The 'Tax Cut, For or Against' thread

[Kidlicious]

Originally posted by Imran Siddiqui

He believed that the Depression was caused because of underproduction.

Which is also something a supply-sider would NEVER say! To a supply-sider there is never under / over production or under / over consumption.

You're thinking of people who say that all recessions are caused by government meddling. They don't think that market failure causes recessions. Supply-siders think that priming the pump at the top creates economic recovery, because recessions are causes by underproduction.

You are only half right though, Hoover actually did believe people were underCONSUMING as well. He believed that was the reason the Depression started. As a result of that there was underproduction.

True he did spend some little money on public works, but in the 1932 campaign he promised to balance the budget and cut spending. I think he was more in touch with the situation than the more extreme republicans, but still he had no idea what he needed to do to improve the situation. Niether did Roosevelt.

[Imran Siddiqui]

Supply-siders think that priming the pump at the top creates economic recovery, because recessions are causes by underproduction.

Read Jean-Baptiste Say please. You seemingly know little about supply siders. They believe that there is no such thing as underproduction or overproduction because an equilibrium is always reached, because 'supply creates its own demand'. Supply-siders ARE the ones that say recessions are caused by government spending. Plenty of them belong to the neo-classical school.

[MRT144]

imran, can you explain how supply creates its own demand?

[Imran Siddiqui]

Well, according to supply-siders or classical economics, they believe that people will always buy whatever you make. The price might be nothing, but if you make something - someone, somewhere will buy it. Therefore, the more you produce the more you sell, though it may be a ****ty price.

Supply siders do not believe there can under or over production because the proper level of production is what people are producing now. If you wish to sell more stuff, you can always increase production, but your profits might go down to nothing.

[MRT144]

what if the equalibrium is too low for anyone to actually buy or sell or produce anything?

[Imran Siddiqui]

Well, if an equibrium exists at all, wouldn't that show that some people are willing to buy and sell certain number of the products?

Or are you saying what if the equibrium is too low to make profit? I don't think it really matters to supply-siders. Supply has made its own demand, but perhaps where they meet is not economically feasible.

[MRT144]

Well what im getting at is what if economic conditions are so poor that no one is willing to risk anything in production, and supplying, and people are too worried about the future to actually go out and spend.

the problem i see with supply side economics from what you described is it doesnt have a good way to help get out serious economic problem like a depression. You can manufacture all day long but if people cant afford it they wont buy it.

that leads to another problem though, which is depreciation. if you keep reducing the prices people will keep waiting to buy until it reaches a lower price. If the price is too low to cover expenses though, and the company cant pay people, then people wont keep buying.

the only way i can see supply side working is if the supply increases proportionally to ones disposable income.

or maybe im looking at this going the wrong way. if you decrease supply for something there will be more demand for it. But less supply means less manufacture and in turn means less workers(if a company wants to turn a profit). If there is less people willing to buy the prices will be reduced to meet equalibrium.

That still doesnt solve the problem of what to do with people who cant afford something and thus arent willing to buy.

i think this is where the government can help through tax cuts, but tax cuts directed at the majority of people who buy products. giving tax cuts to a small amount of people who are likely to save that money and dont have a propensity to consume the same amount as 10 other people does little to stimulate spending and production.

im looking at it this way. if you give 100 people that make less than 60k a year, 4000 dollars they are more likely to spend all that money in the economy than giving 10 people 40,000 dollars who make over 600k.


and please, feel free to correct me because im not really learned in economics. ive taken one college level course and most the time i spent in that class was working on music.

[Imran Siddiqui]

Well what im getting at is what if economic conditions are so poor that no one is willing to risk anything in production

I'm not sure this actually comes into the minds of supply-side theorists, because they figure there ALWAYS will be someone that will make something (which is probably true), and people will go out and buy something (they have to, or else they can't survive, really).

the problem i see with supply side economics from what you described is it doesnt have a good way to help get out serious economic problem like a depression. You can manufacture all day long but if people cant afford it they wont buy it.

