Robert Reich: "Can I Be Blunt? It's The Demand Side, Stupid."

http://marketplace.publicradio.org/display/web/2011/06/29/pm-its-the-demand-side-stupid-commentary/?refid=0

This is nonsense. The problem is not on the supply side. Companies don't need financial incentives to hire. They're sitting on $1.9 trillion of cash. They don't even know what to do with it all. If they wanted to use this cash to hire additional workers, they could. Instead, they're buying back their own stock and buying other companies.

- snip -

Supply-side solutions have nothing to do with any of this. They're like pushing wet noodles. The economy needs a boost on the demand side. For 30 years now we've been hearing from "supply-side" economists say that if we reduce tax rates on the rich and on corporations -- and keep the cost of capital low -- we'll get more jobs and growth. And the benefits will trickle down to everyone else.

Well, we've tried the theory out, and little or nothing has trickled down. Tax revenues are now 15 percent of the national economy. That's the lowest in 60 years. And capital is cheaper than ever. But the economy is going nowhere.

Can I be blunt? It's the demand side, stupid.

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he's a fraud

:nopity:

They don't. They know damn well supply-side economics is a failure and doesn't create jobs. They don't care about job creation; they care about transferring national wealth to the millionaires and billionaires.

you are right.

It's nothing but a sales pitch.

Just a Scam invented by the RICH (Corporate Owners) to avoid Labor & Environmental regulation that was sold to gullible Americans by smooth talking politicians.

No point in lecturing them about something they already know.

Because that is what the GOP does. They are wrong, but they say it enough that the moron populace believes them. Get the word out. Over and over and over that we have the right economic paradigm and let the independents decide in their heart who they think should get the breaks. The already Rich and Corporations, or the average folk. It doesn't matter what the GOP believes.

Once ideologues become wedded, they lose touch with reality.

I see it all the time on the Minneapolis paper's website: "No more job-killing taxes!"

It bears repeating, and all of us should repeat it whenever possible: The costs of employee wages, training, and benefits are deducted from taxable income, along with other costs of doing business.

Example: A company sells $1 million worth of its products or services. It shells out $900,000 for costs of doing business: wages and benefits, advertising, buying inventory, leasing buildings, R&D projects, sales force's travel expenses, office supplies, etc.

What amount does it pay income tax?

The full $1 million?

BZZZT. Wrong.

$100,000.

Actually, he was, "not a Republican, but" uttered every Republican talking point on every subject at all times. I don't recall ever meeting a human being who admitted to being a Republican. But I digress.


Before I was a business owner, I used to jokingly assert that if he was paying as much as he claimed in taxes, then he should hire a new tax lawyer (he used a tax lawyer rather than a mere accountant). Once I opened a business similar to his, I did my own taxes first, but then decided to run it by his lawyer to make certain I did not screw up. His lawyer returned it with corrections.

We spoke about it. He decided I was correct on something. He redid the taxes and returned it with fewer corrections.

We spoke some more. He realized I was correct on everything. He redid the taxes and returned exactly what I gave him in the first place.

So I never bothered with him again. And it turns out my joke was no joke after all. The Republican should have hired a different lawyer.

it is the taxable amount of that $100,000 - for $100,000 that's 34%. The other 66% is pure profit.

Unfortunately, too many people who vote for Republicans don't understand ..... anything ... anything at all...

I've known plenty of Republicans. A lot I've known are online at various boards. Nearly none are self-employed. They are remarkably clueless about taxeation issues and seem to have absorbed everything they think they know from talk radio and Fox News.

My partner has been self-employed for over 20 years. We've learned a lot about taxes and health insurance.

Unfortunately, too many people who vote for Republicans don't understand... anything... anything at all.

way more people than was warranted.

We need to create demand for spending that simply didn't exist before and people with savings need to find a compelling reason to use it.

gains. People were more productive but weren't getting paid for it. Their wages were stagnant and instead they were offered credit. The ability to use credit has run out.

Demand is increased by giving those who spend it more damn money. Giving more money to people who already have more than they can spend won't do a damn thing about increasing demand.

