Saturday, June 25, 2011

Supply-side silliness

In Washington they're talking about cutting taxes to stimulate the economy. As if giving businesses more profit will create jobs. I've run a business, and I know there is only one thing that creates jobs:

Customers.

If you want to stimulate your economy, you have to convince people to buy. It doesn't do any good to convince business to produce; stacking up inventory doesn't help the economy. How is this not obvious? If the supply of a good is too great, people just won't buy it; if it's too small, people will buy alternate goods (switching to wine instead of beer, say). Changing production has little change on consumption.

But if you change demand, then businesses will either hire so they can produce more, or fire so they produce less. The free market is really good at responding to changes in demand with rapid changes in production. In fact, that's the whole point of the free market: that local conditions can quickly propagate through the system - unlike in planned economies, where some bureaucracy has to digest changing data through its long paper ailmentary canal.

So why are Americans - the most commercial empire on the planet - and Republicans in particular - the alleged party of fiscal responsibility - so oblivious to this fact? It's not just the current financial crisis; it's the entire War on Drugs, where controlling the supply of various illicit chemicals is imagined to control the demand for psychotropic relief. The entire country seems to have bought into Reagan's fantasy, and I don't know when the nightmare will end.

2 comments:

Anonymous said...

it ends Aug 2nd when the US goes into default on payments causing a great depression and dragging the rest of the world down with us. hence forth causing civil unrest and revolution, all blamed on a black man.

Of course it could be those 535 self indulged kindergartners we call representatives.
Nah, not possible - it's always the black man.
I fear I live in a nation of morons.

MCPlanck said...

The hilarious thing is that, aside from the debt increase, doing nothing is actually the right path for Congress to take.

Let the Bush tax cuts and the Medicare doc-fix expire, add in the savings from the gradual implementation of the health care act, and the budget will mostly fix itself.

Why couldn't Congress pick next month as the time to go completely dysfunctional?