Normally when I hear it described, I heard it called "Trickle down economics", whereby you give tax breaks to the rich, and the large companies,
because they are the ones with the ability to effect production or supply, and then you hope it trickles down to everyone else from there.
Also,
The political genius of supply-side economics, page 1
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Topic started on 26-7-2010 @ 03:12 AM by Jean Paul Zodeaux
blogs.ft.com...
What does all this rhetoric have to do with supply side economics? Martin Wolf, the British "financial journalist" links supply side economics to partisan politics in this way:
Perhaps Wolf gets his understanding of supply side economics from Wikipedia:
Of course, this beginning paragraph in the Wikipedia article is the standard view of what supply side economics is, which translates to most as tax cuts. However, when reading further in that Wikipedia article, under the Historical Origins of supply side economics we get a different picture:
Supply creates its own demand
Two examples of supply side economics would be Pet Rocks, a marketing ploy conceived by an advertising executive who found a ready supply of rocks, painted faces on these rocks, and sold them to the public, thereby creating its own demand. Of course, the Pet Rock was just a fad that soon ran its course. It is however a simple and easy to understand example of actual supply side economics that has absolutely nothing to to with tax cuts.
The second example of supply side economics is The FOX Network. When Rupert Murdoch first founded The FOX Network, most people, (really meaning the talking heads of the three networks, outside of PBS, all ready in existence), declared The FOX Network a loser before it even had a chance to lose. In the beginning, FOX did struggle with creating a demand and most viewers did not readily turn to FOX for entertainment, which in some ways seemed to vindicate all the prognosticators who assured the public that just wasn't a demand for a fourth network. Never mind that there was all ready a fourth network in PBS, that network didn't count because it didn't have to worry about profitability. The prognosticators were insisting there was not enough of a profit share for a fourth network.
Murdoch, however, kept supplying his network with programming. At some point, the NFL decided to raise its licensing fees on the games being aired, and at that time, CBS pretty much had the monopoly on NFL games. Larry Tisch, then president of CBS, crunched the numbers and concluded that they were barely paying for the NFL through advertising revenue as it was, and could not afford to pay the increase in licensing fees, so let their contract with the NFL go. Murdoch jumped on this decision, and paid the fee the NFL was asking for. Of course, if CBS couldn't generate enough in advertising, what made Murdoch think he could with his floundering network?
"supply creates its own demand."
Murdoch had two shows all ready airing on Sundays, that he believed were quality shows that deserved a bigger audience than they were getting. He gambled that if he added to that Sunday lineup an afternoon of NFL football games, that he would gain a new audience that just might stick around after the games to watch those shows they weren't watching. Those two shows were The Simpson's and The X-Files. Murdoch's gambit paid off, and the audience of those two shows increased dramatically. This is supply side economics in action. Again, Murdoch's decision had nothing to do with tax cuts, or Republican Party platforms, it was a simple business decision that paid off.
Of course, the main stream media will rarely, if ever, report these successes of supply side economics in the business sector, and continue to link supply side economics with government fiscal policies, and when they do, they will grossly misrepresent what supply side economics truly is, in order to push forth their own agenda, which is a longing to return to a more Keynesian form of fiscal policy.
If financial journalists, or journalists in general were truly interested in demonstrating how supply side economics works in government, they would do more, as the Washington Post has recently done, to show how the creation of Homeland Security, (an increase in government supply), has created a demand for more terrorists. Hence, since the formulation of Homeland Security, we hear much more about "homegrown terrorists", more airport security, and how the internet must be better regulated. That is the supply and demand of government, the bigger the supply of government, the bigger demand there is for taxes, prisons, and overall regulation.
[edit on 26-7-2010 by Jean Paul Zodeaux]
The political genius of supply-side economics
The future of fiscal policy was intensely debated in the FT last week. In this Exchange, I want to examine what is going on in the US and, in particular, what is going on inside the Republican party. This matters for the US and, because the US remains the world’s most important economy, it also matters greatly for the world.
My reading of contemporary Republican thinking is that there is no chance of any attempt to arrest adverse long-term fiscal trends should they return to power. Moreover, since the Republicans have no interest in doing anything sensible, the Democrats will gain nothing from trying to do much either. That is the lesson Democrats have to draw from the Clinton era’s successful frugality, which merely gave George W. Bush the opportunity to make massive (irresponsible and unsustainable) tax cuts. In practice, then, nothing will be done.
blogs.ft.com...
