, they LEND it to the government by buying treasuries. > [@](#): > > BTW we were talking about mortgage lending standars the other day and during a post I remembered this amazing thing I read a while ago about mortgage standards then forgot to look it up. … loan to O.J. Simpson I thought Florida was one of those states that protected your home from judgments. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [July 10, 2010, 6:59am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/55 "2010-07-10T06:59:31Z")
> [@China\_Guy](#): > > Sam - I see where you’re coming from but I think you’re using an incredibly loose definition of supply side economics. At least in the US, the cornerstone of supply side is cutting taxes at the high end. > > Here’s Wiki’s take for simple [definition](http://en.wikipedia.org/wiki/Supply_side_economics): Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. Consumers will then benefit from a greater supply of goods and services at lower prices. Doesn’t that pretty much match my definition? It’s the other people here who are trying to define supply side economics as strictly being about the belief that lowering taxes will raise more revenue. I’ve been using the definition of supply side almost exactly as defined above. Nothing in there says that the economic growth will be so great that you’ll raise more taxes after the cut. > [@](#): > > Yoúr examples for emerging market economies isn’t relevant for a modern, large, developed economy like the US. Frankly, I think Canadian or English economies are apples and oranges compared with the US. Forget about China, that’s a whole 'nother can of mercatilistic worms. > > If you’ve got a large developed economy example, I’d like to see it. I’m confused. You just dismissed the experience of England and Canada, which ARE large, developed economies, because they are different than the U.S. But we aren’t just talking about the U.S. here. We’re talking about whether or not there are examples of countries that have seen their economies dramatically improve after cutting the size of government and reducing regulation. Any other country I mention will also not be the U.S. In Canada, the governments of Alberta, Saskatchewan, and Ontario reduced their government spending dramatically in the 1990’s. All three of them then went on to experience GDP gains higher than their bigger-government counterparts which did not reduce spending. We also have the opposite experiences of provincial governments increasing spending as ‘stimulus’, with generally negative results. You might want to read this working paper from the International Monetary Fund: [Reforming Public Expenditure in Industrialised Countries: Are there Trade-Offs?](http://www.ecb.int/pub/pdf/scpwps/ecbwp435.pdf) From the Abstract: > [@](#): > > In this paper, we show that, contrary to common beliefs, over the past two decades several countries were able to reduce public spending by remarkable amounts. These countries did not seem to have suffered from these large reductions either in a macroeconomic sense, or in terms of lower values for socio-economic indicators. **On the contrary, ambitious expenditure reform coincides with improvements in fiscal, economic, human development and institutional indicators.** Bolding mine. This paper looked at 22 countries and divided them into groups based on the amount of government reduction that took place. The ‘ambitious reformers’ who cut government the most had the best outcomes. A particularly interesting tidbit for those who think that such reforms would come on the backs of the poor: > [@](#): > > since 1990, the absolute position of the poorest quintile has improved most among ambitious and early reformers (from 5 percent below average to 5 percent above). At the same time, the position of the poor in timid and late reformers may not have deteriorated much within the country but it has relative to those that grew faster. Living standards amongst the poorest quintile are still highest in the group of late and ambitious reformers (15 percent above the average for all sample countries). On average, the poorest quintile improved the most in countries that shrunk their governments the most, primarily because overall GDP growth was higher. Another interesting paper from the [House Joint Economic Committee](http://www.house.gov/jec/growth/function/function.pdf): > [@](#): > > An empirical analysis of the data from 23 OECD countries shows a strong negative relationship between both (a) the size of government and GDP growth and (b) increases in government expenditures and GDP growth. A 10 percentage point increase in government expenditures as a share of GDP is associated with approximately a one percentage point decline in the growth rate of real GDP. > > An analysis of a larger data set of 60 countries reinforces the conclusions reached by analyzing OECD countries. After adjustment for cross-country differences in the security of property rights, inflation, education, and investment, higher levels of government spending as a percentage of GDP exert a strong negative impact on GDP growth. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [July 10, 2010, 12:08pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/56 "2010-07-10T12:08:38Z")
