# 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:** 5
**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 13, 2010, 6:14pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/81 "2010-07-13T18:14:39Z")
> [@Damuri\_Ajashi](#): > > 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. > > 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. > > I thought Florida was one of those states that protected your home from judgments. Reagan cut taxes for the wealthy in 1981 then raised taxes on low/middle earners every year after that including the biggest single peacetime tax increase in history. Here’s his former chief economic advisor : [http://old.nationalreview.com/nrof\_bartlett/bartlett200310290853.asp](http://old.nationalreview.com/nrof_bartlett/bartlett200310290853.asp) By the time the 1988 election came along GOP voters were so furious about all their increased taxes that candidate George Bush 41 had to say his famous “read my lips, no new taxes” thing. But because the GOP back then was led by non-ideological nutjobs who actually looked at the numbers to work out what economic policy should be Bush 41 increased taxes after he won in 88 and lost the next election because of it, the GOP voters realising that they’d been shafted on their taxes. But with the passing of the years and the Reagan mythology industry this kinda thing gets forgotten and the GOP are still somehow the guys who cut taxes for Joe Sixpack. ---
**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 13, 2010, 6:24pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/82 "2010-07-13T18:24:26Z")
> [@Sam\_Stone](#): > > You’ve defined away every country on the planet, since the U.S. has a bigger GDP of anyone else. I already pointed to a study that looked at every country in the OECD, and found a strong correlation between smaller government and higher growth. The same study then widened the sample size to 60 countries, and the relationship held. > > The other study looked at transient factors (ie. not just the size of government, but economic performance as government was made smaller). It too found a strong correlation between reducing the size of government and improved economic performance. And the poor did better as well. > > To me, this is pretty compelling evidence. I’ve certainly never seen any evidence that making government bigger enhances economic performance in the same way. > > But you also changed the goalposts - I wasn’t strictly talking about the United States, but about the relationship between big government and economic performance in general. Your insistence that all evidence is irrelevant unless the country is as big as the U.S. strikes me as a variation on the “No True Scotsman” fallacy. > > No, I wouldn’t say that. For one thing, Reagan barely touched the size of government as a percentage of GDP. It was 20.2% in FY2001, and only declined to 19.2% by FY1989. So right there, we can say that the Reagan era didn’t really affect the size of government and can’t be used as evidence that reductions in government size will improve economic performance. In addition, Reagan only managed to slow the growth of regulation,and never did reverse it. > > That said, let’s go back and look at the economic conditions at the beginning and end of Reagan’s presidency: > > 1980 Economic conditions: > > Unemployment: 7.1% > Interest Rate: 19% > Inflation: 13.5% > GDP Growth: -.3% > Government Revenue: 31.7% of GDP > > 1988 Economic Conditions: > > Unemployment: 5.5% > Interest Rate: 7% > Inflation: 4.1% > GDP Growth: 4.5% > Government Revenue: 32.8% of GDP > > In addition, median family income increased by $4000 under Reagan. After the 1982 recession, the recovery saw GDP growth rates over 7%. > > I agree that the 1981 tax cut resulted in less overall government revenue and increased the size of the deficit. But there is no question that Reagan’s 8 years, which represented probably the longest period of reduced government growth and lower taxes, was also one of the best periods of economic performance the U.S. has seen. Considering that he started with an economy in stagflation, I’d say that’s pretty good. > > If Barack Obama got anywhere near these kinds of results from the stimulus, you guys would be declaring an economic miracle. > > As for income inequality, that’s your hobby horse, not mine. I made no claim that supply-side economics reduce income inequality, so I’m not sure why you injected it into the debate. The reason Reagan any economic growth ( his average GDP increase beiing exactly the same as Carter/Clinton) was twofold. Firstly, the price of oil fell from historical all-time highs in the early eighties. The US economy was much more highly geared to the price of oil back then and the Arab-Israeli/OPEC crisis in the mid-seventies and the Iranian revolution in 79 caused two spectacular price shocks which screwed the global economy big time (Britain had to go for an IMF loan for instance). That’s how Keynesians explain stagflation btw. The oil price fell due to Carter negotiating with the Saudis secretly after the OPEC blowup and then openly after Khomeini’s revolution to ramp up production and flood the world market with oil. This took a few years but really got going when the Saudis atarted shitting themselves over Iran and we got the benefit in the early 80s. Also. Carter gave NY Fed chair Paul Volcker, a reknowned hard money guy, the Fed head job in 1978 with a brief to crush inflation, then running out of hand due to the oil price. Volcker cranked up interest rates to 18% which induced a massive recession. The falling price of oil meant that Volcker could slash rates in the early eighties which led to a massive economic boom as all the pent-up demand of people wanting to but new houses, cars etc. exploded when they could afford the interest rates. That’s how Reagan got any growth at all, how inflation/unemployment fell etc. etc. Again, Reagan’s economic performance created zero extra GDP growth and (then) record deficits. ---