Supply side economics does not work and only fools actually believe it works.

When wage pressures are relieved by immigration and lack of retirement options keeps people in the workforce there is no upward pressure.

However, our government has been screwing with that, deliberately undercutting labor by importing workers from other countries to flood the market. Labor is like anything else if you have too much of it, the price will go down until an equilibrium is reached. Additionally because they lowered the top tax rate instead of reinvesting in the business to avoid taxes the upper earners have been using that money to gamble on the stock market.

So we have worker producing more but not getting paid more for their increased productivity and the owners are taking that money and gambling on the stock market because it doesn't cost them much to do this.

However, when our government undercuts workers by allowing companies to import workers from other countries while firing the local talent, there is no leverage for workers to demand a share of the productivity that they have contributed to.

The way to get demand up in the economy is to give money to those who will spend it. That just in case it's not obvious is the worker not the bloody CEO's and the rest of the upper 1% of earners. Giving more money to rich people just lets them hoard more money.

Supply side economics doesn't work and the last 30 years ought to be evidence enough of that fact.

out that determines the wages for those of us left in the USA. In the world there is an abundance of workers and we are competing against all of them regardless if they are brought to our country.

as those made here there wouldn't be a pressing down of wages by having workers here compete with workers from countries where the workers are paid 2 dollars a day.

But yes that is part of the problem. And supply side economics doesn't fix that problem either. We need a tariff system which makes the cost of labor for a good made overseas equal to what it costs to make it here. But we need to do that by raising the cost of importing the good rather than pushing down the price of labor here.

Talk like that will get you burned at the stake.

The damage they've done is incalculable.

Those free trade assholes don't even believe in free trade anyway because if a smaller producer had a product that could compete with them they'd go to the Congress and have laws put into place to make sure that small producer could never get off the ground to become a competitor of the free trader to begin with. So it's more free trade unless it bites my ass then I'm all for regulation for those types.

They want the kind of regulation that benefits them, but are against it if it helps anyone else.

That is why every first world country with a strong economy also has strong unions

Never forget the Laffer Curve



what supply-side economics is based on.


and the neo-Laffer Curve



which is what reality is based on.... (The neo-Laffer Curve includes anomalies and diversions from the norm)

showing that the strangely appropriately named Laffer Curve is a joke.

The laffer curve only refers to inferior goods, inferior goods being items you buy less of as your income goes up, and even then it's specific types of goods. Usually staples such as rice in China. I don't think the Laffer curve was ever meant to apply to normal goods and those who do so are either ignorant of the tenants of introductory microeconomics are they are deliberately misleading people. Probably both.

and want to kill Social Security.

There is demand for spending but people are unemployed, they've wiped out their savings, they can't afford to buy the healthcare that they need, they don't have the money to pay their mortgages.

Sure, there are spendthrifts who racked up too much credit card debt and bought houses they couldn't afford. But those folks are fewer than the media and the Republicans would have us believe. Most people are not that reckless. The vast majority of Americans are simply ordinary people who have struggled for years to hold onto a decent, reasonable standard of living. They're losing the battle.

Nicely stated

building new banks all over the place. Out by our place I have noticed several new banks being built in the last year to year and a half.

How do you propose to increase the demand?

The relative prosperity of the 50's thru the 80's and 90's was created by the enforced austerity of 15 years of "Great Depression" and WW2. When Johnny came marching home again (17 million in the military) demand for everything skyrocketed. Housing, appliances, furniture, education, cars and the infrastructure to enable all of it. The population was exploding(us Baby Boomers). Now that population is ageing and downsizing, hence the housing bust, and everything that goes with it. Where is the demand for the 4-5 BR suburban home? Who needs to furnish and maintain them?

What is your answer to the declining "demand side" Robert?

There are a bunch of aging nuclear reactors that need to be decommissioned. We could use some clean electricity. Might be nice to have high speed rail like Germany and Japan do. Looking at Tea Party signs, there are a lot of people who could use more education. There is some "demand" to start with.

