Primer on Macroeconomics: Supply Side v. Keynesian

Economics 101.

Economics 101.

Hi all, this started as an email to a friend, though I want to put this out to my readers for a discussion, and to make sure that my thinking is clear. Any comments or thoughts welcome. Thank you! –efc

There are two major macroeconomic theories used the past century (with much older roots); though the first, supply-side or “trickle down” (the rich amass capital, and the poor get the benefit of the crumbs) is what is really the modern economic religion.

But it’s pretty much a lie for a diversity of reasons, apart from the fact that tying up capital (as “wealth”) does not move capital, and only moving capital, well, moves it. The only way to get it into the hands of ordinary folks is to keep the economy moving; keep the flow going.

Lie 2 is that these people tend to advocate the “free market” (free of intervention and regulation) and they are against taxation (of themselves) but seek government “intervention” in the capitalist market constantly, i.e., the government taxes the population to build a private football stadium.

So the supply-side advocates are liars twice over. Basically they are working both ends of the game, and their goal is to amass money at the expense of death. It is a religion, and like all religions, it’s inherently hypocritical.

Article below says, “Supply-side economics holds that increased taxation steadily reduces economic trade between economic participants within a nation and that it discourages investment.” But then tax dollars are constantly used for bailouts and startups, and the public is only rarely consulted (a bullshit referendum on the football stadium for example).

Keep that in mind every time you hear “deregulation,” “supply side,” and “free market.” This is what The Yes Men dig into in their interviews with the Free Marketeers in The Yes Men Fix The World.

Then there is another theory — Keynesian economics. You don’t hear about this one so much, because it’s the thing that really happens.

You might call this “demand side,” because it’s based on the idea that demand for products and services drives the economy. Said another way, keep things moving. The economy will grow to meet demand. Anyone who is in business knows that this is how things really work, assuming you do something like massage therapy or if you’re Ray the Bee Guy or you’re a blacksmith.

If you sell airplanes to the Department of Defense, you’re in another category (the first). Because your capitalist enterprise is really a form of corporate welfare that then ties up countless billions of dollars in things like airplanes that produce nothing.

“In the short run, especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation.”

So the idea is to create demand; and then the economy grows to meet demand; and to make sure that people have a little money to spend, hence, the programs that Roosevelt invented to get the country out of the depression (stimulus) could be seen as helping to increase demand.

The problem here is that the Depression did not “end” until WWII started, creating government demand for the materials of war, purchased by government borrowing (often from the people, in the form of war bonds).

So the new economy, the total war economy, is “demand side” with most of the demand coming from the government, for very big items, i.e., trillion dollar airplanes. But all those people would be “supply siders” if you asked them. They would all claim to be Free Marketeers.

So that too is a kind of pretend economy, which is never called what it is (except by those on the left, occasionally — “leftist” thinking tends to look more honestly at the structure of the system, i.e., you will never hear someone on the right talk about corporate welfare as it gets massive government funding and pays little in taxes).

Now, the total war economy (what Pres. Eisenhower called the Military Industrial Complex) is what we are involved in now. It involves two main commodities, oil and money itself. Money has become the biggest commodity of the economy, followed by the blood of the whole system, oil, without which presently everything would collapse.

Here is what Eisenhower, who is exactly 1/2 my favorite president, said in  one of his two farewell addresses to the nation. Remember, this was the last president we had who was a general (and the last Five Star General), one of the most venerated presidents of the 20c., and a Republican. Ok, take a breath and:

Now this conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every Statehouse, every office of the Federal government. We recognize the imperative need for this development. Yet, we must not fail to comprehend its grave implications. Our toil, resources, and livelihood are all involved. So is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. [BUT WE DID!]

We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

He was being polite. He knew there was no turning back. Hence we must have constant war, and the country was entering a huge nuclear arms buildup against the Russians and the Chinese — talk about investing in nothing. Countless trillions of dollars sitting in missile silos.

Eisenhower set up the conditions for Vietnam. Jack Kennedy hedged on that; he wanted out. When Johnson became present Vietnam got going for real in 1964, there had already been nearly nonstop war for 23 years. Then came Vietnam and many other similar wars, which lead us right into the Reagan administration and its selling arms to both sides in the 10 year Iran-Iraq war.

Then came Bush War I in 1990; that has yet to end.

Note, very little of this has anything to do with earning money honestly. However, we could take a clue from: what do we have to sell, and how to we increase demand for it? Ir, what do we have to sell, to the government?

6 thoughts on “Primer on Macroeconomics: Supply Side v. Keynesian

  1. Lizanne

    One of the biggest problems was that “Supply-Side” (a theory that existed long before Reagan) was a good one, in a world where the needs and protection of the people were considered a priority over corporate wealth. What happened during the Reagan years was the distribution of a grand lie, under the term “Trickle-Down Economics” which sought to assure people that if you removed regulations, lowered taxes, and a allowed a few companies to achieve quasi-monopoly status, that their wealth would make it to “the people” below.

    But what they left out was a reasonable acknowledgement of how that happens (fair wages, healthcare, promotions, higher education, social services) and an indifference to assuring it would happen (through corporate and social regulations).