What does all this rhetoric have to do with supply side economics? Martin Wolf, the British "financial journalist" links supply side economics to partisan politics in this way:
To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: “supply-side economics”. Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.
Perhaps Wolf gets his understanding of supply side economics from Wikipedia:
Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation. Consumers will then benefit from a greater supply of goods and services at lower prices.
Of course, this beginning paragraph in the Wikipedia article is the standard view of what supply side economics is, which translates to most as tax cuts. However, when reading further in that Wikipedia article, under the Historical Origins of supply side economics we get a different picture:
Supply-side economics developed during the 1970s in response to the failure of Keynesian economic policy, and in particular the failure of demand management to stabilize Western economies during the stagflation of the 1970s, in the wake of the oil crisis in 1973. It drew on a range of non-Keynesian economic thought, particularly Austrian school thinking on entrepreneurship and new classical macroeconomics. The intellectual roots of supply-side economics have also been traced back to various early economic thinkers such as Ibn Khaldun, Jonathan Swift, David Hume, Adam Smith and Alexander Hamilton.
As in classical economics, supply-side economics proposed that production or supply is the key to economic prosperity and that consumption or demand is merely a secondary consequence. Early on this idea had been summarized in Say's Law of economics, which states: "A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." John Maynard Keynes, the founder of Keynesianism, summarized Say's Law as "supply creates its own demand." He turned Say's Law on its head in the 1930s by declaring that demand creates its own supply. However, Say's Law does not state that production creates a demand for the product itself, but rather a demand for "other products to the full extent of its own value." A better formulation of the law is that the supply of one good constitutes demand for one or more other goods. This requires that the original good has some value to another party and it is through willingness to trade this value that the producer of the new good can express his demand for another good.
Supply creates its own demand
Two examples of supply side economics would be Pet Rocks, a marketing ploy conceived by an advertising executive who found a ready supply of rocks, painted faces on these rocks, and sold them to the public, thereby creating its own demand. Of course, the Pet Rock was just a fad that soon ran its course. It is however a simple and easy to understand example of actual supply side economics that has absolutely nothing to to with tax cuts.
The second example of supply side economics is The FOX Network. When Rupert Murdoch first founded The FOX Network, most people, (really meaning the talking heads of the three networks, outside of PBS, all ready in existence), declared The FOX Network a loser before it even had a chance to lose. In the beginning, FOX did struggle with creating a demand and most viewers did not readily turn to FOX for entertainment, which in some ways seemed to vindicate all the prognosticators who assured the public that just wasn't a demand for a fourth network. Never mind that there was all ready a fourth network in PBS, that network didn't count because it didn't have to worry about profitability. The prognosticators were insisting there was not enough of a profit share for a fourth network.
Murdoch, however, kept supplying his network with programming. At some point, the NFL decided to raise its licensing fees on the games being aired, and at that time, CBS pretty much had the monopoly on NFL games. Larry Tisch, then president of CBS, crunched the numbers and concluded that they were barely paying for the NFL through advertising revenue as it was, and could not afford to pay the increase in licensing fees, so let their contract with the NFL go. Murdoch jumped on this decision, and paid the fee the NFL was asking for. Of course, if CBS couldn't generate enough in advertising, what made Murdoch think he could with his floundering network?
"supply creates its own demand."
Murdoch had two shows all ready airing on Sundays, that he believed were quality shows that deserved a bigger audience than they were getting. He gambled that if he added to that Sunday lineup an afternoon of NFL football games, that he would gain a new audience that just might stick around after the games to watch those shows they weren't watching. Those two shows were The Simpson's and The X-Files. Murdoch's gambit paid off, and the audience of those two shows increased dramatically. This is supply side economics in action. Again, Murdoch's decision had nothing to do with tax cuts, or Republican Party platforms, it was a simple business decision that paid off.
Of course, the main stream media will rarely, if ever, report these successes of supply side economics in the business sector, and continue to link supply side economics with government fiscal policies, and when they do, they will grossly misrepresent what supply side economics truly is, in order to push forth their own agenda, which is a longing to return to a more Keynesian form of fiscal policy.