> [@Sam\_Stone](#): > > Doesn’t that pretty much match my definition? It’s the other people here who are trying to define supply side economics as strictly being about the belief that lowering taxes will raise more revenue. This is true enough. In my first post in this thread, I specifically pointed out, at least two times, that there is a difference between policies that are intended to increase the long-term supply of goods in an economy, and the Laffer tax nonsense. And yet **Damuri Ajashi** still somehow managed to miss it. But whose fault is that? I _also_ linked in my first post to Megan McArdle’s story from a few years back that it is standard editorial policy among a prominent conservative magazine, even now, to wrongly declare that lower taxes will increase government revenues, and they will [spike any article](http://www.theatlantic.com/business/archive/2007/10/i-take-it-all-back/2116/) that points out that this is a lie. **This is the mainstream conservative position in the US, and it is total bollocks.** Yes, there is an actual potential justification for lower taxes (not that I’m convinced right now, but it does exist). But the people who argue that rational position are rare. Most of the “supply-side” argument, _as it has always been used_, has been based on the tax nonsense, or else an implicit, and highly hypocritical, short-term Keynesianism. It’s fair to point out that that nonsense is how “supply-side economics” is typically used in our public discourse. And what’s the advantage, really? A potential extra point or so of GDP growth? A single point that we’re not even sure exists? It’s a perfectly reasonable choice for people to decide that they’d rather have a fair tax system and strong social services, rather than letting 1% of people walk home with 45%+ of the nation’s pie, this highly unbalanced distribution tolerated in exchange for the mere hope of a really kick-ass economy twenty years out. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [July 10, 2010, 5:09pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/57 "2010-07-10T17:09:58Z")
> [@Sam\_Stone](#): > > Yes, I can. Have a look at what happened to the ‘Asian Tigers’ when they liberalized their business regulations and lowered trade barriers. Look at the results of India’s market liberalization. Or China’s. Have a look at what NAFTA did for Canada’s exports and economy. Have a look at what what happened in Eastern Europe after the Iron Curtain fell. Have a look at Canada’s economy after we lowered businesses taxes, de-regulated a number of industries, and reduced the size of government from 44% of GDP to 33%. Look at the economy in Britain before and after the Thatcher revolution. > > There is a clear pattern that when governments lower barriers to business creation, innovation, and trade, the economy improves. > > How about you providing examples of the opposite? Are there countries with free markets and moribund economies that were improved by having government ‘manage’ the economy? I keep hearing Japan mentioned as an example of successful government intervention, but Japan’s successes came in spite of government intervention, not because of it. Many of Japan’s government/industry ‘partnerships’ like MITI’s 5th generation project were complete disasters. > > Japan’s decade-long stimulus has resulted in an inefficient, over-built infrastructure it can’t afford, along with high debt and economic stagnation. The result is that 2% of Japan’s GDP goes to interest on its debt, and this consumes 14% of its entire budget. And that’s without touching the principle. And it really doesn’t have anything to show for it. > > So where did a government make an economy stronger by managing industry? And I’m not talking about a failed state recovering after order was restored - I mean a 1st world economy that took off after a more statist government stepped in to ‘manage’ the economy with additional regulations and taxes. China merely executes business men who hurt people or cheat the system. No heavy hand of regulation there. In an immature economy ,you can cut some slack to get off your feet. But if you have any sense, you will learn histories lesson, the rich will accumulate as much wealth and power as possible, creating all kinds of distortions. The end result is unrest and absolute poverty for the working class. China has it made. With their government they can rapidly decree good investment in future technology. They can declare new environmental ,laws. We have to get those programs past corporate heads who only think short term. They want profits and bonuses now. They have no interest in the future. They are fighting against green industry and green jobs because the investment might make them a little less wealthy today. They do not invest in the future. ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [July 10, 2010, 8:11pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/58 "2010-07-10T20:11:58Z")
Hellestal made the point much better than I that the conservative supply side view is predicated on cutting taxes for the rich. Sam - nominal or purchase price parity GDP puts the UK at about 15% and Canada less than 10% of the US economy, respectively. I’d say that is apples to oranges, without even debating whether or not UK/Canada are valid points for the conservative supply side definition. China is a whole 'nother unique discussion. The combination of command/centralized economy vistiges and unfettered capitalism plus Foreign Direct Investment of unparalled modern proportions and reluctant global acceptance of Chinese Mercantilism makes things complicated. ---
