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Author Topic: Supply side university.
Everard
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I am going to read as much of this over the next few months as possible, for a few reasons.

I do have to agree with one statement he makes, so far, which is that production precedes demand. I'm not sure how he will fit this in, and I'm not sure if he will take that initial condition to places I think are logical extensions or not.

Here's what he says 'Where we all do agree is on the axiom that production, or "supply," must precede consumption, or "demand."'

One thing he says after this, that I am disagreeing with at the moment, is "There are myriad possibilities of how to optimize or maximize production -- through "free markets" or through state intervention and management. If the focus is not on a philosophy of "production," but rather on the management of "demand," all supply-side economists agree that national economies or the world economy will deteriorate."

I think production is something that should be managed, as he says, as I also think demand should be managed... which he disagrees with.

In the current world, ANWR was a topic of major debate recently. Opening up oil fields there would increase the supply of oil, while not changing demand. Keeping it closed would maintain supply, thus heightening demand (more consumed, less available, demand is constant, supply is less, relative demand goes up). Both sides are managing the supply in order to effect demand, or apparent demand is the term I will use for now.

Anyrate, from my initial reading of this, a supply sider would support opening ANWR because it increases the supply of a product that is in demand.

However, something that I think needs to be accounted for, and perhaps Wanniski does later, is whether or not its desirable for there to be a demand on a particular product. I think demand for oil is destructive, to a variety of different entities, not the least of which is the political entity of the republic of the united states of america. If the demand for something is negative, then perhaps supply should be manipulated so apparent demand goes down.

Some initial thoughts. I will keep this thread updated for my musings as I browse through the site.


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TomDavidson
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See, I disagree even with the basic premise; I think demand will always take precedence over supply.

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Kyle French
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Tom--
There was a demand for, say, cars before they were produced?

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Everard
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See, I'm reading it as production precedes consumption, which makes it even more obvious. Demand can be used in a variety of ways, I believe. Consumption is one of those ways.

However, I think that supply, and demand for that supply, can go in either direction. Demand for faster transportation preceded the car, but the demand for cars didn';t exist until cars rolled along, and the supply of cars obviously predated the demand for cars, even if only by a micro-second.

I think this premise can be looked at in a variety of ways.


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TomDavidson
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Kyle, I don't consider innovation to be a function of supply, but rather a function of demand; a need is observed (in this case, faster transportation), and something is subsequently developed, manufactured, and marketed to fill that need.

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Kyle French
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Well golly gee willikers, no wonder you don't consider supply to be all that important. Every product in the world would be a result of the demand of the basic human urges... sex, food, fellowship...

But then again, all these needs would be a result of a fundamental supply-- People. You could probably take that chain all the way back to the origins of the universe. Were stars created because there was a need for energy or was a need for energy created because there was a sun?

Please pardon my overboard sarcasm today. I think I'm on a roll or something.

Anyway, I'm pretty sure that the supply side theorists tend to start with the assumption that demand is practically infinite, so that the best thing to modulate is the supply. It would be interesting to see a discussion of this.


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WmLambert
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Everard, i applaud you for taking the time and making the effort to study Jude Wanniski's Polyconomics and Supply-side University. If you also go into the forums there for more background information you will have most of your questions answered. The main problem are the many Keynesians who misrepresent the model and argue a distortion.

Here is some boilerplate from an earlier discussion we had about such a seemingly learned representation of the supply-side model. This was in response to someone who posted the Kanga Report:

From the Kanga report:

quote:
ECONOMIC PERFORMANCE

A common supply-side interpretation of the 80s goes something like this: "Carter's tax-and-spend policies ruined the economy, and sent America into the worst recession since World War II. Reagan inherited many of those economic problems, but once he cut taxes, America's entrepreneurial spirit was unshackled. We experienced the greatest peacetime expansion in postwar history - the so-called 'Seven Fat Years' from 1983 to 1989. Then George Bush broke his 'Read my lips: no new taxes' pledge, and sent the economy back into recession."