**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 13, 2010, 6:30pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/83 "2010-07-13T18:30:19Z")
Also Sam, explain this : [![](https://farm5.static.flickr.com/4080/4791033992_e5a9f97a1d.jpg) ](https://farm5.static.flickr.com/4080/4791033992_e5a9f97a1d.jpg) ERTA being Reagan’s 1981 tax cut and TEFRA being the largest peacetime tax increase in history. ---
**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 14, 2010, 4:11am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/84 "2010-07-14T04:11:12Z")
> [@Dick\_Dastardly](#): > > Reagan cut taxes for the wealthy in 1981 then raised taxes on low/middle earners every year after that including the biggest single peacetime tax increase in history. Here’s his former chief economic advisor : > > [http://old.nationalreview.com/nrof\_bartlett/bartlett200310290853.asp](http://old.nationalreview.com/nrof_bartlett/bartlett200310290853.asp) > > By the time the 1988 election came along GOP voters were so furious about all their increased taxes that candidate George Bush 41 had to say his famous “read my lips, no new taxes” thing. But because the GOP back then was led by non-ideological nutjobs who actually looked at the numbers to work out what economic policy should be Bush 41 increased taxes after he won in 88 and lost the next election because of it, the GOP voters realising that they’d been shafted on their taxes. But with the passing of the years and the Reagan mythology industry this kinda thing gets forgotten and the GOP are still somehow the guys who cut taxes for Joe Sixpack. Yes, but the tax increases were not tax increases on individual earned income. Reagan kept decreasing federal income taxes throughout his administration. To be fair this was the beginning of supply side economics when people still remembered the theoretical underpinnings of how it was supposed to work. By the time baby bush was in office, supply side economics=tax cuts. > [@Dick\_Dastardly](#): > > The reason Reagan any economic growth ( his average GDP increase beiing exactly the same as Carter/Clinton) was twofold. Firstly, the price of oil fell from historical all-time highs in the early eighties. The US economy was much more highly geared to the price of oil back then and the Arab-Israeli/OPEC crisis in the mid-seventies and the Iranian revolution in 79 caused two spectacular price shocks which screwed the global economy big time (Britain had to go for an IMF loan for instance). That’s how Keynesians explain stagflation btw. I think its more than Keynesians that attribute stagflation to oil shock. ---
**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 14, 2010, 11:09pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/85 "2010-07-14T23:09:23Z")
> [@Damuri\_Ajashi](#): > > Yes, but the tax increases were not tax increases on individual earned income. Reagan kept decreasing federal income taxes throughout his administration. To be fair this was the beginning of supply side economics when people still remembered the theoretical underpinnings of how it was supposed to work. By the time baby bush was in office, supply side economics=tax cuts. > > I think its more than Keynesians that attribute stagflation to oil shock. Payroll tax is a tax on eaned income. Income tax is just one of dozens of federal taxes and one which falls mainly on high income earners. Payroll tax is regressive and only levied on the first 100 or so K of income, so falls disproportionately on low/middle income earners. Reagan raised taxes which fall disproportionately on low/middle income earners to try and cover for the huge hole in revenue caused by his 1981 income/capital gains tax cuts, payroll tax being the best example of this. ---
**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 15, 2010, 4:36am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/86 "2010-07-15T04:36:02Z")
> [@Dick\_Dastardly](#): > > Payroll tax is a tax on eaned income. Income tax is just one of dozens of federal taxes and one which falls mainly on high income earners. Payroll tax is regressive and only levied on the first 100 or so K of income, so falls disproportionately on low/middle income earners. Reagan raised taxes which fall disproportionately on low/middle income earners to try and cover for the huge hole in revenue caused by his 1981 income/capital gains tax cuts, payroll tax being the best example of this. I understand all that but I didn’t think we were talking about anything other than the federal income tax. If you want to include all taxes, Reagan still lowered taxes from 70 to 50 then to 35 then to 28. He shifted some of those taxes to the middle class but the skyrocketing deficit did not come from a net tax increase. ---