If financial journalists, or journalists in general were truly interested in demonstrating how supply side economics works in government, they would do more, as the Washington Post has recently done, to show how the creation of Homeland Security, (an increase in government supply), has created a demand for more terrorists. Hence, since the formulation of Homeland Security, we hear much more about "homegrown terrorists", more airport security, and how the internet must be better regulated. That is the supply and demand of government, the bigger the supply of government, the bigger demand there is for taxes, prisons, and overall regulation.
[edit on 26-7-2010 by Jean Paul Zodeaux]
reply posted on 26-7-2010 @ 03:48 AM by Skyfloating
reply to post by harpsounds
Trickle-Down-Economics is something different than the OP is talking about. It is the idea that others will more likely benefit from my prosperity than from my poverty.
The idea of the OP is expressed in the movie "Field of Dreams" with Kevin Costner:
"If you build it, they will come".
The principle is true and requires a lot of courage to follow through with.
[edit on 26-7-2010 by Skyfloating]
Trickle-Down-Economics is something different than the OP is talking about. It is the idea that others will more likely benefit from my prosperity than from my poverty.
The idea of the OP is expressed in the movie "Field of Dreams" with Kevin Costner:
"If you build it, they will come".
The principle is true and requires a lot of courage to follow through with.
[edit on 26-7-2010 by Skyfloating]
reply posted on 26-7-2010 @ 10:46 PM by Jean Paul Zodeaux
reply to post by Skyfloating
I loved Field of Dreams, and what a great film to illustrate the principle of supply side economics. It is a great film to use because that film, on the whole is a goofy Capraesque film that sort of taps into The American Dream in a left leaning way. This is why I think that film is a good analogy for supply side economics, as this economic theory is all to often associated with the right.
Economics should not be either left or right, and should simply be about markets and their proclivities. You are right on the money that supply side thinking takes courage, and that courage is not always enough to make one profitable. I firmly believe that the "labor class" has within them a supply side of services or potential goods that remain tragically untapped.
The market is a sea of opportunity that should be open to all and not restricted, or limited so that only a few players can play. Risk is a part of living, and when we take risks, we certainly take the risk of losing. If sports teaches us anything, it teaches us that victory and defeat are equal. They are equal in that we will not always lose, and we will not always win, but when we do lose, when we get back up and play again, we also risk winning!
As the boxer Floyd Patterson once said:
"They said I was the fighter who got knocked down the most, but I also got up the most."
Floyd Patterson is not remembered for being a loser, but for being a champion who won the World Heavyweight Boxing title twice. Patterson was, at 21 years old, the youngest to ever win that title, at that time, and also the first to ever regain that title. Here's to getting back up again!
"If you build it, they will come".
I loved Field of Dreams, and what a great film to illustrate the principle of supply side economics. It is a great film to use because that film, on the whole is a goofy Capraesque film that sort of taps into The American Dream in a left leaning way. This is why I think that film is a good analogy for supply side economics, as this economic theory is all to often associated with the right.
Economics should not be either left or right, and should simply be about markets and their proclivities. You are right on the money that supply side thinking takes courage, and that courage is not always enough to make one profitable. I firmly believe that the "labor class" has within them a supply side of services or potential goods that remain tragically untapped.
The market is a sea of opportunity that should be open to all and not restricted, or limited so that only a few players can play. Risk is a part of living, and when we take risks, we certainly take the risk of losing. If sports teaches us anything, it teaches us that victory and defeat are equal. They are equal in that we will not always lose, and we will not always win, but when we do lose, when we get back up and play again, we also risk winning!
As the boxer Floyd Patterson once said:
"They said I was the fighter who got knocked down the most, but I also got up the most."
Floyd Patterson is not remembered for being a loser, but for being a champion who won the World Heavyweight Boxing title twice. Patterson was, at 21 years old, the youngest to ever win that title, at that time, and also the first to ever regain that title. Here's to getting back up again!
reply posted on 26-7-2010 @ 10:58 PM by endisnighe
reply to post by Jean Paul Zodeaux
I liked my macroeconomics professor's ONE saying.
If you have not gone bankrupt, you are not a businessman. He had other sayings that were worthless. Keynesian to the core. Jeez, it has been 20 years since those courses.