No, this is only the liberal reinterpretation of the economic underpinnings of what happened. The idea is to ignore the concept of classic Supply-side economics and to give only the Liberal view of what happened - with the inevitable Keynesian spin on what was wrong with it. Reaganomics consisted of four key elements to reverse the high-inflation, slow-growth economic record of the 1970s: (1) a restrictive monetary policy designed to stabilize the value of the dollar and end runaway inflation; (2) a 25 percent across-the-board tax cut (The Economic Recovery Tax Act of 1981) designed to spur savings, investment, work, and economic efficiency; (3) a promise to balance the budget through domestic spending restraint; and (4) an agenda to roll back government regulation. Stockman and Greenspan were both never Supply-side economists. They were part of the cadré of AEA professionals who caused the Reagan tax cuts to be enacted piece-meal. Don Regan, who had been the boss at Merrill Lynch, hired Norman Ture and Paul Craig Roberts to fight for the Reagan Supply-side tax cuts and was a positive force in the administration. Greenspan never had a good word to say about the tax cuts and was part of the gang that talked Reagan into phasing them in as slow as molasses. This group includes Arthur Burns, Milton Friedman, Casper Weinberger, George Schultz, and Alan Greenspan. Greenspan also helped David Stockman and Dick Darman persuade the Gipper into raising taxes in exchange for spending cuts in 1982. Contrary to Greenspan's belief - the moment the tax cuts kicked in, the result was felt. The promised spending cuts never appeared.)

quote:
cont'd: There are several problems with this story. First, Carter actually began many of the policies that Reagan would later become known for; Carter gave the rich a capital gains tax cut, massively deregulated key industries like trucking and airlines, and even increased defense spending. This was also the period that corporate PACs began compelling Congress to pass pro-business legislation. According to supply-side theory, these actions should have nudged the economy in the right direction, not plunged it into the worst recession in 40 years. Other problems involve timing: Reagan's first tax cuts went into effect in 1982, but this was also the summer that the Federal Reserve Board slashed interest rates and expanded the money supply. Most economists believe the Fed, not Reagan, was responsible for the following recovery. Finally, the recession of 1990 began four months before Bush broke his "no new taxes" pledge. The recession began in July 1990; Bush signed his tax increases into law in November 1990.
Carter tried to micromanage the economy using economic advisors who had never been correct in their advice before. They just explained why they were wrong. The little fixes named herein were too little, too late.

Reagan's first official act was an executive order eliminating the Wage-price controls on oil and gasoline. The next day, the Council on Wage and Price Stability was abolished.

Critics like Senator Howard Metzenbaum warned that gas prices would raise to two dollars a gallon. Within a short time they were forced to realize that the energy crises had been solved by two strokes of the pen.

Within six months, Reagan's central plank of the campaign - tax reduction - was signed into law. Against O'Neill's concerted efforts, he got a 238 to 195 vote in the House, and an 89 to 11 win in the Senate.

Ronald Reagan's election in 1980 came in the nick of time. There was a rocky start because the tax cuts caused a dramatic increase in the demand for dollar liquidity, but the Federal Reserve was still fighting the inflationary impulses generated by the Carter administration. The scarcity of printed money pulled commodity prices down and drove the economy into recession.

Only after the Fed was forced to "print" $3 billion to buy Mexican peso bonds, to avoid the bankruptcies of some of our biggest banks, did gold jump above $400, ending the deflation, and joining the tax cuts to produce a non-inflationary expansion. It was not supposed to be possible in the demand model. This single fact if nothing else, completely invalidates the Keynesian demand model. Spending increased across-the-board, with major increases in defense outlays, the budget deficit expanded, yet interest rates declined steadily. The Soviet leadership, awed by this economic magic, could plainly see it was useless trying to stay in an arms race with the U.S. It essentially threw in the towel in the Reagan years, but the Cold War did not officially end until the Berlin Wall came down during George Bush's administration.