**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 17, 2010, 2:34am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/87 "2010-07-17T02:34:34Z")
Nobel Prize Leaureate Economist Paul Krugman addresses this today in the [NY Times](http://www.nytimes.com/2010/07/16/opinion/16krugman.html?_r=1&hp). It does require registration. To cherry pick a quote: \*\* the real news here is the confirmation that Republicans remain committed to deep voodoo, the claim that cutting taxes actually increases revenues. It’s not true, of course. Ronald Reagan said that his tax cuts would reduce deficits, then presided over a near-tripling of federal debt. When Bill Clinton raised taxes on top incomes, conservatives predicted economic disaster; what actually followed was an economic boom and a remarkable swing from budget deficit to surplus. Then the Bush tax cuts came along, helping turn that surplus into a persistent deficit, even before the crash. But we’re talking about voodoo economics here, so perhaps it’s not surprising that belief in the magical powers of tax cuts is a zombie doctrine: no matter how many times you kill it with facts, it just keeps coming back. And despite repeated failure in practice, it is, more than ever, the official view of the G.O.P.\*\* ---
**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 17, 2010, 3:01am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/88 "2010-07-17T03:01:14Z")
[Alan Greenspan](http://www.bloomberg.com/news/2010-07-16/greenspan-says-congress-should-let-bush-era-tax-cuts-expire-transcript-.html) also chimes in during a bloomberg interview with: WOODRUFF: On those tax cuts, they are due to expire at the end of this year. Should they be extended? What should Congress do? GREENSPAN: I should say they should follow the law and let them lapse. ---
**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 17, 2010, 4:27am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/89 "2010-07-17T04:27:41Z")
> [@China\_Guy](#): > > [Alan Greenspan](http://www.bloomberg.com/news/2010-07-16/greenspan-says-congress-should-let-bush-era-tax-cuts-expire-transcript-.html) also chimes in during a bloomberg interview with: > > WOODRUFF: On those tax cuts, they are due to expire at the end of this year. Should they be extended? What should Congress do? > > GREENSPAN: I should say they should follow the law and let them lapse. He is trying to make up for his part in helping pass those ridiculous tax cuts. I still remember when he testified that tax cuts would be good for the economy and only after they passed the bill did he mention that this would only be the case if those tax cuts were accompanied by spending cuts. What did we ever see in that guy? ---
**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 17, 2010, 4:34am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/90 "2010-07-17T04:34:59Z")
I dunno. I kinda liked Greenspan up until the “irrational exuberence” speech and no follow through. Greenie clearly saw the train wreck that was coming but didn’t do anything to stop it. Then after the Asian Crisis, he didn’t want the Russian default to torpedo the economy and went loose money, then doubled down in the dot com aftermath by allowing Americans to completely mortgage their future for a soft landing via “refinancing” aka exploding personal debt levels. ---
**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 17, 2010, 5:41am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/91 "2010-07-17T05:41:39Z")
> [@Damuri\_Ajashi](#): > > He is trying to make up for his part in helping pass those ridiculous tax cuts. I still remember when he testified that tax cuts would be good for the economy and only after they passed the bill did he mention that this would only be the case if those tax cuts were accompanied by spending cuts. What did we ever see in that guy? Actually, I think Greenspan is saying that right now, the market needs stability. It’s already discounted the tax increase because everyone has known it was coming for ten years now. Don’t make unnecessary changes. The other thing he could be saying is that the fear of deficits is causing more damage than the tax increase would cause. The least likely scenario is that he’s doing this to ‘make up’ for his past decisions. ---
**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 17, 2010, 4:00pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/92 "2010-07-17T16:00:41Z")
Yeah this is probably right. I just have a grudge against him for facilitating the Bush tax cuts and I have a conspiracy theory that his policies were influenced by ideological and political beliefs. ---
**Author:** ![ThomasPaine](https://avatars.discourse-cdn.com/v4/letter/t/cdc98d/32.png) [@ThomasPaine](https://boards.straightdope.com/u/ThomasPaine)\ **Post date:** [May 29, 2011, 12:25pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/93 "2011-05-29T12:25:41Z")
> [@Really\_Not\_All\_That\_Bright](#): > > You mean like FDR’s spending ending the Great Depression? … because that was a heck of a “Joke of the Day” … ---
