Friday, September 03, 2010


Supply side economics

This is not an original critique of the Obama Administration but it's something I feel very strongly about. My complaint about Mr. Obama is that he is trying to solve the economic sickness of the country by using supply side economics. That is, provide the banks with enough funds and they will lend money to aspiring small businesses and these businesses will then have the money to hire more workers and buy more production capacity and produce more goods and everything will be just fine and dandy. Incidentally, provide some tax relief for the rich so that they will have more money to invest in new businesses.

Only, it doesn't work. Pouring money into the top of the economic system doesn't guarantee that it will trickle down and provide more jobs and prosperity again. We can see today that it doesn't work. Banks have loads of money but they're not lending. Why not? Bankers are a little bit smarter than most of us and they can see that the problem is not insufficient capacity to produce but rather insufficient demand for the products. No banker is going to stay rich by lending money to a business that makes widgets if there are no customers waiting and eager to buy widgets. Even potential customers who have good jobs and good incomes are not eager to buy these days. They don't know how secure their own jobs are. They're going to wait another year or two before putting out money for a new car or for painting the house or for taking an expensive cruise.

What we need is an administration that will practice demand side economics. Create the demand for a product and the means to pay for it and banks will lend, businessmen will hire, and products will be built and offered for sale. How do we do it? It's been said before and it's been done before. Think of the great President of the 20th century, Franklin Roosevelt. He had the government borrow money to create many jobs for unemployed workers of all kinds: mathematicians, artists, construction workers, and others. Some of the creations of these workers are still around today. We have today a great need for infrastructure building and repair. We need high speed rail lines. We need improved highways. We need bridges repaired or replaced. We need to improve the transportation on internal waterways. I can go on and on. There is no lack of useful things that could be accomplished by a revival of the WPA or the CCC or the PWA or any of the other projects that were started in the 1930's.


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