quote:
Cont'd: And supply-siders are careful to note that Reagan's was the longest peacetime expansion since World War II. In truth, the Kennedy-Johnson expansion was longer: 106 months compared to Reagan's 92.1 Of course, there was a war in Vietnam, which gives supply-siders an excuse to dismiss it because wars are beneficial to the economy. But they are beneficial because governments engage in Keynesian borrowing and spending during them (which could be directed to social services as well as war). Unfortunately for supply-siders, it was really Keynesianism that produced the longest economic boom since World War II.
Unortunately for Keynesians, Kennedy was a Supply-sider. In 1960, John F. Kennedy defeated Richard Nixon on a theme of getting the economy moving again, although he also committed himself to the gold standard as it existed and to lowering tariff rates in a "Kennedy Round" of cuts. Republicans and Dixiecrats in Congress blocked his tax cut proposal, which had been sold to him by West Germany's Finance Minister, Ludwig Erhard in May 1962. The concept came straight out of classical theory and was as "supply-side" as the justification for the Harding/Coolidge reforms of the 1920s. Only after JFK's assassination in 1963 was there sufficient sympathy for passing the tax-cuts in his honor, directed by President Lyndon Johnson. When the stock market boomed and real wages grew rapidly, the Democrats insisted the tax cuts were based on Keynesian theory of increasing aggregate demand.

Republicans, led by Senator Barry Goldwater, had opposed the tax cuts as being fiscally irresponsible, and were in no position to claim credit for the expansion they had ignited. Johnson demolished Goldwater in the 1964 elections and elected to use the enormous surpluses produced by the boom to finance his Great Society programs. LBJ also compounded this problem when he raised taxes in 1967, to counter the budget deficit swelled with Vietnam spending. The Great Society excesses and the Vietnam War cost the Democrats their control of the White House. Richard Nixon won in 1968 and immediately began making enormous economic policy errors on the advice of his conservative Keynesian advisors.

For a more knowledgeable approach to this subject than I can give, please review the information from Jude Wanniski's website at Supply-Side University. Much of the info in this post I got from there.


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Cedrios
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the problem with supply side economics is that for it to work, most of the people in the economy have to believe in it and be willing to practice actions that are condusive to spending during economic recession. PEOPLE DON'T spend as much. JFC, do you think you can just disintegrate the human pysche and run a robotic, supply economy? Sure, its great for maintaing production when everyone's happy, but when the economy goes south, you need money spent quickly and temporarily by a constant, controlling entity that will stop when the economy returns to normal. I realize Keynsian theory upsets a lot of people because its premise is catering to their psychological deficiencies in times of crisis and fear, BUT GET OVER IT.
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WmLambert
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To TomD's earlier post denigrating the Supply-side model and lauding Demand as the penultimate driving force in economics - let me provide a real life experience with which most here can easily identify.

Last Christmas, I found a great gift for my wife, who loves pens, Just a little stocking stuffer, but for more money than I had in my pocket at the time. I went back a few days later, a wad of money in hand, and found the store had sold out of the item I wanted. I was not the only person, while I was there a stream of consumers came in asking for the pens.

This was a lack of supply. All these people and I had to buy something else which was less appropriate, and probably half of the less-appropriate replacement items were returned for cash. The Store owners did not get to keep the money for the returned items, and no one was happy. The Demand was there, but with no supply, it went unsatisfied.

The Soviet Union had five-year plans in a collective demand economy requiring plants to manufacture 5 million shoes a year. The plants made baby shoes because they were cheaper - but there wern't enough babies to wear them - and no shoes for adults to buy. In the US at the same time, Nike made 5 million athletic shoes that sold like hotcakes. Before the Nike shoes were designed, nobody wanted to buy any. The appearance of them in the marketplace was the trigger mechanism that aroused the demand. It's not just Demand... It's intelligent Demand that counts.

Hope this helps.


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Cedrios
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Look, can't you guys see we're not entirely downing supply side economics? There has to be a mix, with a heavier presence of Keynsian policy to be there to strongly act ONLY in emergencies. Supply side economics crumbles in economic crisis, but yet fluorishes more than Keysnian during booms.
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Puretext
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Now that argument, Ced, I would buy. Makes me think of Keynesian economics as something like caffeine. It's good to get your butt in gear, but has limited long-term effects.
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TomDavidson
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Hey, Lambert, I don't buy your examples.