I am working on a widget, if I can just come up with a widget where I can make $1 dollar of profit per unit after all expense and sell only to .33% of the country, that will make me $1 million. I could retire on that. Some could not, but I could.
The pet rock mentioned earlier has already been taken. Hmmm, what about a saying that could be sold to the Tea Party crowds on tee shirts.
Light bulb comes on.
Be an information soldier............. no too long.
Or, I could write one that would fire up the other side. Ooooohhh now there is something that would burn therir bottom. Hehehehe. Come up with a saying and sell it at their get togethers, they HATE capitalists, as long as it is not them.
I liked my macroeconomics professor's ONE saying.
If you have not gone bankrupt, you are not a businessman. He had other sayings that were worthless. Keynesian to the core. Jeez, it has been 20 years since those courses.
I am working on a widget, if I can just come up with a widget where I can make $1 dollar of profit per unit after all expense and sell only to .33% of the country, that will make me $1 million. I could retire on that. Some could not, but I could.
The pet rock mentioned earlier has already been taken. Hmmm, what about a saying that could be sold to the Tea Party crowds on tee shirts.
Light bulb comes on.
Be an information soldier............. no too long.
Or, I could write one that would fire up the other side. Ooooohhh now there is something that would burn therir bottom. Hehehehe. Come up with a saying and sell it at their get togethers, they HATE capitalists, as long as it is not them.
reply posted on 26-7-2010 @ 11:13 PM by Jean Paul Zodeaux
reply to post by endisnighe
There are many famous business people who failed numerous times before finally finding success. Henry Ford found success through supply side economics. Prior to Fords mass marketing of the automobile, that product was largely seen as a luxury for the rich. Ford respectfully disagreed, and forever changed the method of travel, across the world. Even so Ford had failed several times before finding success with his Ford Motor Company. That famous Col. Sanders of Kentucky Fried Chicken fame, faced rejection over a thousand times before finally finding a restaurant that would give his secret recipe a try. Bill Gates failed at first, as did Walt Disney, just to name a few.
Keep plugging along End, endeavor to persevere, and all will work out just fine.
If you have not gone bankrupt, you are not a businessman. He had other sayings that were worthless. Keynesian to the core. Jeez, it has been 20 years since those courses.
There are many famous business people who failed numerous times before finally finding success. Henry Ford found success through supply side economics. Prior to Fords mass marketing of the automobile, that product was largely seen as a luxury for the rich. Ford respectfully disagreed, and forever changed the method of travel, across the world. Even so Ford had failed several times before finding success with his Ford Motor Company. That famous Col. Sanders of Kentucky Fried Chicken fame, faced rejection over a thousand times before finally finding a restaurant that would give his secret recipe a try. Bill Gates failed at first, as did Walt Disney, just to name a few.
Keep plugging along End, endeavor to persevere, and all will work out just fine.
reply posted on 28-7-2010 @ 12:08 AM by ownbestenemy
reply to post by Jean Paul Zodeaux
The Devil's Advocate in me wishes to play
Can we conclude, from what you have written and thus researched that the following is true:
In examining economic effects upon a market, it is apparent that allowing the free flow of a given supply within its market will inherently find a demand to fill; if it does not, the demand will be created by the supply now introduced into the market.
Would you say this is true?
On that note, one must define and encapsulate the term "free flow" as to better understand why the above statement is true or false. Also, does a supply always finding or creating a demand good for society?
Is there ever a moment when there must be an intervention not by the players within the market, but outside of the market to artificially drive down, or up, market supply and/or demand? The "War on Drugs" comes to mind specifically on this one
The Devil's Advocate in me wishes to play
Can we conclude, from what you have written and thus researched that the following is true:
In examining economic effects upon a market, it is apparent that allowing the free flow of a given supply within its market will inherently find a demand to fill; if it does not, the demand will be created by the supply now introduced into the market.
Would you say this is true?
On that note, one must define and encapsulate the term "free flow" as to better understand why the above statement is true or false. Also, does a supply always finding or creating a demand good for society?
Is there ever a moment when there must be an intervention not by the players within the market, but outside of the market to artificially drive down, or up, market supply and/or demand? The "War on Drugs" comes to mind specifically on this one
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