Filed under: Politics | Tags: Classical Economics, Say's Law, Supply Side Economics
From The Seven Fat Years: And How To Do It Again
by Robert L. Bartley
Jean Baptiste Say (1762-1832) lent his name to the bedrock proposition of classical economics: Supply creates its own demand. That is, manufacturers pay workers to make widgets, and workers use their pay to buy widgets. Savers lend their money to investors who build widget factories, and the factories’ profits go to repay principal and interest. A higher price will call forth more widgets, and higher wages will call forth more widgetmakers, and higher returns will call forth more investment. Unless the government gets in the way, for example by fixing prices, markets will clear and everyone will live happily ever after.
Whether a free economy functions in this self-regulating fashion has been and remains the great issue of macroeconomics. It was at the heart of the differences between Ricardo and Malthus, and of a general 19th-century debate called “the general glut controversy.” In the 1930s, Say’s law fell before the Keynesian onslaught, the massive unemployment showed the labor market had not cleared. Henceforth, governments were expected to correct “market failures.”
Filed under: Capitalism, Economy, Freedom, Health Care, Law, Progressivism | Tags: Celebrate Achievement and Risk-Taking, Progressive Economic Policies, Supply Side Economics
Over the past five years we have been engaged in a test of progressive economic policies. The media happily tell us that we are recovering and offer up the 165,000 payroll jobs that were created in April. This is the Bureau of Labor Statistics (BLS) Establishment Survey, or the U-3 unemployment report which showed the rate declining by 0.1 percent to 7.5 percent. So that sounds good.
The Household Survey numbers looks a little deeper into the economy, and that’s where it gets a little more uncomfortable. Also known as the U-6 rate the unemployment figures increased by 0.1 percent. While total employment rose by 293,000 during April, part-time jobs increased by 441,000, meaning that full-time jobs actually declined by 148,000. The April jobs numbers describe a mass replacement of full-time workers with part-time workers, and a drop in the length of the average workweek. Which means that the BLS report was bad news, not the happy day portrayed by the media. And the results of the roll out of ObamaCare are as expected, as more full-time employees are reduced to part-time hours.
But wait, it gets even worse. During April, the Full Time Equivalent jobs ratio fell for the fifth month in a row, and to statistics-watchers this hints of a new recession.
Progressive economic policies involve Keynesian fiscal stimulus (intentionally increasing government spending to boost domestic “demand”), monetary stimulus (deliberate action to weaken the dollar in order to increase demand for our exports), higher marginal tax rates on “the rich” (they can afford it), and increased regulation to control more of just about everything. They have also expanded alternatives to actually working, including Social Security Disability, Food Stamps, and extended unemployment benefits.
What you get with progressive economic policies is pessimism. America is just in decline, not going to get better, everything is changed, we need to be more like every other country and stop thinking we’re something special. No exceptionalism here.
Supply-side economics has specific steps as well. Tight monetary policy, a strong dollar, incentive cuts in marginal tax rates, and a reassertion of American optimism and creativity with confidence in what government policies will be.
Jared Bernstein, who was Vice President Joe Biden’s economic adviser, wrote in the New York Times about the slowly improving job market (?) that persists in spite of ‘an economic expansion continuing since mid-2009.’
For decades in postwar America, the maintenance of full employment, defined as an unemployment rate below 5 percent, was enshrined in law, beginning with the Employment Act of 1946 and revisited in 1978 in the Humphrey-Hawkins Act. It was a central goal of the Democratic Party, labor unions and advocates of social and racial justice.
And it usually worked. While conservatives and businesses pushed back — tight labor markets meant more worker bargaining power, higher wages and less profitability — between 1949 and 1979 the market was at full employment over two-thirds of the time.
I’m not an economist, but Mr. Bernstein’s nostrums don’t pass my common sense smell test. The problem is those darn ATMs that are replacing bank clerks (?), our large trade deficits have exported too much demand (I thought trade was by definition always in balance. If we sell them too many apples, we get the money), the sequester, which he calls “austerity”and the “economic version of medieval leeching.” (can’t cut back on the increase in the budget from last year?), and the Federal Reserve continues to apply high doses of monetary stimulus (which is why the stock market is doing well). We need more investment in “the areas where clean energy intersects with production.”And we need a new subsidized jobs program. (The WPA returns). The Great Recession continues to imitate the Great Depression.
I have no confidence in progressive economic policies. They didn’t work for FDR, and they have not worked for Obama, nor are they going to. It’s scary to start a new business, and you need, at the most basic, confidence in what the government will do next, and the belief that government is on your side — encouraging start-ups . A country that celebrates achievement and risk-taking is likely to see more economic success than one that does not.
History shows that the money that individuals and businesses invest and spend, if left alone to do so generates far more wealth and new jobs than any government-directed spending. The most successful cities and states dedicate their resources to creating the kind of conditions that attract private investment, rather than pouring public money into centrally planned visions of economic development.
………………………………….Brian C. Anderson: City Journal