Demand side requires that goods and services that people actually want and are willing to pay for be produced.

While your ideas are certainly noble they're the difference between American Idol on Fox and Masterpiece Theater on PBS.

more money in their pockets available to spend. Once they make what they want known the supply comes afterward.

You do not increase demand by putting more crap on the market to buy that is exactly backward which anyone who passed Econ 101 can tell you.

supply-side is a fraud.

Why would a Democratic Administration embrace this false dogma?

because the people who rebuild our infrastructure will have jobs and money to spend thus increasing demand for goods and services. In order to fill that new demand companies needs to hire more people creating more demand for goods and services and the cycle goes on. Right now as the public and private sectors cut back they reduce demand and reduce the need for people to provide services resulting in further cut backs.

people dont have money. That's what Greenspan said and that has failed miserably.

... someone has to build them. Those someones' are getting paid wages which create state/local tax revenues which will fund building more schools and roads and parks, and those working someones' also need to buy work clothes, lunches, transportation (or gas) to get to their job, and in some cases will move their families to the areas where those jobs are - which creates more demand for groceries, entertainment, etc etc ... or is that too much of a "trickle up" theory for you ?

Adjust economic and tax policy to favor the portion of the population that buys the most goods and services (when they are able to).

That would be the middle class. NOT the already wealthy (the supposed "job creators" according to Reaganomics). That is Reich's point. The owner of ABC Widgets, Inc., isn't going to go out and hire a bunch more people because his taxes got lower and/or he made a killing on that Fustercluck stock he sold (and payed low capital gains on). He will find anything he can to do with that windfall BUT hire people in the present environment.

What will cause him to hire? When more and more consumers (that pesky middle class) decide they want and can afford widgets, and when he's selling enough of them that he needs to increase his production.

What kind of moron would go out and hire more people when the employees he has are already making enough widgets?

This idea that we have to favor the already well off because that will somehow magically make them want to hire is pure folly.

The poor spends 100% of everything they take in. So don't leave the poor out of the equation.

And accommodating the poor in policy making is the right thing to do. My point was that in total dollars spent by consumers, the middle class (at least in the past) has typically been the driving force in economic expansion. That does NOT mean, however that the poor should not be considered.

wages......

The U.S. population is much larger now than it was in the 1940s and 50s. It was not an aging population that led to the housing bust. The demand side is not declining. It's been impoverished as all the money goes into the pockets of the top 1%.

The 4-5 BR suburban home was a creation of the 90s, not a result of the post-war boom. The post-war boom created Levittowns - cookie-cutter 2 & 3 BR suburbs that were already deteriorating by the 70s.

Prosperity was created by the GI bill getting millions educated who otherwise would not have been, and strong unions which could press for a living wage. With a well-educated and prosperous citizenry entire new industries were created.

The housing bust has nothing to do with aging/downsizing populations - it has to do with an artificially pumped up bubble sustained by unregulated credit. This inflated the value of the properties, which then required more credit to purchase. In the 70s in the mid-west you could buy a 3 BR house for 30k. Ten years later, that had doubled. Now, that same property would be valued at 180k, despite it being a delapidated 60 year old house. But its REAL worth is maybe 40k.

Wages have been stagnant since the 70s. If wages had kept up with the economy, the median wage today would be 70k, not 50k. THAT is why there is no demand - we're being paid like peasants and the credit has run out.

Productivity has risen consistently; but, since about 1980 (or earlier) workers' share of the pie has declined.

Quite a few of us have called for demand side economics for YEARS.

The supply side is full to the point of bloat. The demand side has been beggared over the last 40 years to bloat it.

Anyone who can't see this is either blind, stupid, or so completely in love with supply side dogma that he's blind and stupid.

Reich is right about this, of course. Our only hope is that other people start to wake the hell up.

... and everyone with 2 brain cells knows it, but "supply side" is how they do their reverse Robin Hood so don't expect it to stop soon.

You mean the stuff they teach in REAL colleges ISN'T just a bunch of unfounded opinions that lefty commie hippie professors use to brainwash kids with in order to create a socialist state!??

