Break on Through
So what is supply side economics?
Supply side economics assumes that increasing the supply
of goods can stimulate the economy. This
is the opposite from a demand side economics, also known as Keynesian, stimulus
which seeks to increase the demand for goods, by increasing the purchasing
ability of buyers.
To properly execute this supply side policy, it is
necessary to properly define the production equation of suppliers. The production equation is traditionally thought to be a function
of only capital and labor. However capital is not only investment but also supplying
the raw materials, goods, needed to produce a product. Economists classify goods not simply as free
and priced. Economists use an additional
attribute besides price, exclusivity. A good
is exclusive if it can not be used by more than one person at a time. For
example my eating a piece of bread means that you can not also eat that piece
of bread, i.e. it is exclusive. By contrast,
my watching a movie does not prevent you from also watching that same movie, i.e. it
is Non-exclusive.
This leads to not just two classes of goods, Private and
Public, but four classes of goods. These include Priced and Exclusive, which
are Private goods, and Non-priced and Non‑exclusive,
which are Public goods. But it also includes Natural Monopolies: Priced and Non-exclusive;
and Common Resources: Non-priced and Exclusive. Suppliers acknowledge natural
monopolies, e.g. a cable TV company. My
watching cable TV does not prevent my neighbor from also watching cable TV, but
both of us separately pay the cable TV provider. ( if you have cut the cord like I have, substitute
Disney+ or any streaming provider in this example.) The initial cost
of Natural Monopolies is often high,
thus society offers protections, e.g. an exclusive franchise to offer cable, to
industries to encourage then to make that initial investment. Industry seems less inclined to acknowledge Common Resources. Fishing stocks are a common resource. It is exclusive. If I eat a fish, then you
can not eat that same fish. That fish might be free and the stock may seem vast
but it is really has a limit. Just as it is in
society’s interest to encourage industries to invest in natural monopolies,
society may spend to increase, or regulate in order to protect, those common
resources. Fishing stocks are regulated
to prevent overfishing. An educated
workforce may be necessary for suppliers, but education is a common resource
and society invests in education to provide this work force. Just because a good does not have a price
does not mean that society can’t regulate, or spend, to ensure that this
common resource will continue to exist, and might even increase.
“Supply side” economics, as it is currently practiced, stimulates
the economy by encouraging INVESTMENT.
If the production equation did not require any common resources, including
public education and public highways, as raw materials, then neglecting measures
to stimulate labor, encouraging investment should increase supply in the long
run. However if the production equation relies
on common resources, eliminating regulations on, and decreasing expenditures for,
common resources will in the long run DECREASE supply. Thus the so-called “Supply side” policies
have seemed to serve only to reward investment. It provides no reward for labor
and reduced common resources. Truly
supply-side economics would also ensure that common goods, as regulated and/or provided by society, increase. Supply side stimulus might be an alternative to demand side stimulus, but what
had been practiced has NOT been supply side economics, even if it is called
supply side economics. It is more properly
“Investment” economics at the expense of Labor and Common Resources.
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