Economic Populist Commentary

Economic commentary by a pro-capitalist, economic populist. Demand-Side Economic theory. Consists of author's economic views. Questions & comments appreciated. Dissenting views are VERY welcome and encouraged. Main "agenda" is crafting and advocacy of a "populist" economic agenda. A secondary goal is prevention of an economic Armageddon. Encouraging open discussion of US economy.

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Location: Southern California, California, United States

The author is a physician by profession, and a "student economist" by necessity. The current status of our economy necessitates the latter. The intent of this blog is to explain and discuss economics in layman terms. It is designed to promote thought and discussion. It is written by a layman. Comments and critiques of these theories and letters are welcome and ENCOURAGED. Dissenting comments are also WELCOME! They form the basis for discussion.

Friday, December 24, 2004





SUPPLY-SIDE OVEREMPHASIS

Democrats need become more vocal advocates of DEMAND-based economics. John Kerry's policies were definitely demand-side favorable. But Democrats would have fared much better if this had been stressed. And how much more favorable these policies would have been to almost all Americans, including American business. The basics realities of economics were much more in favor of Democratic Party positions. Most of these positions should be very popular with most Americans. These positions should be emphasized. The supply-side voodoo of the Republicans should be attacked at every opportunity. Public financial analysts are more concerned with selling stocks than they are with giving honest assessments of the American economy. Their analysis is usually confined to supply-side factors. In the financial news media, it seems most economic, market, and production changes are described in terms of their supply-side effects. For example, increased labor costs are only considered as a drag on business profits. No mention is made of the benefits provided by increased worker income, with its potential to increase consumer spending. Again, these economic "experts" behave as if there is no limit on DEMAND. They behave as if demand is an insignificant factor. They assume demand failure is an impossibility. However, most of these same experts begrudgingly acknowledge that consumer spending is 2/3 of economic activity. Since this is generally agreed upon by economists, why does it receive so little attention? Shouldn't economic policy be centered around consumer demand? Why is DEMAND rarely mentioned? I think I know the answer.

It would amount to "talking down" the economy. Stock prices might drop if the truth were known. It would also conflict with the Bush administration policies of cutting taxes on the wealthy. It would conflict with the "benefits" of reducing labor costs by exporting jobs and importing cheap labor. All of Bush economic policies work against the DEMAND-side of the economy. Acknowledgement of this would eliminate ALL arguments in favor of Bush economic policy. Most financial "experts" prefer to espouse the benefits of more investment and high-end tax cuts. They prefer to espouse the benefits of the increase in corporate profits from using cheap foreign and immigrant labor. They deceive Americans in to believing that this is good for America. And that the benefits of cheaper goods outweighs the harm caused by loss of American wage income. Bush and his neocon cohorts don't want Americans to realize that only a small fraction of their decreased production costs go towards lowering prices to American consumers. They don't want Americans to understand that the majority of the labor savings from foreign and immigrant labor is NOT passed on to the consumer. Instead, most of the savings go in to the pockets of the CEOs and investors.

Bush and his neocon economic advisors don't want the public to know that their policies are eroding American consumer income. This further erodes American demand for goods and services. Which, in turn, reduces demand for the labor that produces those goods and services. This puts even more American workers out of a job and further reduces wages and aggregate consumer income.

The Bush administration wants the public to believe that economic growth results simply from more goods being produced. They don't want the public to know that economic growth results only from SELLING those goods, not by just producing them. Goods have no value whatsoever if no one buys them. And such purchase of goods is GUARANTEED to go down if American wages go down. Unless consumer SPENDING grows, our economy will not grow. Decreases in production costs will NOT increase consumer spending. Most decreases in production costs are from reduction in labor costs. Which means reduction in consumer income. This will decrease consumer spending. It will SHRINK our economy, not "grow" it.
http://www.unlawflcombatnt.blogspot.com/
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COMMENTS posted by others:



Your rant against supply-side economics seems sound, but you fail to make one key logical connection. By cutting taxes on the rich, middle class, and small businesses (as well as everyone else, we must be honest as to who the tax cuts have had an effect on) and stimulating investment you do, as you say, increase the supply of goods and services. In order to increase the supply of goods and services, it is necessary to increase the labor required to create those goods and services. This in turn means the demand side for labor increases, driving up the cost of labor. Increased labor costs mean more money in consumers pockets, and more money to spend on consumer goods and services. John Email Homepage 12.17.04 - 10:45 am #

Increased investment has more than one benefit, as well. Not only does it increase aggregate supply, it also increases productivity through technological advance and innovation. Increased productivity can initially be a drag on the demand for labor (as witnessed in 2002-2003), but this is a short term effect, and eventually it leads to a labor market boom.John
Email Homepage 12.17.04 - 10:45 am #

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John,
Thank you for you response. I understand the point you are making. However, you are missing one important point. Tax cuts for the wealthy are supposed to stimulate investment. If the investment in capital and labor is not anticipated to provide increased sale, the investment won't be made. Before an employer hires more labor, there needs to be an increase in demand for the products of that labor. Simply providing high-end tax cuts to increase available investment capital has no benefit when there is no demand for the product. Wise investors will not squander their capital if there is no benefit in increased production. And if there is no increase in demand, then there is no benefit to increased production. The whole cycle is driven by an increased demand for goods and services, not by increased production. The increased demand needs to be present before workers are hired to increase production. The supply-side argument essentially puts the cart before the horse. Goods and services are not produced if there is no demand for them. It doesn't matter how much investment capital is present, the supply will not be increased unless demand necessitates it. And if it were increased, it would produce no extra profit. Workers will not be hired until there is a need for them. They will not be hired just because an employer can afford them. The demand for labor only increases when demand for product increases. No amount of investment capital will increase the hiring of unneeded labor.

unlawflcombatnt (unlawflcombatnt@comcast.net)

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1 Comments:

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