Now, admittedly, your first one -- you went to buy a specific pen, but it was out of stock -- is a classic case of insufficient supply. However, while it indicates a level of market inefficiency, it DOESN'T indicate that supply drives the market; in fact, the demand for the pens apparently remained constant (per the frequent requests for them) despite the lack of available pens. I would be surprised to learn that the sold-out pens were not ordered in greater quality further down the line.

Moreover, Nike's production of shoes is NOT a case of supply creating demand. Rather, the ORIGINAL demand here is for footwear, a product that already exists; Nike's own marketing team then went to bat to create demand for a product in the pipeline, which sold well when released. (And your Soviet Union example is a PERFECT example of supply in the absence of demand; they made shoes when no shoes were desired, and took no actions -- unlike Nike -- to increase the demand for shoes, so a shoe glut was created.)

Now, I'm not saying that a well-made product can't increase demand, or that the introduction of a new product can't create a new marketplace. However, this is sufficiently rare that, to me, it's obvious that supply is usually playing catch-up.

[This message has been edited by TomDavidson (edited November 06, 2002).]


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Everard
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First, a link.
http://www.polyconomics.com/searchbase/02-04-00.html

Second, another thought.
"This means the demand-side economists then must also argue that the political marketplace is inefficient, in that Reagan was elected by landslide proportions in promising lower tax rates, while Bush was turned out of office after he broke his promise not to raise taxes. And the voters gave Republicans control of Congress in 1994 for the first time in 40 years, after Bill Clinton promised a tax cut but raised tax rates instead."

Essentially, what he is saying with this comment is that demand-side economists, if arguing that reaganomics was harmful to the economy, must also argue that tax cuts are popular as well, and therefore acknowledge that voters don't necessarily vote for what works best, and he makes this point as if its a point against demand-side.

personally, I think its self evident that
a) people vote their immediate pocketbook
b) people vote their emotions
c) information is not available in great enough quantities (and accurate enough to boot) to make the voter well informed about what actually is happening in government
d) the average voter does not seek out as much information as he can.

All this adds up to say that I think his point fizzles.


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Everard
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And another comment..

"was partly responsible for the mistake that caused the Crash. We can excuse Hoover and the economists of the time because the philosophy of markets had not yet developed to the point where it was obvious to anyone that the progress through the Congress of the Smoot-Hawley Tariff Act , eventually passed in 1930, could cause the Wall Street Crash of October 1929"

I think he's on crack, unless he can explain this is ridiculously great detail.


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Puretext
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I don't know if you'd buy it; I certainly don't have enough history to debate it, but he definitely goes into a lot of detail about the 1929 crash in the way the world works.

From that article, he also seems to be pretty open to you emailing him and telling him why he's on crack. Mayhaps he can explain what it is he's really on.

KB


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Baldar
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People do vote with their pocket books (remember the phrase "its the economy stupid"), but that does not make them short sighted. I assume then that communists have always taken the long view and that long view can be seen as successful?

What makes someone vote deals with a wide range from emotion, to economics, to political slant, the information out there is sufficent to create an informed voting decision. I cannot recall when American voters were overly surprised by a candidate on more than one or two issues.


quote:
Now, I'm not saying that a well-made product can't increase demand, or that the introduction of a new product can't create a new marketplace.However, this is sufficiently rare that, to me, it's obvious that supply is usually playing catch-up.

Computers
Cars
Ball point pens
disposable cameras
cd players
dvd's
air travel
plastic surgury
calculators
copiers
it goes on and on, new products, better products new markets.

Fax machines, I remember when the first fax machine went out in which you went to a central company and had the message immediately faxed to another central location (you paid a buck or two for the service).


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TomDavidson
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Baldar, none of the innovations you've mentioned are supply-based. Here's a quick list of the demands they were developed to meet:

1) Rapid calculation. (Note that as supply improved and varied, demand DID increase. This is actually a pretty good example of one of those rare innovations that I mentioned.)
2) Rapid transportation.
3) Improved output.
4) Convenient information storage. (Instant cameras fit into this same niche.)
5) High-capacity information storage.
6) High-capacity information storage.
7) Rapid transportation.
8) Vanity. (Fits the same niche as health spas.)
9) Rapid calculation.
10) Improved output.

