Supply Side Epic Fail

Comments made on the world wide web show that some don’t get what I say in economics.

Liberals with a self defined “conscience”, such as Krugman, Obama, and pretty much the entire democratic establishment in the USA have promoted a loose monetary policy, low regulation, and the redeeming values of the “marketplace”. Ever since 2008, those self described “liberals” have sent more money to the biggest bankers, their “friends”, in charge of reviving the economy that said bankers had just collapsed.

This strange methodology has a name “Supply side economics“. It has not been effective at all in increasing demand and lowering unemployment. But it has propped up the fortunes of the wealthiest people to new heights.

How could that have happened? Simple: the money, the “liquidity” goes to the biggest banks, exactly those which caused the bubbles and crashes. Why? Bubles are their financial breathing; inhale, buy; exhale: sell short. Trouble? Threaten the governments, and force them to fork more money over to the big banks way too big to fail, through the central banks, or the sort of debt “relief” extended to the likes of Greece.

(That pattern was slightly broken with Cyprus, but then Russian plutocrats occupied the vacuum).

A reason for asset inflation is that the return on investment for increasing production capacity is close to zero in an environment characterized by low demand, excess production capacity, zero CPI inflation, and low innovation. New factories are not built when the existing ones cannot sell at full capacity, and when there is no reason to completely retool.

The low innovation is related to the attitude of governments. Government have to create innovation demand by introducing new technology. A country researcher-in-chief ought to be the government.

Just look at France. Over the last few centuries, the push of government to innovation was crucial… To bring worldwide innovation. After all, even Louis XIV financed the Dutch Huyghens (who invented, among other things, the wave theory of light).

French government demand created the first cars (in the 18C), the fist hot air balloons, better explosives (1790s), first planes (Ader and company), and the first nuclear program (Paris January 1938). Also in the 1830s, the government bought the patent for photography, so that “all of humanity could profit“. In England, it was decided, early on, by the government, to finance trains, instead of the sort of freeways for individual cars Mr. Macadam and his friends wanted to build. (At the time cars were steam driven.)

Nowadays, instead investors, deprived of meaningful pursuits, chase one another to higher returns in speculative asset trading including art, stocks and real estate. Thus the world ugliest triptych was sold for the greatest price ever.

In the USA, government encourages fracking. A “bridge fuel” said Obama. Clearly a bridge to nowhere: as it is, with existing technology, the ecological impact of fracking is so nefarious, that it is, clearly a Ponzi scheme. (Yes, banks are feeding it, similarly to the subprime bubble, and similarly to that, with the full support of the present government of the USA, and that is why fracking is happening, on such a massive scale, in the USA alone; the technology has been around for decades, although horizontal drilling has improved it.)

To cut down this meaningless activities, asset speculation ought to be mitigated by increasing taxes on higher incomes and short term capital gains. Also a wealth tax on land and properties should be cranked up (they are already so, in places such as France, but certainly not in the UK and USA; the latter exemption makes the former uncompetitive!).

Meanwhile meaningful innovation, like figuring out the details of large Thorium reactors, ought to be pushed… in government research programs, something private industry cannot do.

(Instead Obama financed things such as electric car and battery companies, something private industry can do; the money thus diverted was not available for more fundamental pursuits.)

Government spending on innovation, health, education, infrastructure, and housing ought to be increased, paid by the 93% tax on income republican president Eisenhower had instituted.

This has to be done in a subtle manner. For example the Pelosi style Demoncrats have argued Obamacare augmented health spending. And it does, straight into the pockets of plutocrats. It’s not because one knows how to push on the accelerator, that one knows how to drive.

If the 99% had more money in their pockets, consumer demand would increase.

In any case, the so called “supply side theory” and its attendant bubbles have been fully repudiated. Supply Side economics is another name for plutocracy rising. It has completely infected the economy of the USA, starting 20 years ago (that is, under Clinton).

Supply Side Economics believe that the “marketplace”, if left completely free, lower prices on “consumers”. So it is also the theory behind “Obamacare”, and why Obama transformed patients into consumers exerting their free market choice. Supply Side, just as Obamacare, neglects corruption and human nature and its attendant greed (that’s why the Obamacare website failed).

A central feature of Supply Side is the tax rate. In the USA in recent decades the concept has been named after a right winger, Arthur Laffer. However it originated with a French economist, and engineer, the polytechnicien Arsene Jules Etienne Juvenal Dupuit, in the 1850s. (As a good USA right winger, Laffer is careful not to attribute to a Frenchman the invention of the concept that bears his name.)

