Is it really as simple as 70% of our GDP is consumers so give money to people that will spend it?
That’s been my uneducated take on how to charge the economy for over 20 years but I’m mostly just a loud dipshit about stuff
That's exactly how it works - in a consumerist economy if you want to maximise growth, you want the most money possible to the people who will spend it, which is NOT the rich. Money given to the poor goes straight back into the economy which drives growth, money given to the rich disappears offshore.
It's not that simple. Our economy has a supply side and a demand side. A simplified expression of Keynesian economics (I consider myself a New Keynesian) is that stimulating demand (spending) is useful in boosting real GDP (growth) when the economy is operating below its potential level of output. However, boosting supply (land, labor, capital, technology, etc) is necessary for growth beyond closing the gap between actual and potential GDP.
To me, saying that giving consumers money to boost the economy is always the right move is just as silly as the supply-siders who argue that lowering marginal tax rates is always the right move. The correct policy depends on current economic conditions.
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ButtersA glass of some milksRegistered Userregular
Supply-side theory is bullshit because simply giving money to the rich doesn't encourage increase in supply but giving to consumers almost universally does encourage spending.
Yep, the latest bump was because electing Hillary was priced in and Trump got it instead. Couple that with the mass of stock buybacks and yes, the pure pricing basket went up. My old ski acquaintance is an econ professor at an ivy and actually did the research and wrote a paper on Democrats being unequivocally better for the economy - mostly due to things like infrastructure spending and the more efficient use of tax changes vs handouts to the rich (who have the lowest GDP multipliers)
I'd argue the bump was mostly the election concluding. Uncertainty stagnates markets and simply knowing who won gives you some idea which horses to start betting on.
Is it really as simple as 70% of our GDP is consumers so give money to people that will spend it?
That’s been my uneducated take on how to charge the economy for over 20 years but I’m mostly just a loud dipshit about stuff
That's exactly how it works - in a consumerist economy if you want to maximise growth, you want the most money possible to the people who will spend it, which is NOT the rich. Money given to the poor goes straight back into the economy which drives growth, money given to the rich disappears offshore.
It's not that simple. Our economy has a supply side and a demand side. A simplified expression of Keynesian economics (I consider myself a New Keynesian) is that stimulating demand (spending) is useful in boosting real GDP (growth) when the economy is operating below its potential level of output. However, boosting supply (land, labor, capital, technology, etc) is necessary for growth beyond closing the gap between actual and potential GDP.
To me, saying that giving consumers money to boost the economy is always the right move is just as silly as the supply-siders who argue that lowering marginal tax rates is always the right move. The correct policy depends on current economic conditions.
While true, the fact that there has been a demand side deficit and supply side glut for some 20 odd years makes it more of a 'technically' the case. Inflation hasn't really been a concern for the whole of my working life, and doesn't seem likely to be a concern for quite some time still.
Is it really as simple as 70% of our GDP is consumers so give money to people that will spend it?
That’s been my uneducated take on how to charge the economy for over 20 years but I’m mostly just a loud dipshit about stuff
That's exactly how it works - in a consumerist economy if you want to maximise growth, you want the most money possible to the people who will spend it, which is NOT the rich. Money given to the poor goes straight back into the economy which drives growth, money given to the rich disappears offshore.
It's not that simple. Our economy has a supply side and a demand side. A simplified expression of Keynesian economics (I consider myself a New Keynesian) is that stimulating demand (spending) is useful in boosting real GDP (growth) when the economy is operating below its potential level of output. However, boosting supply (land, labor, capital, technology, etc) is necessary for growth beyond closing the gap between actual and potential GDP.
To me, saying that giving consumers money to boost the economy is always the right move is just as silly as the supply-siders who argue that lowering marginal tax rates is always the right move. The correct policy depends on current economic conditions.
Yeah but if demand increases, supply will also increase because as the demand increases, the cost for the good/service will go up, and more people/companies will want to enter the market because of the greater price.
Is it really as simple as 70% of our GDP is consumers so give money to people that will spend it?
That’s been my uneducated take on how to charge the economy for over 20 years but I’m mostly just a loud dipshit about stuff
That's exactly how it works - in a consumerist economy if you want to maximise growth, you want the most money possible to the people who will spend it, which is NOT the rich. Money given to the poor goes straight back into the economy which drives growth, money given to the rich disappears offshore.
