Stimulus

 

After Midnight

After midnight, we're gonna let it all hang down
After midnight, we're gonna chug-a-lug and shout
We're gonna stimulate some action
We're gonna get some satisfaction
We're gonna find out what it is all about
After midnight, we're gonna let it all hang down (after midnight, after midnight)

What kind of action does a supply-side stimulus get?

Supply side economics assumes that increasing the supply of goods can stimulate the economy.  This is the opposite from demand side economics, also known as a Keynesian stimulus, which seeks to increase the demand for goods, by increasing the purchasing ability of buyers. Actions during COVID such as increases in unemployment benefits, checks to everyone, or student debt relief have been demand side stimuluses, not supply side stimuluses.

To properly execute a 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 needed not only for investment but also for supplying the raw materials, goods, that are needed to produce a product.  Economists do not classify goods as 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 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 limited.  Just as it is in society’s interest to encourage industries to invest in natural monopolies, society may spend to increase, or regulate to protect, that common resource.  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.

“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 reduces common resources.  Truly supply-side economics would also ensure that common goods, as regulated and/or provided by society, are available. 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.