Kennedy reduced taxes from a top marginal rate of 91% to 65%, high on the Dupuit Curve and hence increasing government revenue. But Reagan reduced taxes from a top marginal rate of 50% to 28%, lower on the Dupuit Curve and thus decreased government revenue (as part of his government killing program). Obama, of course, lowered taxes much further, and, although a very rich man, pays only a 174 or so overall tax rate.

That Krugman and Summers loudly return to their Reagan roots, and advertize bubbles as the way out for the economy, for all to see, something that Reagan himself may have frown on, is truly amazing. The impudence. The bull headedness.

The problem in the USA is not the Tea Party. After all, it did not get to power. Yet. The problem is that democrats implemented Supply Side Economics, namely lowering taxes on the rich to the point deficits could be used as an argument to destroy the Great Society that Kennedy and Johnson put in place.

A mathematically interesting self feeding vicious loop.

***

Patrice Ayme

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11 Responses to “Supply Side Epic Fail”

  1. Paul Handover Says:

    Gracious, can hardly keep up with you! Don’t burn yourself out. And where’s my Neanderthals and dogs essay? 😉

    • Patrice Ayme Says:

      Neanderthals and dogs contains genuine authentic original ideas, so I have been leisurely checking a few facts, hence the delay. The main idea is that it’s… Well, OK, I leave you to deduce the obvious idea: Neanderthals domest… So I had to check the dates probabilities of introduction of both dogs and Homo SS. That build up on my disappearance-transmutation of Neanderthals story.

      The more original the essay, the harder to write.

      Burning out is indeed a looming problem.
      PA

      • Paul Handover Says:

        Are you aware of the mitochondrial evidence that shows that most likely dogs were with early h. sapiens when they came out of Africa? Can scan the paper and email ? it to you.

        • Patrice Ayme Says:

          No, Paul, I am not aware, zero totally completely unawares, so send that curious discovery so that I can munch on it. The fact remains that dogs have Euro wolf genes therein. Thus, if true, it would actually prove my theory even more. Because a circuituous route would have taken much longer, thus proving beyond doubt that Neanderthals, not Homo SS, domesticated wolves.

          BTW, at this point, the place with the apparent highest density of Neanderthal markers is… North Africa.

          In general supposed Homo SS and Neanderthals were more or less in contact, or alternated occupation (oops) in Israel for maybe 50,000 years. No, I will not make the joke that this is reeadily observed to this day…
          PA

  2. Dominique Deux Says:

    Recent New Scientist reports that Neanderthals invented the thread. Not the leather thong, but the thread from short twisted fibers. And that gave birth to the whole textile industry – not on the wane at all. Lots of hi-tech materials are textile, and therefore thread, based.

    • Patrice Ayme Says:

      Yes, Dominique, I will use this in my Neanderthals’ superiority essay (Hey, I hope Marine Lepen is apraised…). The striking fact is that this is 90,000 years old. It was long known Neanderthals used pants, BTW.
      I say: they invented dog.
      PA

  3. Roger Henry Says:

    Looking forward to your Neanderthal essay, I am. The growing body of evidence of Neanderthal imagination , abstract thinking capacity, appreciation of art, and understanding of metalurgy gives boot to a certain racism that evolved as early examples of skull shape assumed mental deficiency.

    • Patrice Ayme Says:

      Yes Roger, there are two fascinating aspects to the Neanderthal question: their superiority that gets ever clearer. See dogs, I say.
      And then the question of racism… Most of it perpetrated by scientists! The racism itself has 2 aspects: the abysmal stupidity, the frantic racism = tribalism…
      PA

  4. Roger Henry Says:

    P.S. Due to the effects of “Hybrid Vigor” as some geneticists call it, the interbreeding of populations creates stronger, smarter offspring. Don’t call the Neanderthals “they”. To various extents, they are we.

  5. Old Geezer Pilot Says:

    If Neanderthals had imagination and abstract thinking capacity, how come they stared at Morocco from the tip of Iberia but never went there?

    It’s only a short boat ride.

    • Patrice Ayme Says:

      Not so, OGP. The place with the highest density of Neanderthals markers and alleles is… North Africa.

      Moreover, the Denisovans, who were more distant cousins (like twice more distant) most probably crossed the Wallace line. Some modern populations have up to 6% Denisovans.
      http://en.wikipedia.org/wiki/Denisova_hominin

      I believe Neanderthals are around (hahaha). That’s why I created my subtle introgression theory by inner hybridization from technological deselection. According to this, it could well be that up to most of the genes are of Neanderthal or Denisovan origin. that’s what studies of HLA complexes in Asiatic populations show.
      PA

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