It's not that simple. Our economy has a supply side and a demand side. A simplified expression of Keynesian economics (I consider myself a New Keynesian) is that stimulating demand (spending) is useful in boosting real GDP (growth) when the economy is operating below its potential level of output. However, boosting supply (land, labor, capital, technology, etc) is necessary for growth beyond closing the gap between actual and potential GDP.
To me, saying that giving consumers money to boost the economy is always the right move is just as silly as the supply-siders who argue that lowering marginal tax rates is always the right move. The correct policy depends on current economic conditions.
Yeah but if demand increases, supply will also increase because as the demand increases, the cost for the good/service will go up, and more people/companies will want to enter the market because of the greater price.
Supply can be constrained by exogenous factors. Drought, famine, locusts, war (closing the Straits of Hormuz will immediately spike oil prices, which touches literally everything), or more banalities like regulations or Government policy. No amount of demand will allow the corner Walgreens to stock Cuban cigars, or the tony suburbs to build midrise affordable apartments.
In the US with the number of rich people, amount of space and number of natural resources we have it'd be damn near impossible to cause a supply shortage
In the US with the number of rich people, amount of space and number of natural resources we have it'd be damn near impossible to cause a supply shortage
In the US with the number of rich people, amount of space and number of natural resources we have it'd be damn near impossible to cause a supply shortage
Demand is not always were supply can reach though.
For example, there is little doubt the affordable housing and rent is something there is a demand for, but the demand is largely in places were demand for housing in general is high, so prices are usually above what people can afford, forcing them to live outside of the city and further away from well-paying jobs.
That's probably one example were supply-side could be the answer, though more precise than just "give people who build houses more money to build more houses."
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ButtersA glass of some milksRegistered Userregular
In the US with the number of rich people, amount of space and number of natural resources we have it'd be damn near impossible to cause a supply shortage
This is what $900,000 buys you in San Jose.
That's because rich people occupy too much space not because there isn't enough space.
In the US with the number of rich people, amount of space and number of natural resources we have it'd be damn near impossible to cause a supply shortage
This is what $900,000 buys you in San Jose.
That's because rich people occupy too much space not because there isn't enough space.
What are you defining as "too much space" and what does that even mean?
Land is a quantity that is supply constrained. Heavily so when it comes to land people actually want.
When we talk about need for new housing stock, it's new housing stock on the same amount of land.
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ButtersA glass of some milksRegistered Userregular
Giving stimulus to wealthy land developers is not going to incentivize building affordable housing. The housing crisis needs regulation reform not Reaganomics.
It's not a true supply shortage though its a false one and a problem that certainly wouldn't be solved with supply-side stimulus.
Law is a very real exogenous constraint, not a false one. Changing the law to legalize new housing is also a very real supply side stimulus that would go a long way to solving the issue. (Though not all the way. Market urbanism needs social housing assistance to produce affordability.)
In the US with the number of rich people, amount of space and number of natural resources we have it'd be damn near impossible to cause a supply shortage
This is what $900,000 buys you in San Jose.
That's because rich people occupy too much space not because there isn't enough space.
What are you defining as "too much space" and what does that even mean?
Land is a quantity that is supply constrained. Heavily so when it comes to land people actually want.
When we talk about need for new housing stock, it's new housing stock on the same amount of land.
Giving stimulus to wealthy land developers is not going to incentivize building affordable housing. The housing crisis needs regulation reform not Reaganomics.
Regulation reform is supply side stimulus!
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EncA Fool with CompassionPronouns: He, Him, HisRegistered Userregular
Affordable housing is only created when anchor legistlation is tied to it. Want to develop your new 300 house mega-wealthy neighborhood? Sure, but you have to also build a 1000 unit apartment complex meeting these codes, with at least 30% of them being restricted for low-income occupants before you can get permitting. It works. The developers are fine with doing so, and the city grows proportionately in its housing offerings. It has to start with city/county/regional governments all agreeing to work together though.
I'm interested to see how the "we can't find anyone to buy out shoddily built mcmansion in the middle of nowhere" boomer crisis end up resolving itself?
In the US with the number of rich people, amount of space and number of natural resources we have it'd be damn near impossible to cause a supply shortage
This is what $900,000 buys you in San Jose.
That's because rich people occupy too much space not because there isn't enough space.
What are you defining as "too much space" and what does that even mean?
