You start reading an article and it bores silly because the
content is a rehash of things that were said before and debunked almost
instantly. You decide you're not going to respond to this piece because there
must be something better out there requiring your attention. And then, you hit
on a passage in the article that has an effect on you similar to a tornado
lifting you in the air and slamming you against a brick wall at a hundred miles
an hour. And you say to yourself: I got to write about this.
That notorious article has the title: “Demand-Side Policy
gave Us the Big Economic Fizzle” and the subtitle: “The unstimulating stimulus
ignored basic principles of economic incentives.” It was written by Alan
Reynolds of the Cato Institute, and published in the Wall Street Journal on
April 28, 2014. The passage that jolted me came near the end, and reads like
this: “If private business had not produced $14.1 trillion, consumers could not
possibly have consumed $11.1 trillion. Economies do not grow because consumers
spend more; consumers can spend more only if economies grow,” which made me
think: What are they trying to do now?
The purpose of the Reynolds article is to show that the
politics of supply-side is better than the politics of demand-side. To this
end, the author attacks all that the current administration, and all that the
Fed have done since 2009 ... to then conclude that: “demand-side has encouraged
families and firms to spend … A supply-side solution would incentivize families
and firms to produce more income and wealth by minimizing regulation, trade
barriers, unreliable money and dispiriting tax rates.”
Aside from that short passage which gives a glimpse as to
how Reynolds thinks, you encounter a great deal of fluffed up rhetoric which
means very little. Here is an example of that: “Demand-side economists focus on
incentives to borrow and spend. Supply-side economists focus on incentives to
work, save, invest and launch new businesses. Demand-side economists focus on
the uses of income and debt (consumption). Supply-side economists focus on
sources of income and wealth.” Putting all that aside, you look at the rest of
the article and try to piece together his theory as to why the economy has not
been growing at a faster rate.
You notice early on that he asks the question: Did fiscal or
monetary stimulus actually “stimulate demand”? Which tells you right away that
he acknowledges the secret to growth is higher demand. And in trying to answer
the question, he makes the point that the administration and the Fed went about
achieving that goal the wrong way. This does not demolish the theory that
demand is key to growth; it simply says that he believes the supply-side remedy
can do a better job. So you want to know how that would work according to him.
He explains this part by showing where the Fed and the
administration did the wrong things. He says that the fed pushed the interest
rates down; a move that had the effect of subsidizing “big borrowers
(governments and banks) at the expense of small savers (seniors).” This is a
mind blowing admission put this bluntly perhaps for the first time. It says
that in America ,
there has been a transfer of wealth from the poor to the rich. As to the fiscal
stimulus – what the administration did that was wrong – he quotes all sorts of
reports, and displays all sorts of percentages to show that the stimulus did
work but not as well as it could have.
He does not explain how supply-side would have produced a
higher growth since 2009 given what the economy was going through. What he
does, instead, is attack what he calls the “deficit-increasing schemes,”
including the payroll tax cuts that the administration has implemented. And so
he argues that the resulting increase in debt will have a detrimental effect on
future growth. Nothing to explain past failures but plenty to predict future
failures if the remedies he proposes will not be implemented.
And so he explains how he sees the future unfold:
“Expectations of higher taxes on income will discourage investments … expanding
business or improving education [will] dampen if the resulting higher income
shoves you into higher tax brackets. Business investments are particularly
sensitive to the prospect of higher tax rates on profits.” Which means to say
allow the transfer of more wealth from the poor to the rich by adopting a
policy of total laissez-faire.
He then throws in something that is truly revealing. It is
this: “What is remarkable is that the number of Americans who were neither
working nor seeking work soared from 80.9 million to 91.4 million.” He
does not explain how this happened because he knows it is the bitter reality
used by those who argue that the wealth he acknowledges has been transferred
from the poor to the rich in America
was invested overseas where the rich Americans are getting even richer while America adds to
its unemployment lines.