In other words, an obvious demand for these products existed well before the products hit the market. Now, people may not have been familiar with them at first, and technology may have had to go through a few iterations before they became easy to use, but the needs they meet are needs that have existed for some time (with the exception, again, of some uses for computer technology, which is why it's now its own sector of the economy).

A better proof would be to give me a list of highly successful products that DON'T meet any kind of demand. But, of course, you can't: in order for a product to be successful, it HAS to meet a perceived need (even if marketing has to roll into action, as with plastic surgery, to increase perception of that need.)

Supply is absolutely POINTLESS without demand. On the flip side, a strong enough demand will almost always spur research into supply.

Edit: I'm going to back up those categories, by the way, with a little logic: in those cases where I've assigned items to the same category, notice that technological developments could easily cause those items to overlap and render one less marketable. A supply-sider might continue to produce calculators AND computers, but the demand for a PDA that can do everything, INCLUDING calculation, will eventually drive calculators down to the bargain basement. (See tabletop word processors, floppy disks, and instamatic cameras.)

People don't innovate because they're playing with supply; they innovate precisely because they want to meet demand.

[This message has been edited by TomDavidson (edited November 07, 2002).]


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Puretext
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You could be biological about it and say that the sun is the supply and plant life is the demand. And then plant life is the supply and animals are the demand...

but then, that's not economics, that's biology.


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TomDavidson
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Right. Although if there weren't already an infinite supply of sunlight, our existing demand for sunlight would produce a viable market. That said, I suppose the demand is better expressed as "Life-giving Energy," as alternate sources of supply could conceivably be provided.

[This message has been edited by TomDavidson (edited November 07, 2002).]


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Mike_W
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And people wonder why economics (my degree, by the way) is not taken seriously as science. There is no need for the bipolarism. Theres grains of truth on both sides (as there often is in underdeveloped sciences). Thank heavens we have this thing called "equillibrium".

The real joke are those that insist that "Keynes was just plain wrong", or that "Keynes is all that matters since it works".

Mike


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Locus
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Absolutes are seldom correct in ANY pursuit.

The more polarized the viewpoint ..the less chance it's correct.

Governments like supply-side as it's generally an order of magnitude easier to manipulate supply than demand.


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WmLambert
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Locust, actually your comment is not true. Governments do not like Supply-side economics simply because it is a useful political tool. On the contrary, there is no support for Supply-side anywhere you can look in government. The sad fact is that Keynesians have a vested interest to continue peddling a demand model which they learned in college but has been proven to not work. There are very few universities teaching economics that even admit there is any other model than the Keynesian one.

Except for the happenstance that Reagan had learned classic economics at Eureka College in 1932, before John Maynard Keynes came to offer a new hypothesis and a demand model for it, there would be no governments that like it for any reason. JFK was a Supply-sider via Germany and asked for tax cuts and Supply-side economic controls. The Keynesian model was wrong in condemning JFK as well in condemning Reagan. As a matter of fact, the Keynesian model is a rather poor hypothesis which has never shown any accuracy and yet is constantly referred to. The Supply-side model has been accurate - but is shunned because the vast bulk of economists would be unemployed if they admitted their failure.

The economists worldwide who use Jude Wanniski as a sounding-board are successful. The Keynesians are only good at explaining after the fact why they were wrong. Please recall that the President of the AEA (The American Economic Association to which all Keynesians look for their direction) stated flat-out that Keynesian economics cannot be used to predict what will happen. The Supply-siders do use their model to predict and it is still accurate.

THE WAY THE WORLD WORKS: SIMPLIFIED by Jude Wanniski

quote:
August 27, 1998

THE WAY THE WORLD WORKS: SIMPLIFIED

[I wrote this little piece on November 23, 1993, in response to a member of Congress who said he wanted to know in a hurry about supply-side economics. I had remembered that President Dwight D. Eisenhower said he would not read any memos that were longer than one page, so I squeezed it down to that.]