I ask because the stuff I learned in college COMPLETELY CONTRADICTS EVERYTHING that our nation's "economic discussion" has been about since 1981.

is so precise and colorful, I love it.

every other job exportation bill sent down the pike even while he was Sec. of Labor of the US?

I don't recall him being a "virulent" supporter of NAFTA?

When he was Sec. of Labor I wrote to him and asked why the minimum wage wasn't higher? His office wrote back giving me some song and dance...so I defaced a dollar bill with a big red question mark and sent it to him asking why minimum wage wasn't higher when the Dems are in charge of all 3 branches?

crickets.

"What have YOU GUYS done???" as if he wasn't a big part of it.

Seems like Krugman and Reich just kind of whistled and sidled away from the mess they helped make, only to re-emerge as self-appointed voices of the Left.

I'd like to read their Mea Culpas, because without those, the transformation doesn't feel so genuine--perhaps even a bit Edwardian. :shrug:

When he takes a stand that is diametrically opposed to his previous stand, a rational person would take that as saying "I was wrong before".

But, of course, as "mea culpa" itself suggests, the predominate Christian culture is fixated on blame and forgiveness, rather than on fixing the damn problem.

without an intervening transformation? As I mentioned earlier, Mr. John Edwards is a famous example of a man whose principles change for expediency's sake. Should we just assume he has credibility if he were to come out on a spousal fidelity tour without so much as a mention of his previous picadillos? I think not.

"But, of course, as "mea culpa" itself suggests"

How does "mea culpa" suggest Christianity? It's Latin for "my fault/responsibility". It's a legal term, not a liturgical one.

Where do you think the legal term came from - the time when the church WAS the legal system.

And do you not see any difference between an intellectual stance, and a personal behavior?

BTW, looking for a 'transformation' is also very much a religious thing. Economics is only a religion for the wacky right. For everybody else, it is a science and with science, new information results in new hypotheses. He's had some fifteen years of seeing the real-world effects and failings of free trade - long enough to revise his opinion based on evidence.

He was not struck by lightning on the road to DC.

While your point is correct in the broadest sense, it's a bit of a diversion from the real issue.

The religious implications of demanding a "confession" from someone who has "sinned" by championing right wing supply-side neo-liberal economicsa may well be stunning. However, being stunningly wrong is not therefore transformed into a virtue (oops, there's a religious allusion again!)

"Economics is only a religion for the wacky right. For everybody else, it is a science and with science, new information results in new hypotheses. "

Science requires the scientific method, I'm afraid. Economics doesn't employ anything like that, and therefore can never be regarded as more than a so-called "social science".

"He was not struck by lightning on the road to DC."

He also never admitted his error, really (I'm not sure to which "he" you refer here in your flip remark, but it is equally applicable.)

the wrong way at first?

Personally, I'd prefer someone who changes from a wrong course without talking about it to someone who talks about a change of course and doesn't do it.

During his tenure, he implemented the Family and Medical Leave Act (FMLA), successfully promoted increasing the minimum wage, successfully lobbied to pass the School-to-Work Jobs Act, and launched a number of job training programs. At the same time, he lobbied Clinton to address bigger societal issues, countered Robert Rubin and others in the administration who wanted Clinton to pare his investment agenda, and pushed for improvement of conditions for those in poverty

He always has.

I wish he was running our economic policy.

And by this I'm referring to the policy makers (corporate masters and key political operatives, only some of whom have actually been elected). Not the rank and file voters, people who say they're Republican or political stooges like Palin.

Yes, their policies and the things they say and do are remarkably stupid from the perspective of most people on the planet. But they aren't supporting these policies out of stupidity. Granted, they have a marvelous way of exploiting incredibly stupid people. But the folks manipulating policy at the moment know full well what they are doing, why and what most of the consequences will be.

It's a very short-sighted agenda.

More.
For Me and Mine.
Now.
Screw You.

I don't think it can be sustained in the long run, but they know what they want and they sure do know how to get it. And it will be damned painful and downright fatal for way too many people in the meantime. Here's hoping educating the masses makes a difference.

