Supply side econ at this point in the cycle

Investment Analysis Clubs Macro Economic Trends and Risks
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Since the poll has a couple of naysayers…notably for the form of the question, I will rephrase the discussion with a different question.

The reason I am doing this is because the discussion is sheer macro economics. It is also timely. Comprehending the impact of supply side econ in its parts at this time matters.

To anyone who would like to join this discussion, what are the pros and cons of applying supply side economics in part or wholesale at this time in the economic cycle?

Please remove any references to any politics in the responses. Talk only specific policies of lowering taxes and the brackets, austerity, debt reduction, interest rates, monetary policies, lending policies, and impacts on GDP growth. Opinions on how these factors impact inflation would be interesting to me.

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NOTE I left off budgetary policies. I think that is political in that it is guessing at the future. Just skip it or only skirt budgetary policies. What those policies in general would be are not know.

General austerity is a fair topic.

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Supply side economics is logically irrational on its face. It creates “winners” and “losers” by giving unearned income to alleged producers at the whim of govt. If those in power like you, they will give you money if you allege you are a “job creator” (real or not). There is no market, there are only sellers making what they choose. If what they produce is not what people want, there is no consequence to the business because they have already been paid. There is no requirement for any business to earn an income because the business is on govt welfare (which is the definition of supply side economics).

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Jerry,

The people who benefit the most get that. It is not some sort of secret to undress.

But bottom line the policies how do you see them effecting GDP growth and inflation?

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IBut bottom line the policies how do you see them effecting GDP growth and inflation?

Depends how GDP is defined. If GDP is measured using production, then supply side economics will ALWAYS have a growing GDP. Because the govt will make sure that happens–even if the what was produced is never used. In essence, GDP is useless to measure because it is artificially controlled.

If GDP is based on consumption, that is more of a demand based economics–which means companies base their production on expected market demand. Multiple suppliers across a market, so consumers get to pick the one(s) they prefer. As tastes vary, the market can efficiently support multiple suppliers/producers. Using production to measure GDP could work because producers will try to make a slightly larger volume than expected demand–in case there is unexpected additional demand.

The only inflation under supply side economics is for the goods people actually want to buy–which will tend to always be in relatively short supply. Which means big price jumps when the desired items arrive (because of high demand and limited supply). When they are sold out, prices revert to manufacturer’s pricing. Example: Price of new cars in 2022. 10k to $20k over manufacturer’s list price when in stock.

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Here is information about supply-side economics.

Supply-side economics is a macroeconomic theory that postulates economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade. According to supply-side economics, consumers will benefit from greater supplies of goods and services at lower prices, and employment will increase.

https://en.wikipedia.org/wiki/Supply-side_economics

https://www.investopedia.com/articles/05/011805.asp

The last major implementation of supply-side economics was the Tax Cuts and Jobs Act of 2017 (TCJA).
https://en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act_of_2017

Major elements of the changes include reducing tax rates for businesses and individuals, increasing the standard deduction and family tax credits, eliminating personal exemptions and making it less beneficial to itemize deductions, limiting deductions for state and local income taxes and property taxes, further limiting the mortgage interest deduction, reducing the alternative minimum tax for individuals and eliminating it for corporations, reducing the number of estates impacted by the estate tax, and cancelling the penalty enforcing individual mandate of the Affordable Care Act (ACA).

The result of this was an immediate increase in the Federal Deficit as Percent of Gross Domestic Product.
https://fred.stlouisfed.org/series/FYFSGDA188S

The unemployment rate continued to decline as it had since the end of the 2009 recession. The slope of the line did not increase between 2017 and 2020 so the TCJA did not improve the unemployment rate.
https://fred.stlouisfed.org/series/UNRATE

Real Gross Domestic Product continued to increase as it had since the end of the 2009 recession. The slope of the line did not increase between 2017 and 2020 so the TCJA did not improve the rate of increase of real GDP.
https://fred.stlouisfed.org/series/GDPC1

At this point in the cycle, the main impacts on the deficit are the pandemic-related spending items, not the TCJA. Middle-class tax decreases from the TCJA are scheduled to end in 2022 but the corporate tax breaks will remain.

The main results of the TCJA have been increased government deficits and increased income inequality. There were no impacts on GDP growth or unemployment.
https://en.wikipedia.org/wiki/Income_inequality_in_the_Unite…

Wendy

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"The unemployment rate continued to decline as it had since the end of the 2009 recession. The slope of the line did not increase between 2017 and 2020 so the TCJA did not improve the unemployment rate.
https://fred.stlouisfed.org/series/UNRATE

Real Gross Domestic Product continued to increase as it had since the end of the 2009 recession. The slope of the line did not increase between 2017 and 2020 so the TCJA did not improve the rate of increase of real GDP.
https://fred.stlouisfed.org/series/GDPC1

Of course, with the pandemic starting 2017, and lasting until late 2021, it is amazing things didn’t go off the cliff. to continue at a strong level is great.