Land is a quantity that is supply constrained. Heavily so when it comes to land people actually want.
When we talk about need for new housing stock, it's new housing stock on the same amount of land.
Buy apartment building with 20 units
knock down half the walls.
Sell 10 units for much higher rate.
Also, buy multi-acre lot and put a 12,000 square foot home with 10 bathrooms on it for me and my family of 5 to live in.
I'm interested to see how the "we can't find anyone to buy out shoddily built mcmansion in the middle of nowhere" boomer crisis end up resolving itself?
With a bunch of abandoned homes and people having lost however much wealth they put into those homes.
We'll see as similar problem with a lot of just "normal" suburbs in general as various costs (maintenance, fuel, etc) rise and subsidies (implicit or explicit) diminish and the whole project becomes less sustainable.
In the US with the number of rich people, amount of space and number of natural resources we have it'd be damn near impossible to cause a supply shortage
This is what $900,000 buys you in San Jose.
That's because rich people occupy too much space not because there isn't enough space.
What are you defining as "too much space" and what does that even mean?
Land is a quantity that is supply constrained. Heavily so when it comes to land people actually want.
When we talk about need for new housing stock, it's new housing stock on the same amount of land.
Buy apartment building with 20 units
knock down half the walls.
Sell 10 units for much higher rate.
Also, buy multi-acre lot and put a 12,000 square foot home with 10 bathrooms on it for me and my family of 5 to live in.
Supply-side theory is bullshit because simply giving money to the rich doesn't encourage increase in supply but giving to consumers almost universally does encourage spending.
While I agree that the political forces that have laid claim to the term "supply-side economics", i.e. your "trickle down" types, are overstating the benefit of decreases in marginal tax rates, it's not like tax cuts are the only type of supply-side policy that exists. Investing money in education, for example, is also a supply-side policy. A nation's potential output is determined by the factors of production it has and the level of technology that's available. A common, simplified, theoretical expression of this is that the major components of potential output are:
Labor, Natural Resources, physical capital (structures, equipment, etc), human capital, and the level of technology.
A supply-side policy would be anything that attempts to boost those in our economy, e.g. investments in human capital (education), R&D funding (technology), etc.
Is it really as simple as 70% of our GDP is consumers so give money to people that will spend it?
That’s been my uneducated take on how to charge the economy for over 20 years but I’m mostly just a loud dipshit about stuff
That's exactly how it works - in a consumerist economy if you want to maximise growth, you want the most money possible to the people who will spend it, which is NOT the rich. Money given to the poor goes straight back into the economy which drives growth, money given to the rich disappears offshore.
It's not that simple. Our economy has a supply side and a demand side. A simplified expression of Keynesian economics (I consider myself a New Keynesian) is that stimulating demand (spending) is useful in boosting real GDP (growth) when the economy is operating below its potential level of output. However, boosting supply (land, labor, capital, technology, etc) is necessary for growth beyond closing the gap between actual and potential GDP.
To me, saying that giving consumers money to boost the economy is always the right move is just as silly as the supply-siders who argue that lowering marginal tax rates is always the right move. The correct policy depends on current economic conditions.
Yeah but if demand increases, supply will also increase because as the demand increases, the cost for the good/service will go up, and more people/companies will want to enter the market because of the greater price.
You're thinking of the supply of a specific product. If its relative price increases, ye old law of supply and market entry kick in (constrained perhaps by barriers to entry or a hard limit on supply). A nation's potential output is limited by its resources and technology. If we are below that potential (recession), then yes "demand creates its own supply" as idle resources are brought online. But once you are at full-employment, additional demand becomes inflationary.
If economies could grow simply by stimulating demand, developing economies wouldn't be able to grow so much faster than advanced economies. We could just spend our way to economic progress. But outside the occasional technological breakthrough, we are limited to something on the order of 3% growth per year.
Supply or capital investment is appropriate when that's the lever that's missing. Like if you need a highway, the private market is not equipped to solve that problem well. Similarly, major infra investments or housing is better done through direct public funding to avoid the middleman cuts that incentives will incur (read:real estate developer executive pay and overhead). That said, giving more money to low earners in a consumption economy is a 90% safe bet provided growth numbers line up to expectations. When they start lagging you can look at other remedies.