**Author:** ![Farmer\_Jane](https://avatars.discourse-cdn.com/v4/letter/f/bbe5ce/32.png) [@Farmer\_Jane](https://boards.straightdope.com/u/Farmer_Jane)\ **Post date:** [May 29, 2011, 12:32pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/94 "2011-05-29T12:32:27Z")
Hey! Nice usename! 😃 ---
**Author:** ![ThomasPaine](https://avatars.discourse-cdn.com/v4/letter/t/cdc98d/32.png) [@ThomasPaine](https://boards.straightdope.com/u/ThomasPaine)\ **Post date:** [May 29, 2011, 1:14pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/95 "2011-05-29T13:14:09Z")
“I think it is your faith in unfettered markets that is misguided.” Repeat after me: FIRST WELFARE THEOREM. Not Second, not Third. Lots of people think they are smarter than markets. Or pretend they are, a toxic mix of hubris and corruption… ---
**Author:** ![ThomasPaine](https://avatars.discourse-cdn.com/v4/letter/t/cdc98d/32.png) [@ThomasPaine](https://boards.straightdope.com/u/ThomasPaine)\ **Post date:** [May 29, 2011, 1:17pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/96 "2011-05-29T13:17:05Z")
“Can a bunch of us get together and jointly negotiate for contract provisions? That called a union, or should we force every employee to negotiate with their employer alone?” Only if you force them to have one, and only one, choice of employers for whom to work. If not, pound some sand… ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [May 29, 2011, 9:40pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/97 "2011-05-29T21:40:34Z")
Employers have the advantage of controlling the property of the business. Unions exist to counterbalance that advantage. ---
**Author:** ![Naxos](https://avatars.discourse-cdn.com/v4/letter/n/50afbb/32.png) [@Naxos](https://boards.straightdope.com/u/Naxos)\ **Post date:** [May 29, 2011, 9:45pm UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/98 "2011-05-29T21:45:21Z")
> [@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?). You rarely hear a peep because “supply side” benefits the owners of the media venues you’re consuming news from. In addition, there are countless mindless morons with their car up on blocks in their back yard for the past year, that want to worship the rich in the hope that they may become rich themselves… some day… and have a chance to exploit others too. That’s why you hear so much about “supply side” garbage. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [May 30, 2011, 1:03am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/99 "2011-05-30T01:03:09Z")
> [@China\_Guy](#): > > I dunno. I kinda liked Greenspan up until the “irrational exuberence” speech and no follow through. Greenie clearly saw the train wreck that was coming but didn’t do anything to stop it. Then after the Asian Crisis, he didn’t want the Russian default to torpedo the economy and went loose money, then doubled down in the dot com aftermath by allowing Americans to completely mortgage their future for a soft landing via “refinancing” aka exploding personal debt levels. He did not see it coming? He caused it with his stupid libertarian concepts. He finally admitted his blind faith in the markets was wrong and destructive. Can you imagine someone in his position believing deregulation was the way to run the markets? He believer markets were self correcting. Why wasn’t that fool fired when he said that? Instead we let him prove the ignorance by letting the bankers screw up the world economy. Now the idiots are sitting on billions of tax care money and digging up more and more ways to screw their depositors. They are violently opposed to any regulation. They are doing everything in their power to stop Elizabeth warren from setting up a small amount of oversight which would force them to do terrible things like give readable contracts to customers. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [May 30, 2011, 1:13am UTC](https://boards.straightdope.com/t/why-not-demand-side-economics/545790/100 "2011-05-30T01:13:28Z")
> [@Ruminator](#): > > Henry Ford had enough wits to put together a car assembly line but he didn’t know economics. > > Here’s an experiment we can try to test the validity demand-side economics. You pay your kids (an allowance) to do chores around the house: wash dishes, rake leaves, do laundry, etc. Instead of paying them a paltry dollar or two, you pay them hundreds or thousands of dollars for each chore. Now, your kids have enough money to pay off your mortgage! > > Demand-Side. It’s like magic. BS. Ford was selling an expensive product. By paying more he helped invent the middle class. People who could afford cars , gas , vacations and nicer homes. They became not only car buyers, but the consumers who made all the enormous production in America possible. He was thinking long range. Todays execs think of now. Cutting wages makes a huge bonus for them. That is all they care about. They wont be running the place in 10 or 20 years. They are not committed to the company in the future. They sure as hell don’t care about the health of our economy when screwing it up makes them rich. [Previous page](https://boards.straightdope.com/t/why-not-demand-side-economics/545790.md?page=4) [Next page](https://boards.straightdope.com/t/why-not-demand-side-economics/545790.md?page=6)