With unemployment in the 3.x% area, there isn’t a whole lot of folks listed as ‘unemployed’ to ‘get back to work’. There will always be a few percent of ‘unemployed’ for one reason or another - many just taking a break , just fired for cause, can’t keep a job, etc. In fact, a couple hundred decided to ‘go back to work’ this last quarter, many not listed as ‘unemployed’ but deciding to ‘un-retire’ or seek work after avoiding it during the pandemic.

The federal government also collected record revenues this past quarter - as well as most states with income taxes. Must be that folks are making record amounts of money, or those ‘rich people’ with asset appreciation are spending record amounts of bucks by cashing in some of their ‘wealth’, or both.

Meanwhile, the government is helicoptering cash for all sorts of ‘pandemic relief’ at thousands $$$$ per resident to a hundred million people - increasing deficits. “Free money”.

t.

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“Of course, with the pandemic starting 2017”

what pandemic started in 2017 ?

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“Supply-side economics is a macroeconomic theory that postulates economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade. According to supply-side economics, consumers will benefit from greater supplies of goods and services at lower prices, and employment will increase.”

Perhaps the problem is applying that theory to the general case.
It seems to me that applying supply-side incentives to some parts of the economy makes sense (say housing and food, possibly transportation) but other parts of the economy should be left to demand-side logic (supplying ‘stuff’ that is not ‘essential’).
No protection to businesses making widgets that don’t directly result in the production of essentials.

Why does it have to be one or the other?

But defining which parts are which turns quickly political…

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<with the pandemic starting 2017>
The first Covid-19 case was reported in the U.S. in January 2020.
https://www.npr.org/2020/01/22/798392221/1st-u-s-case-of-cor…
Wendy

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Supply-side economics is a macroeconomic theory that postulates economic growth can be most effectively fostered by lowering taxes, decreasing regulation, and allowing free trade.

Wendy,

“Postulate” is an interesting word. It sounds very effective. But from 1981 to 2020 the real GDP growth in the US was flagging or slow during the entire period save 1984 while demand side econ had not been totally set aside.

The prior period of demand side econ from 1949 to 1980 saw much higher real GDP growth rates.

Jerry,

Supply side econ was practiced from 1981 to 2020 during mostly a period of disinflation. I’d say in a fight against inflation beyond Volcker’s days and the early 80s that vanilla supply side econ would probably result at this time in more inflation. The more cash the top 20% of earners have at this point the more inflation we will have.

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Real Gross Domestic Product continued to increase as it had since the end of the 2009 recession.

This is interesting but as I remember it that was generally for services. Today we are seeing factory output rise in the last quarter. That marks a different point in the cycle.

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The federal government also collected record revenues this past quarter - as well as most states with income taxes.

Telegraph,

That is in complete flux with the taper and rates going up. I see another MIXED slow down. I think the restaurant industry gets slammed, but home improvement soars. The demand in the economy will look different going forward for the next three quarters.

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Why does it have to be one or the other?

Because we go with what works or we tear apart the markets. That response honestly keeps the politics out of it. The markets need a large degree of certainty.

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Neuro,

That certainty includes monetary policy. If tax policies are x and deficit policies are y, then FED policy can be z. If we are going to decide to just be anything at all blowing in the breeze the FED can not make corresponding decisions.

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I’ve said it before and I’ll keep saying it. Supply side is stupid. It doesn’t matter how cheap or plentiful you make a television/smartphone/whatever, if I don’t want one, I’m not going to buy it.

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mmmmmmmmmmmmmms,

Fair enough.

This is a discussion of macro economics. There are two sides to the ledger if we do not bone up on where the factors lead…we set sail kind of blindly in this economy.

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we set sail kind of blindly in this economy.

Which is what has been happening for the past 40 years. Supply side is essentially “If you build it, he will come,” but there’s no guarantee that anybody actually wants what you’re making! With demand-side, you know exactly what people want and how much they’re willing to spend for it.

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mmmms,

What does that mean to the economic factors going forward? Specifically growing real GDP and inflationary pressures?

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With demand-side, you know exactly what people want and how much they’re willing to spend for it.

Steve Jobs didn’t use focus groups because he figured people didn’t know what they want until you give it to them…

What is a Focus Group?

A focus group is a market research method that brings together 6-10 people in a room to provide feedback regarding a product, service, concept, or marketing campaign.

https://www.shopify.com/encyclopedia/focus-group

Demand side works for tired old commodities. For innovation you have to rely on supply side. Ford vs. Tesla. Nokia/Blackberry vs. iPhone.

The Captain

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