THE WAY THE WORLD WORKS: SIMPLIFIED

by Jude Wanniski -- November 23, 1993

As the U.S. and most of the world economy continues to stumble along, the economics professionals and their agents in the financial press are becoming increasingly complex and prolix in their rationales and prescriptions. In trying to explain my own thinking to the political class, I've tried to go in the other direction, simplifying in the extreme. In this simplest of all world economic models, there are only three people: A rich old man; a poor but aspiring young man; and the government. Here's what it is all about:

The rich old man has capital, but does not wish to work. The poor young man has labor, but no job and no capital. The rich man would invest in the poor man, but the government tax rate on investment income is so high that after considering the risks, the rich man is discouraged. The government comes upon this predicament and decides the poor man has to be sustained, with food, housing and health care, and borrows these from the rich man, giving him a bond and making the transfer. The government deficit increases. The rich man holds debt instead of equity. The young man might go to work, but when he sees that his investment in himself will be taxed at the same discouraging rate if not more, he remains idle, continuing to receive his subsidy. The unemployment rate remains high, and the government is soon faced with the problem of paying interest on the bond held by the rich man. It must either tax the rich man to pay him his interest, which discourages the rich man from buying more bonds from the government, or it borrows the interest from him with a new bond, which increases the deficit, et cetera. The government can also reduce its obligation to the rich man by devaluing the currency, which means it cheats the rich man out of principal. That also discourages the rich man from further investments in government bonds.

Is this too simple to explain what's happening all over the world? Do you need a more complicated explanation of why government deficits are increasing, interest rates are rising, unemployment rates are climbing? Isn't it enough for you to see that if the government lowers the tax on equity income, the rich old man will invest in the poor young man, buying equity instead of debt. This would tend to drive up the stock market in this three-person economy, and drive down the bond market, since the rich man isn't buying debt. (This is why we're told the bond market doesn't like a strong economy.) But wait, the young, aspiring man now has capital, covering his food, housing and health care. This means the government doesn't have to issue the bond to cover a deficit, and in fact is able to tax the young man, who has chosen to invest in himself by working instead of remaining idle, because the government tax is no longer discouraging. This means the government revenues rise as the deficit falls, and unemployment declines, and stock markets and bond markets rise. The crime rate falls as idle young men are now occupied, getting rich.

Why don't our Nobel Prize winning economists see this? Because the concept of risk-taking does not exist in a demand model, and all our Nobel Prize winners live in a risk-free world, where debt and equity are interchangeable. If this simple world economic model were in place, think of how many economists, lawyers and accountants would be out of business, forced to work for a living. That's why it's all too simple.


President John F. Kennedy learned his economics in a supply model, which was still being taught when he was a boy. Kennedy was clearly supply-side in his economic thinking, far more so than Richard Nixon, who was easily led to the demand-side policies that undermined the economy and his administration in the early 1970s. The late Norman Ture was the economist who wrote the speech that introduced the Kennedy tax cuts to Congress in 1963, a speech thoroughly couched in the supply framework. Ture was also the Undersecretary for Tax Policy in the Reagan administration, using precisely the same analytic model he used as an assistant to Chairman Wilbur Mills of the House Ways & Means Committee in 1963. He is the one economist who bridged the Kennedy and Reagan administrations. Ronald Reagan, a Democrat in his youth, studied classical economics at Eureka College, Illinois, where he got a B.A. in economics in 1932. Classical economics then had no trouble in identifying the producer of goods as more important to the economy than the consumer -- if only because goods must be produced before they can be consumed. There is no chicken and egg problem here.

Eureka College did not teach Reagan about the impact monetary inflation would have on progressive taxes, because the United States never had an inflation in combination with progressive taxes until the late 1930s. The devaluation of the dollar against gold in 1934 produced a mild monetary inflation that was masked by the tariff-and-tax related Depression. It was Mundell who first saw the early moves away from a gold dollar and warned it would bring an inflation. It also was Mundell and Laffer who were the first to see the connection to the progressive tax structure, and how "bracket creep" would steadily raise real rates of taxation to levels that would smother economic efficiency and drive down real wages and standards of living. It was this combination of economic theory and political drive that produced the Reagan Presidency.


