The markets continue to rise on the expectation of economic stimulus by the Trump administration. Is all of this real or is supply side economics a pseudo science? Salon says that supply side is based on alternative facts.
Our new president is enabled by aides like Sean Spicer and Kellyanne Conway, who never contradict or say “no” to the boss, and media sycophants like Sean Hannity and Jeffrey Lord, who would be the first to defend the president if he suddenly began claiming that 2 + 2 equaled 5.
Of course, this is assuming that Trump actually believes the endless falsehoods that come out of his mouth. It’s also possible that he is entirely cynical and unprincipled, and believes that most Americans are too dumb, too uninformed or too apathetic to recognize his lies or care about them.
But let’s assume that the President believes that reducing taxes will end up with more investment and more jobs. Does this work or is supply side economics a pseudo science? The Salon folks quote Trump saying that the USA needs to build more pipelines with American steel. The problem is that in the last 20 years American production of primary metals (including steel) has gone up 40% while employment in this sector has gone down by 42%. The villain is the efficiency of automation and not the Chinese or Mexicans. In the USA states like Kansas that have provided substantial tax breaks have seen their economies shrink while others like Oregon and California who tax and then supply social benefits have seen impressive growth. But Trump’s advisors believe that they can ramp up US GDP growth to 4% or better. The problem is that GDP growth relies on population growth that is growth of the working population. And while the US population grew by about 10% in the 1980’s but that rate of growth is not the case today. In fact Trump wants to bar foreign workers, which is troubling to the high tech sector which routinely picks the best and brightest internationally.
What Is Supply Side Economics?
For those who need to catch up a little, supply side economics is a so-called macroeconomic theory. The theory says that lowering barriers to the production of goods and services increases economic growth. Unfortunately you need buyers for the goods that you are producing. That is the issue today with the stalled Chinese economic miracle. So long as there were lots of folks in the work ready to buy Chinese goods the Chinese borrowed and invested and drove their economy higher and higher. But then supply exceeded demand and China is stuck with a lot of debt and a slowing economy. The Center for American Progress writes about the failure of supply side economics.
Now, as our economy struggles to emerge from the deepest recession in generations-and as we argue over what to do with the expiring Bush-era tax cuts-it is more important than ever to understand one simple fact: When put to the test in the real world, supply-side policies did not deliver as promised. In fact, by every important measure, our nation’s economic performance after the tax increases of 1993 significantly outpaced that of the periods following the tax cuts of the early 1980s and the early 2000s.
Supply side economics are very attractive for those getting the tax cuts but they don’t work out so well in general. When put the test of data this theory is a pseudo-science.