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Notes to myself, possibly of interest to others.
-- Bill Northlich

Saturday, June 12, 2010

Reich - Supply-Side vs. Demand-Side

American Corporations are sitting on huge piles of cash [see "Corporate Cash Hord, below] but they’re not investing..and they won’t invest and create jobs until they know there are customers out there to buy what they sell.

For three decades, starting in the late 1970s, the biggest economic problem America faced on an ongoing basis was inflation. Demand always seemed to be on the verge of outrunning the productive capacity of the nation. The Fed had to be ready to raise interest rates to stop the party, as it did on several occasions.

During this era of inflation economics... “supply siders” told policy makers that if they cut taxes on corporations and the wealthy, they’d unleash a torrent of investment and innovation – thereby increasing the productive capacity of the nation....

But [now] ... demand always seems on the verge of trailing the nation’s productive capacity. The biggest ongoing threats are chronic recession or even deflation, because consumers don’t have enough money to [buy] what the economy is capable of selling at full or near-full employment. Despite gains in productivity, little has trickled down to America’s middle class

Keynes prescribed two remedies – both of which are now necessary: Government spending to “prime the pump” and get businesses to invest and hire once again. And, as Keynes wrote, “measures for the redistribution of incomes in a way likely to raise the propensity to consume.” Translated: Instead of big tax cuts for corporations and the rich, tax cuts and income supplements for the middle class
---Robert Reich, 6/11

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