**Author:** ![psikeyhackr](https://avatars.discourse-cdn.com/v4/letter/p/97f17d/32.png) [@psikeyhackr](https://boards.straightdope.com/u/psikeyhackr)\ **Post date:** [July 10, 2010, 8:25pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/59 "2010-07-10T20:25:44Z")
> [@John\_DiFool](#): > > Again I am tossing in a debate idea in the hopes that I will become more enlightened about this issue. We hear a lot about “supply side economics”, but I rarely hear a peep about its converse. Wasn’t it Henry Ford I who decided that stimulating the demand side of things (which would include but not be limited to increasing employee pay, hiring more workers, increasing benefit levels so as to allow for more discretionary income, etc.) was the best way to get the economy going? Or are there hidden negatives involved in doing so (inflation?). Before 1900 there was essentially no planned obsolescence. There was no Freudian psychology used in advertising and of course no telelvision. Now you have to look at the economic power game with the psychological bullshit included while the lying moron economists maintain their delusion of rational consumers. Whether you call it supply side or demand side is irrelevant. The laws of physics work the same way on both sides. The economists pretend that depreciation does not happen on to durable goods on the demand side. Cars are no different from hamburgers. If you are going to tell a lie tell a BIG LIE. NAZInomics. [http://discussions.pbs.org/viewtopic.pbs?t=28529](http://discussions.pbs.org/viewtopic.pbs?t=28529) What is the total global depreciation of durable consumer goods? psik ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [July 10, 2010, 9:00pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/60 "2010-07-10T21:00:28Z")
> [@Sam\_Stone](#): > > I support the right of labor to organize. I support their right to strike. But they already have that. The power of the labor union is therefore the power of the entire workforce to walk off the job, leaving the employer without means to carry out his business and imposing high replacement costs on him if he chooses not to hire back the union employees. > > What I do not support: > > - Government forcing employers to deal with unions by refusing to allow them to hire replacement workers. > > - Laws which say that once a union forms, all employees of the company must join the union. > > - Government arbitrators who will settle disputes between unions and employers, rather than allowing the employer to just find new employees. You can always hire replacement workers but you can only fire strikers if they are striking for economic reasons. If they are striking for unfair labor practices then you cannot fire them. I think that distinction matters. There are reasons for all those labor laws and its not just bleeding heart liberals trying to screw the man. > [@](#): > > Sure they do, in the sense that they are biased towards choosing government solutions over private market solutions whenever possible. There are plenty of people who simply think that life would be better if government did more controlling of wide swaths of economic life. There are people on this board who make blanket statements like, “The market is too unregulated. We need more regulation.” That sounds very much like wanting large government simply because they think countries with large, intrusive governments are better. Wanting regulations to prevent cholera outbreaks and market crashes is not wanting large government for the sake of having large government. There is a specific thing they want government to do. But to the extent that people feel that the default actor for any activity should be the government unless the private sector can prove its advantages, then fine I agree that these people have gone too far. Can you point me to one poster that feels this way? And the “blanket statement” that the market is too unregulated is clearly true, now maybe not ALL parts of the market are not too unregulated but there are certainly parts of it that are. > [@](#): > > I’m not defending Republicans. I’m speaking for myself. And I could tell you exactly what I’d cut. I’d start by means-testing social security and Medicare. I’d scrap the health care plan and adopt a system of catastrophic coverage only. Speaking for myself, I could get behind phasing out social security based on income if we can remove the cap, lower the social security tax rate and subject all earnings (including stuff like stock options and carried interest) to the tax. I can get behind reducing benefits under medicare but I don’t want to means test medicare to the point where we just have an expanded medicaid program, in fact I would like to make medicare more universal. I could even gfo so far as to make medicare largely a high deductible health plan but I can tell you that Republicans won’t go for it. Senator Baucus was trying to negotiate a universal high deductible health care plan, WITH tort reform, WITH medicare reform (eliminate the waste in part C and close the donut hole with the savings, but without the reduction in overall benefits that some people wanted (especially end of life benefits) but Republicans saw this as Obama’s waterloo and threw away a much better health care package (from almost any perspective) and got a health care package that