Pat Toomey, the junior senator from Pennsylvania, gave a wonderful description of supply-side economics recently on “Morning Joe.”
He did so following a question by contributor Mike Barnicle, who brought up unemployment (around the six minute mark) and suggested a lack of demand was contributing to the sluggish economy. Small businesses had fewer consumers because many consumers had lost their jobs, and had no money to buy products.
Barnicle then highlighted Republican obstructionism to the Democrats’ jobs bills. How can you boost demand when people are out of work? Why aren’t you acting to alleviate the plight of the unemployed?
Toomey replied: “these jobs bills haven’t worked and they’re not going to work.” He disagreed with Barnicle’s suggestion that boosting demand was the key to economic prosperity. Government can’t push a button and create demand, Toomey said.
He then laid out a brilliant explanation of supply-side economics. Supply (i.e. production of goods/services) is the key part of the economic equation of supply and demand. Supply will create its own demand, supply-siders argue, because people have insatiable demand. Who doesn’t want a new car? A bigger tv? A nicer home? Private schools for their kids?
The challenge of economics is providing these products (the supply) at a rate folks can afford.
Well how do you lower costs? Let the market work. Open up choice and competition. This will drive costs down and make things affordable to greater numbers of people.
Just look at cellphones. Twenty years ago, they were a jumbo-sized product that only the uber-rich could afford. Today they’re ubiqituous and fit in the palm of your hand.
A key to supply-side doctrine is lowering tax-rates. This is done to give investors more money to invest.
Democrats reject this notion; they often point to the 1990s, a period when tax rates were higher, economic equality was greater, and the economy boomed. They also suggest entrepreneurs (Bill Gates and Steve Jobs, for instance) would not be deterred by higher tax-rates.
But that misses the point: so what if Gates and Jobs weren’t deterred. They wouldn’t have the capital from other investors to get their products developed. Entrepreneurs need outside investment if they want to make their idea a reality.
Cut tax rates. Restrain federal spending. Reduce the regulatory burden. Use sober monetary policy. These prescriptions will create a pro-growth environment needed to unleash the American economy and get it out of the doldrums. Unemployment will decrease. The economy will expand. People will prosper.