Does Supply Drive an Economy or Does Demand?

Does Supply Drive an Economy or Does Demand?
by
David Schlecht

We’ve discussed supply side economics many times on this blog and there are countless websites that compare the two economic models, Keynes vs Friedman. But this time I’m going to add a bit of history to the discussion. After all, if we can’t learn from our mistakes, we’re doomed to repeat them, and repeating them we are.

Supply Side Economics

Probably the best way to describe Supply Side Economics is Voodoo economics. This is the idea that if you give money to the rich, they will hire people and pay a good wage and the heavens will open and the angles will sing and leprechauns will dance. It’s also referred to as trickle-down economics.

In other words, people will run out and buy just because the stores are full.

Keynesian Economics

This is the old model of economics where demand drives the economy. In other words, when people have money they will buy.

Now this is obviously just broad strokes and there is a whole lot more involved in each of these models of economics. You may find yourself interested enough to learn economics and get into the nuts and bolts of these, but this is as technical as I plan to get.

Alright, so here’s the little bit of history I promised you. Neither of these perspectives of economics is new. Since the beginning of economic times, the concept of supply and demand has been the fundamental core of the study of economics.

However, back in the early days of America, the concept of unfettered free trade was the approach the government took and this freed up the companies to be as greedy and they could. This allowed America to become quite wealthy, or at least our wealthy became wealthy.

Of all the leading countries, we were becoming the most wealthy. This seemed to convince many people that if a little free is good, oh my gosh, totally free trade must be the be-all end-all of wealthy. So, in the late 1800s and early 1900s, America decided to pull all the plugs and let the rich get as rich as they wanted.

So by the 1920s we saw the roaring 20s when the wealthy were insane with their greed and wealth. At lease back then, they were smart enough to protect our industries through tariffs.

Then, the big crash.

Following the Great Depression, many economist admitted that the whole idea of completely unregulated greed was bad for America. At this time, Keynes came back to the idea that maybe really, demand drives the economy. This wasn’t the first time economics thought of this, but it was back in vogue.

Then, about 50 years ago, Friedman brought back the greed and supply side economics.

So, fast-forward to today and we’re all the rage back into supply-side economics and unfettered free trade. Of course, we’re also seeing the return of the economics of the Great Depression.

When will we learn from history? When we start exposing the idiots who keep pushing failed economic policies on us. When we eject the same people who got us in the First Republican Great Depression. The Republicans.

Unfettered Free Trade doesn’t work. All it does is impoverish a nation and make a handful of greedy people insanely rich.

Free trade doesn’t work.

Supply Side Economics don’t work. It’s a myth.

Voodoo Economics always brings disaster. Read your history.

 

2 thoughts on “Does Supply Drive an Economy or Does Demand?”

  1. There’s a whole lot more to consider. Take the chicken and egg problem. How do you start an economy if you don’t get money into the hands of the entrepreneurs? There are times to feed the businesses and times to feed the buyers.

    But, looking at today, you see that the businesses are holding on to unprecedented sums of cash when they could be investing in their businesses. In a case like today, giving them even more money is just plain ol stupid, Republican kind of stupid.

    The real concern is stagflation. If prices start skyrocketing like they are and we’re still in employment stagnation, we’re going to be in real trouble.

    We have to stop the speculators! Start taxing every speculative transaction a small amount, just enough to discourage speculation and encourage INVESTMENT.

  2. Hey Dave, I agree with you but tell me, why do so many economists still spread this fable?

    Now that our American businesses are sitting on the most cash they have ever sat upon, America should be in Hog Heaven but instead we’re in a recession. I guess giving money to businesses doesn’t create jobs after all.

    Now, why doesn’t the new report this? Oh, that’s right. They’re not really news anymore.

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