Economics 101. It's the first thing you learn about it.

The Obama Administration is proposing another tax holiday! Are they fucking Republicans? WTF? Right when all we hear is how "social security and medicare will not be able to meet their obligations", Obama want to cut funding? Corporations don't need more money. Corporations are not the ones that will buy consumer goods. This is wrong, completely wrong.

Thanks for the thread, Hissyspit.

People who are unemployed or under-employed don't buy a lot of stuff. Which results in less production of stuff that consumers won't buy. Which results in less employment. Which results in less consumption.

Rinse, repeat, etc.

"Demand" sounds like an economic theory. Every business in the whole country, everyone who has a job, every child who takes allowance to the candy store, knows we need more CUSTOMERS.

Investment by the rich does not create jobs, CUSTOMERS create jobs! And, the largest group of CUSTOMERS is the middle class.

n/t

The problem though is that a lot of these Washington insider types say that the only way to support the demand side of the economy is to increase government spending, or lower taxes on workers, or give them low interest loans. These are all very poor ways to stimulate demand.

1) Gov't spending does not reach everyone.
2) Lower taxes on workers gives them very little extra revenue.
3) We already have too much debt in our economy.

Here's a simple formula. Supply = Demand. The main source of supply is productivity, the main source of demand is wages. Motherjones ran an interesting piece about a week ago showing how far productivity has outpaced wages. If the two had kept pace with each other than the US median household income would be $92,000 instead of $45,000.

That means that your average American should have twice as much money in their pockets as they do. Who got all that money instead? Corporate executives and investors got that money, oh, and by the way, their taxes are at historic lows to boot.

This wage to productivity gap is a serious problem. To make up for all the loss demand, people had to go into debt to keep their standards of living. That created the debt bubble, particularly in housing, and it's crashed. This is classic overproduction.

The only way out of this mess is to stimulate demand. Gov't spending helps, but is very ineffective. Payroll holidays ain't gonna cut it. Lower interest rates aren't going to help, and could make the problem worse down the road.

We need to raise wages. Main Street needs more money in their pockets.

Here's what we can do to solve this problem.

1) Raise the minimum wage.
2) Make it easier for workers to form or join a union. The Employee Free Choice Act, anyone?
3) A program of debt forgiveness for lower income workers would be nice.
4) End Free Trade.
5) Discourage supply. We have too much of it. Increase taxes on the wealthy, on corporations, and investment.
6) The Fed should raise interest rates to cut off any new debt creation in our economy.
7) Bring back commonsense regulations like Glass-Stegall.

This could be done easily enough...if only our elective "representatives" we're bribed 6 ways from Sunday by Wall Street.

So until you figure out a way around that, you're the one who looks stupid, Stupid.

None of this country's economic policy issues are decided by finding out who has the better and more coherent theory. You can bang your head against the stupid theories that govern both the Republicans and Democrats for the rest of your life, and all you will get for it is a life long headache. The problem isn't what they believe is wrong and dumb and easily disproved; the problem is that they believe whatever they are paid to believe whether it's plausible or laughable. You can't fix corruption of a political system with superior reasoning. It calls for something else.

again. He has been right about everything for so long. O could have had him, Krugman, Stiglitz, James Galbraith, Nouriel Roubini, or his pick of economists that make sense. But noooo.......

or they are underemployed; when salaries have stayed flat for 20+ years, no one can afford to buy anything.

What economist couldn't see this happening? It takes people to by the demand the product before it can be supplied. Duh!

I saw this one coming when they started the off-shoring, knew there had to be tipping point. But the Reaganomics crowd just keeps pushing their usual bullshit.

The wealthy have never had it as good as they have it now. So where is all that trickle down? No wait, let's phrase it the way they would: "How's that trickle down workin' out for ya?"

It's simple economics. What do we have to do to get the message out to people who consistently vote against their best interests? :banghead:

I realize that there is a large segment of our population 'tuned out' to most everything beyond small soundbites. But this (imo) should be a simple enough concept, and very easy to explain.