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Locus
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That'll teach me to make oversimplified statements.

Note I didn't say ALL governments. I should have said "some people in government".

As for its lack of support ..there have been some believers and some nonbelievers...both schools of thought have their place.


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Baldar
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William is right in the sense that supply side economics was pretty much kept under the hat in most universities. My first years I was a huge fan of Keynes (talk about indoctrination) until I started looking at monetarism from a critique standpoint and found it to be superior to the Keynes model. I ended up battling with my advisor when I started my thesis on Monetarism and Chilean economics. While I give Laffer all the credit for tirelessly pushing the idea to the for front I think Mundell is often overlooked, much like Friedman and Hayek.


And Tom, those are products that became mass produced based on supply side economics not the demand economy


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Baldar
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quote:
In other words, an obvious demand for these products existed well before the products hit the market

There was no market because no one was selling them. When someone began taking the chance of creating a market then and only then did the "need" become apparent.

Look at microwaves, every home has them, but no market existed for them twenty years ago, no one even thought they needed them. Now they are a standard everywhere.

No one thought the home computer was the wave of the future, calculators were akin to a luxury people got along just fine with a slide rule


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Everard
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"No one thought the home computer was the wave of the future"

Now that is dead wrong.


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Baldar
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If you were around in the early 70's mini computers were the way to go. Its not dead wrong, you were just too young to remember.
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TomDavidson
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It sure is dead wrong.

You know, though, I might have to grant microwaves. It depends on whether or not you think the demand for more convenient food production was sufficiently powerful to spur research into the field.

-------

Baldar, I DO remember the development of microcomputers -- and EVERYONE always thought that, eventually, small home computers would meet demand. Not everyone knew the exact form they would take, but there was ENORMOUS research into the field -- driven, again, by demand for the potential product.

[This message has been edited by TomDavidson (edited November 07, 2002).]


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Baldar
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Could you show me how I am wrong? There certainly was no market and I can't recall anyone other than science fiction writers (and only a few) talking about computers in every home.
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maniacal_engineer
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i think that this is much ado about nothing. There was no demand for cars before cars existed because they didn't exist. It is a tautology. Giving someone in 1908 a bunch of money doesn't make them suddenly say "hey, I'm gonna use this to by a car with a curved dash" nope. Mr olds got the means to make his car based on his assumption (risk taking) that people would want it if it did exist. But no one is going to build something that they know has no demand (brocolli ice cream).
But I guess the other side of it is that they wont build anything if no one has any money to buy it either.
to my not-too-economically-educated mind it seems that giving money (or not)to consumers will stimulate (or curb) demand for existing products. But access to cheap capital will stimulate the production of more or improved goods. Therefore innovation, invention, productivity gains, which are the real engines of prosperity, are better served by supply side ideas.
my 2cents, in present US dollars, adjusted for inflation (what the h@ll am i talking about?)

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Baldar
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Pet rocks
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TomDavidson
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Pet rocks are a great example of marketing used to create demand for a product of nearly infinite supply.

That said, ME makes the point that innovation is necessary in order to produce any SPECIFIC supply of new product, and that specific demand for that product won't exist until the product itself exists. I agree, but I believe that's better stated as follows:

All successful products meet a pre-existing need that can be expressed as a superset into which the product fits. Consequently, almost all commercial technological innovation is in fact best expressed as attempts to better meet existing needs. Pure research obviously falls outside of this statement.


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Dan Allen
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quote:
All successful products meet a pre-existing need that can be expressed as a superset into which the product fits. Consequently, almost all commercial technological innovation is in fact best expressed as attempts to better meet existing needs. Pure research obviously falls outside of this statement.

At the time the IBM PC came out there was no 'home' market. The market consisted of business, and a very small hobbyist/geeks. It wasn't until after the hobbyists realized that the open architecture of the IBM allowed pretty much anybody the ability to create software/hardware combinations that might be useful in homes that regular people started considering them. Even then it wasn't until the internet escaped the university/government bounds that home computers were considered to be a 'necessity'.