Yes, I agree with you, somewhat. I'm sure the argument is more production will lead to more jobs, which leads to people that can buy the goods. The only problem is will producers be willing to take that risk (to hire more)?

Though, I guess I can also see that depressions are rare (and for the most part, the GD was unforeseen). Usually the economy follows a boom-bust cycle, so producers, knowing this, might be more willing to hire people and go into short term debt if they believe recovery is upon them.

I think the best way to deal with serious economic problems is a combination of demand and supply side. If you simply focus on the demand side, people may be willing to spend a lot, but there may not be anything to spend money on (well, there will be something, but not stuff they really might want ). Perhaps they will place it in savings, that will increase investment, but that is gonna take time. You add supply side tactics (such as lowering interest rates) so that people invest more, giving corporations more money (at a faster clip than a demand side policy), which they can invest in R&D (or new projects) and more workers (some to make new projects and some just 'cause) .

For ordinary turn of mill economic tinkering (which should be at a minimum, IMO), I think you should focus on the supply side, such as shifting interest rates. For recessions and depressions, a combination may do the trick.

[MRT144]

I agree with ya imran on a combination of systems. The thing that gets to me though is the idea that many people on both sides have; that only THEIR ideology is the one that will work.

[Kidlicious]

Originally posted by Imran Siddiqui

Supply-siders think that priming the pump at the top creates economic recovery, because recessions are causes by underproduction.

Read Jean-Baptiste Say please. You seemingly know little about supply siders. They believe that there is no such thing as underproduction or overproduction because an equilibrium is always reached, because 'supply creates its own demand'. Supply-siders ARE the ones that say recessions are caused by government spending. Plenty of them belong to the neo-classical school.

This is where the absurdity comes in. The Depression was caused by over production. It was partially caused by a government who assumed that Say's Law were true, but they stubornly held on to their evil, no good dogma. That's where the drag came in. So they kept trying to create more supply, and that's why they failed.

[Kidlicious]

Originally posted by MRT144
I agree with ya imran on a combination of systems. The thing that gets to me though is the idea that many people on both sides have; that only THEIR ideology is the one that will work.

Don't fall for it. Demand does create its own supply. Even the neo-classicals admit that where ever there is an ability and a willingness to buy, the sale will be made. It's in the price. Prices go up just fine, but they don't go down so well. That's why demand-side stimulus works and supply-side stimulus doesn't.

[Lawrence of Arabia]

My favorite aspect of supply side econ is the Laffer curve, and trickle down economics.

[Adam Smith]

Originally posted by Kidicious
Prices go up just fine, but they don't go down so well. That's why demand-side stimulus works and supply-side stimulus doesn't.

"Supply Side" has had two different meanings. Orignially it meant cutting taxes a la Arthur Laffer. But more recently both Democratic and Republican administrations have taken "Supply Side" to mean adopting policies which will make the economy more efficient and competitive. When these policies were adopted, prices fell. For example, deregulation of the US railroad inductry cut railroad rates by more than half. There are plenty of other examples.

[Lawrence of Arabia]

heres a comprehensive review of Reaganomics done by the Cato institute. http://www.cato.org/pubs/pas/pa-261.html

This part says its all on the accuracy of its analysis and predictions.

Fable 5: Clinton's Economic Record Has Outperformed Reagan's


Our economy is the soundest it's been in a generation.[38]


The growth rate under Clinton has been 2.7 percent, half a percent below the 3.2 percent growth rate under Reagan and a full percentage point below the 3.8 percent growth rate during the 1983-89 expansion. Standard government forecasts predict a 2-2.5 percent growth rate through the end of the decade. Yet, if even the high end of that forecast proves to be accurate, the 1990s will be the lowest economic growth decade since the Great Depression and the second lowest in the 20th century.

[Sava]

Yup, we're certainly worse off now then we were during that time period.