A BRIEF HISTORY OF THE SUPPLY SIDE VERSUS THE DEMAND SIDE

One of my favorite professors of all time recently friended me on facebook.  Because he's a theater guy, like me, he's also liberal, which is, no doubt, why he felt compelled to post this take-down of an absurd "job creators" essay from the Wall Street Journal.

Of course, we all have our conservative detractors on facebook, and Tom is no different.  Here are a couple of comments the post received, both from the same guy:

This is part of a hot current left-wing trend to belittle entrepreneurs ("you didn't build that"), usually as a rationale for tax increases. It's based on recycled Marxist bullshit, namely the discounting of individuals in favor of impersonal mass trends. It's rather like saying Lincoln didn't free the slaves, a worldwide moral change freed the slaves. Yes, without the general change in the moral view of slavery, there would be no Emancipation Proclamation. But moral changes don't propose or sign legislation, and consumer demand doesn't market products and services, read resumes or make job offers. In fact, most jobs come through private sector businesses, and most businesses are started by entrepreneurs, no matter how much Truthout prefers employee collectives.

And

Demand is not something that can be boosted in the abstract by the government. Businesses create demand by creating products and services that people want to buy. People didn't buy personal computers because something called "demand" was high and they had to buy, so they might as well have bought a computer. The product created the demand.

Tom argued with him a bit, but finally decided to bow out.  But I have great difficulty doing so, myself, so, you know...

Of course, I'm personally incapable of walking away from an argument. A weakness, I admit, but probably better than whoring and drunkenness.

Anyway, Michael, I mean no insult when I tell you that it seems to me that you have no idea what you're talking about. And I'm not even saying this from an ideological point of view: once upon a time there was a legitimate debate among economists about this, and it really came into its own during the Reagan era.

From the Great Depression until the late 70s or so, Keynesian economics dominated public policy debates, and the major assumption underlying the discussion was that the best way to tweak and adjust the economy in order to attain growth uninterrupted by recession was through manipulation of demand, by way of jobs, public assistance programs, and various government spending programs, that is, a focus on workers/consumers, the demand side.

But while Keynes' ideas were dominating, other economists were developing dissenting views. The most influential of these guys was Milton Friedman at the University of Chicago. His ideas were more focused on supply, that is, what conservatives are calling "job creators" today, the supply side--Friedman was also more into monetary policy than Keynes. Anyway, by the time we were experiencing the awful stagflation of the 70s, a totally unprecedented problem, inflation coupled with recession, it turned out that the Keynesians had no answers for this. But Friedman did. Indeed, Reagan, who embraced supply side views, was the guy who had the balls to massively increase interest rates, a manifestation of Friedman's monetary policy ideas, which finally whipped inflation when nobody else could.

Of course, this caused a really painful recession in the process, but it did get some results. This apparent victory for the Friedmanites fueled the political imagination. Even though Keynes' ideas were never truly discredited or debunked - it was simply that a rather unique economic circumstance was off his radar - the supply side triumph with inflation was taken as "evidence" that the demand side was bogus. Thus was born the clearly absurd notion that it's all about the "job creators." I mean, we didn't get the "job creator" term until fairly recently, but that's where it comes from.

Now here's the catch. I'll happily give Friedman credit for the notion of tightening up the money supply by jacking up interest rates, but since then we've tried out a lot of his other ideas, for thirty years, and they have all been an abject failure. Because, you know, business, on the whole, doesn't create jobs so much as respond to a demand. So you can deregulate and lower taxes all you want, but if you don't have workers/consumers with good jobs paying good wages demanding more products, all those businesses that have been freed up from pesky government interference will fail. No way around that. What you're selling must be in demand, by people with enough money to pay, or it won't sell. Period.

The great irony here is that supply side economics, in the end, squashes demand, by lowering wages, offshoring, etc. This is textbook stuff, actually, but the public discourse is based on the mythology that supply side stuff actually works. Obviously, the mythology persists because the fabulously wealthy continue to push it--clearly, they think it's in their best interests to do so, but it really does hurt business overall in the long run. Capitalists are, as always, tremendously short sighted.

Anyway, this is a bogus debate, "job creators" and all that, based on a misunderstanding of the last thirty years of history, by a bunch of people who don't really understand economics.

Also, computers were invented and developed by the government, on the taxpayers' dime. It was left to entrepreneurs to find consumer uses and to market them, but it's all from massive amounts of government spending and planning for several decades. Bad example for supporting the notion of "job creators."

As Stan Lee used to write at the end of his Stan's Soapbox columns, excelsior!


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