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TomDavidson
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You realize, of course, that the desire to tinker is itself a demand? Radio Shack used to rely on that demographic, in fact. *grin*

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Dan Allen
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"You realize, of course, that the desire to tinker is itself a demand? Radio Shack used to rely on that demographic, in fact. *grin*"

So did several others. But the supply of pre-assembled gadgets has all but crushed that demographic. Consider the job of "TV repairman" Why pay to have something repaired when it's easier to just replace it with a newer model?


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WmLambert
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TomD, consider that the demand was for convenience in the food-making marketplace. The market was switching from wood-burning stoves, to gas ovens, to electric ranges. When Amana arrived it was a novelty that many were afraid of, and was too expensive and misunderstood for general use. "It's okay if you want to eat popcorn!"

It took time for microwave ovens to be in everyone's kitchen, but the decision to manufacture them (which eventually brought the amortized price down) was a Supply-side decision. Likewise, it was not the demand for personal computers that created that trend, but the spinoff from sending astronauts to the Moon which created the supply of transistor and the entire concept of microminiaturization based on them.

Yes, there are always innate human desires that you can rationalize as the basis for purchase of anything - however; until Ransom E. Olds supplied an alternative choice, people were pleased to make do with buggy-whips. We would have healthy irradiated, genetically enhanced food products on the market now if there was a supply, but they have been legislated away. How soon will bioluminescent Christmas trees be available at sufficient cost and numbers to become commonplace?

I do urge you if you have some time before your pilgrammage to Madison to explore the Wanniski web site.


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Pete at Home
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Do you read the following as supply-side or demand-side evidence:

quote:
Physicians employed vibrating devices in the treatment of "hysteria," which they viewed as the most common health complaint among women of the day. Hysteria was a medical term developed to describe a woman's display of mental or emotional distress, behavior then considered a disease in need of treatment. Though the existence of hysteria as a disease was debunked by the American Psychiatric Association in 1952, medical experts from the time of Hippocrates up to the 20th century believed that hysteria expressed the womb's revolt against sexual deprivation. Genital massage was a standard treatment for hysteria; its objective was to induce "hysterical paroxysm" (better known as orgasm) in the patient.

(Odd that males have the unfair reputation as the ones who have historically sought professional sexual services, since this constituted a large proportion of physicians' paid services for women until the 1920s.)

quote:
Such treatment demanded both manual dexterity and a fair amount of time, so turn-of-the-century physicians were delighted with the efficiency, convenience and reliability of portable vibrators.
In light of hysteria's historical legacy, we can see that classifying hysteria as a disease was a refusal to acknowledge female sexuality as a human trait on par with male sexual functioning, as well as a refusal to recognize orgasm as a normal function of female sexuality.

The vibrator was later marketed as a home appliance in women's magazines and mail order catalogs. Ads proffering "health, vigor and beauty" promoted the vibrator as a health aid. By the 1920s, doctors had abandoned hands-on physical treatments for hysteria in favor of psychotherapeutic techniques. But vibrators continued to have an active commercial life in which they were marketed (much like snake oil) as cure-alls for ills ranging from headaches and asthma to "fading beauty" and even tuberculosis!

The ad copy for these vibrators was coy and ambiguous. "Be a glow getter," one package insert suggests. And who wouldn't be tempted to experience "that delicious, thrilling health-restoring sensation called vibration," when assured that "it makes you fairly tingle with the joy of living"? ...


It seems to be a demand-driven item, and yet much of the demand was engendered by the false medical & cultural information about women's sexuality in the first place.


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WmLambert
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Pete, some people buy goodies at the Brown Bag Shoppe looking for libido-enhancers. the demand is general. The purchases will be made according to what is perceived as the superior product at the moment their buying decision is made.

The fad is for elephant figurines with upraised trunks indicating good luck. Who will be foremost to provide the supply?


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Pete at Home
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Hmm. But the vibrator was not marketed as a libido enhancer, but quite the contrary, as a libido *satiator*. Playing more into the genre of product as corn flakes, which Kellog originally marketed to dampen the sex drive.
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