didn’t bend the cost curve and with all the talk about “death panels” it looks like we will never be able to bend the cost curve (thanks to the Republicans in congress). > [@](#): > > I’d eliminate half the federal agencies, starting with the Department of Education. Most of the money that goes to the dept of education goers towards guaranteed student loans and pell grants. Do you really think that we should get rid of these programs? > [@](#): > > I would eliminate any sort of subsidy going to anyone who makes, say, more than 150% of the minimum wage. That means no more home ownership tax credit, no farm subsidies, no business subsidies of any kind, no health care subsidies for the middle class, I don’t know what you mean by the home ownership tax credit but I agree we should either make rent deductible or make home mortgages NOT deductible but there is no political will to do that. Eliminating farm subsidies would mean that within 10 years we will be importing almost all of our food from South America, which is fine as long as we are confident that we can secure that food source in the case of shortage or war. I think business subsidies are fine, I just wish they wouldn’t do it through the tax code. The R&D tax credit is one example. We give companies a tax credit instead of simply subsidizing R&D by engaging in GOVERNMENT sponsored basic research. We have fallen waaay behind in basic research and there doesn’t seem to be a recognition that only a couple of market participants have the investment time horizon to be able to invest in basic research. I think getting rid of the R&D tax credit and giving American companies access to our basic research is a much better than the tax credit which often goes towards stuff like how to make the dominoes pizza box. > [@](#): > > no subsidies for Priuses or Chevy Volts, and so on down the line. Paul Krugman got the nobel prize in economics for his ideas about how you create comparative advantages. For example, right now, solar cells are about 10 years from achieving grid parity, IOW, they are about 10 years from achieving the same cost for electricity as coal and nuclear generated electricity BUT that includes the generous tax subsidy by the government. This is the case the world over, there is not a lot of places where solar cells can achieve grid parity without government subsidies. BUT at one point they were nowhere near grid parity with or without subsidies. They are closing the gap and some scientists think that we will close the gap even without subsidies in the forseeable future, but we will never get there if we do not encourage innovation in this industry. There is a reason why we don’t make any electronics in this country and its not just wage differentials, its because we didn’t encourage and subsidize those technologies the way Japan and Korea did. If they were wrong, they would have a white elephant industry on their hands but they had to take that chance. If we leave the market to develop naturally, we will maintain our comparative advantage in things like financial services and medicine but won’t really develop comparative advantages that will be able to maintain the current standard of living for 300 million people. > [@](#): > > But I will say that as every year goes by, it’s going to get harder and harder to fix the deficit. You can reform medicare and Social Security now, but once the baby boom is fully retired, you’ll have no chance. The interest payment on the debt consumes an ever-greater share of the discretionary budget, and that gets worse every year. I’d like to remind you that we had a surplus 10 years ago. There was nothing magical about it, our economy was stronger, taxes were higher and we had less debt drag. The debt drag is not overwhelming yet but if we continue to bury our heads int eh sand and pretend that we don’t have to make hard choices then it WILL become overwhelming. There was a recent poll regarding taxes and the vast majority of people were willing to have higher taxes if they felt confident that the money would be used efficiently and effectively and not wasted on bridges to nowhere. And of course we need to cut some spending too, mostly military (do we really need 11 aircraft carrier groups (each one of which could pummel most nations into the stone age), do we really need the next gneeration of tanks and swiftboats, I mean who the heck would dare fight that kind of war with us?). > [@](#): > > It’s not as if I’m heartless, by the way. These cuts WILL happen. The question is whether they will happen in controlled fashion, slowly over a period of decades until everything is in balance, or whether in the name of ‘compassion’ you let an imbalanced system get worse and worse until it crashes suddenly and catastrophically. There are all sorts of ways this can play out but in the end, we need some adults in the room and the nehaviour of the Republicans in the last ten years or so have been anything but responsible. Hey if you can convince me that a Libertarian congress will be responsible without going overboard on teh whole Ayn Rand thing, I might even vote for one but right now, libertarian seems to be a small corner of the tea party or idealogues like Ron Paul. [Previous page](https://boards.straightdope.com/t/why-not-demand-side-economics/545790.md?page=2) [Next page](https://boards.straightdope.com/t/why-not-demand-side-economics/545790.md?page=4)