    Think about it … we get upset with Bush Jr. because he sent American troops into Iraq, to rid them of their evil leader and make their lives better (under false pretense, of course) and, assuming that this was in their best interest, failed to negotiate for a percentage of their oil in return. Wha?!?!?!

    Well, with trickle-down economics our government did the same thing! We kissed corporate ass by providing a supply-side framework … void of all the nasty regulations and suffocating taxes, allowing them to grow to monster stature, without ever assuring that they would pay their employees fairly, that employee pay would grow with the company’s growth, or even bother to mirror corporate growth in America and the relative tax income that should have resulted, in a proportionate growth in the provision of social services (health, education and welfare). Instead, our government; saw the increase in tax revenue as money to be spent on war and on growing more corporate monsters.

    The only trickle-down that actually occurred was in the form of more money that found its way into government control … and was used to create more industry that did little to benefit the people but, assured money in the pockets of the politicians (those in government who made these horrible decisions) … and this became the continuing motivation to maintain these policies.

    And just when some politicians started pushing for social reforms to correct all this and re-prioritize the urgency and need of assuring that money and services reach the ordinary folks, the politicians who were reaping the financial rewards cried “SOCIALISM” as though it were a dirty word; playing on the ignorance of a now, much less educated population, by telling them that Socialism was akin to Communism. YIKES!

    Ya see … supply-side was a good idea providing that you assured that the trickle-down part happened also. But gee, that last part would be socialism … and we don’t want that, right?

    One of the most important mantras in my life is, “In all things, balance.” You cannot provide for and support a supply-side economy without ALSO assuring the trickle-down aspect. Greed is too powerful a master because the vast majority of us are just not raised to understand the value of generosity and are afraid of becoming one of the common people … the ordinary folk.

    To turn this around will require years of regulated generosity until everyone is fairly taken care of and there is balance again … and hopefully, greater happiness. We need a government willing to try.

    OK … so that is the Lizian Economic theory of applied generosity as a wealth-creating mechanism. Anyone on board?

  2. Jennifer

    Keynesian macro is founded in serious academic modeling; supply side macro is largely a politically motivated construct. Peddling Prosperity by Krugman is a great book on how that happened. While you may hear a lot about supply side economics on Fox News, you won’t hear about it in any serious college or graduate class on economics.

  3. chief niwot's son

    Ike’s little speech is ironic since he was President during the 8 years the MIC finished locking it’s talon’s into the US Government (they got a good start during WW2), while the people were distracted by the theater of McCarthyism.

  4. Kelly Grace Smith

    Here’s the other simple, but critical aspect to all this…we are a consumer society. 70%+ of our economy relies on consumer’s spending their money….not saving it.

    What that means is…we MUST spend money to keep our economy afloat and we must spend MORE of our money to create a robust economy. The very real effects of this are mind-boggling on both a personal and societal level.

    And, here’s a critical spiritual aspect to this…not woo-woo spiritual or pseudo spiritual, but a practical and tangible aspect to all of this…

    Money is energy. We literally “exchange” goods and services for our “energy,” for our money.

    That is, we use our personal energy to earn a living and from that we create money that we can then spend on the goods and services we want.

    And spending money has become, quite literally, an “activity.” It has become a pastime, a hobby, something you actually go and “do,” like people used to go to church or clubs or neighborhood events or classes, or a walk at the park, or to get an ice cream; instead people now go out, or go online…to spend money.

    This consumer-driven (read “money-driven”) system, with money as the new God and marketing as the new Jesus, is coming at us via media, marketing and technology 24/7, encouraging us to spend and spend and spend. And we are. Even the poorest among us feel they “need” a tattoo or a smart phone, the latest athletic shoes or artificial nails to be a valid part of our society.

    So, if so much of our energy is going OUT from us via money – not simply spending it, but also via the information and messages we receive about money all day, every day – how is that impacting the energy of our physical body? Our emotional well-being and maturity? Our mental well-being and expansion? Our sexuality and creativity? Our spiritual growth and awareness?

    Essentially, we are making ourselves smaller and smaller the more we “spend” our energy – physically, emotionally, mentally, and spiritually – on money.

    Kelly Grace Smith

  5. Lizanne

    We must realize and never forget that we were turned into a consumer-driven culture, deliberately … psychologically. After so many generations in this culture we think it is the human norm.

    We need to deliberately change our habits. Spend less, share more and throw less away simply because the “next thing” has come out.

    I laugh at the people who MUST by a new mobile phone simply because it has a bigger screen or one or two new features. We have PILES of functioning phones in trash piles.

    We have companies failing at innovation because they can’t retain employees long enough … because they don’t pay them enough or provide enough vacation time.

    What a mess!

  6. Barbara

    What ever happened to the barter system?………………..I’ve been thinking about an individual I encountered years ago…..who spent the summer months working his northerly tourist cabin rentals….and headed south for the winter…….leaving all of his property open and welcoming to anyone in need……he said he always returned to find everything as he left it…..perfectly cared for…..and sometimes modest gifts left in thanks…………How is that for “Energy”?……Quite a leap of faith…..

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