Honestly, when the media or the GOP mention supply-side. They don't mean the whole parcel that can affect supplies outside of demand. What those assholes specifically mean is tax cuts for the rich and that is frankly bullshit. Wealthy McMoneyBags doesn't sit on something there is a demand for because taxes are too high for them, the douchebag isn't selling it because they are holding for a higher price, which tax cuts that they primarily benefit are unlikely to create; especially, when the price the want is beyond what the consumer is willing to spend.
I don't know if their is an actually economic term for the supply-side of things that hasn't been hijacked to mean tax cuts for the rich. If not, perhaps it's time one was created because at this point supply-side economics has been thoroughly made useless for anything but tax cuts in the public discourse. Given the issues we have, probably not worth fighting the wealthy assholes over it, since that just means they can keep the clock running on wealthy inequality.
Supply-side theory is bullshit because simply giving money to the rich doesn't encourage increase in supply but giving to consumers almost universally does encourage spending.
While I agree that the political forces that have laid claim to the term "supply-side economics", i.e. your "trickle down" types, are overstating the benefit of decreases in marginal tax rates, it's not like tax cuts are the only type of supply-side policy that exists. Investing money in education, for example, is also a supply-side policy. A nation's potential output is determined by the factors of production it has and the level of technology that's available. A common, simplified, theoretical expression of this is that the major components of potential output are:
Labor, Natural Resources, physical capital (structures, equipment, etc), human capital, and the level of technology.
A supply-side policy would be anything that attempts to boost those in our economy, e.g. investments in human capital (education), R&D funding (technology), etc.
Wealthy neighborhoods with superior school systems and infrastructure don't become that way from stimulus. They have higher income residents and they tax those higher incomes' property to build their neighborhoods.
Supply-side theory is bullshit because simply giving money to the rich doesn't encourage increase in supply but giving to consumers almost universally does encourage spending.
While I agree that the political forces that have laid claim to the term "supply-side economics", i.e. your "trickle down" types, are overstating the benefit of decreases in marginal tax rates, it's not like tax cuts are the only type of supply-side policy that exists. Investing money in education, for example, is also a supply-side policy. A nation's potential output is determined by the factors of production it has and the level of technology that's available. A common, simplified, theoretical expression of this is that the major components of potential output are:
Labor, Natural Resources, physical capital (structures, equipment, etc), human capital, and the level of technology.
A supply-side policy would be anything that attempts to boost those in our economy, e.g. investments in human capital (education), R&D funding (technology), etc.
Investment(govt or not) is typically on the demand side. I agree that those things are valuable but when economists say “supply side”, especially in the public vernacular, they do not mean “fiscal solutions but different fiscal solutions than what were doing now”. They mean “non fiscal solutions”
I am not current on the literature but this is my understanding of the body of new keynesian work as well. At least in terminology. If its not then you need a new terminology, because your policy prescriptions are being read as “reduce taxes and cut investment” and not “increase spending”
I'm interested to see how the "we can't find anyone to buy out shoddily built mcmansion in the middle of nowhere" boomer crisis end up resolving itself?
Partially empty lots that remain unfinished for the next 8 years
Same as the shopping mall that never was outside of Elk Grove
It was just a bunch of steel frame and exterior structure that wouldn't have looked out of place in a future segment in a Terminator movie
Supply-side theory is bullshit because simply giving money to the rich doesn't encourage increase in supply but giving to consumers almost universally does encourage spending.
While I agree that the political forces that have laid claim to the term "supply-side economics", i.e. your "trickle down" types, are overstating the benefit of decreases in marginal tax rates, it's not like tax cuts are the only type of supply-side policy that exists. Investing money in education, for example, is also a supply-side policy. A nation's potential output is determined by the factors of production it has and the level of technology that's available. A common, simplified, theoretical expression of this is that the major components of potential output are:
Labor, Natural Resources, physical capital (structures, equipment, etc), human capital, and the level of technology.
A supply-side policy would be anything that attempts to boost those in our economy, e.g. investments in human capital (education), R&D funding (technology), etc.
Investment(govt or not) is typically on the demand side. I agree that those things are valuable but when economists say “supply side”, especially in the public vernacular, they do not mean “fiscal solutions but different fiscal solutions than what were doing now”. They mean “non fiscal solutions”
I am not current on the literature but this is my understanding of the body of new keynesian work as well. At least in terminology. If its not then you need a new terminology, because your policy prescriptions are being read as “reduce taxes and cut investment” and not “increase spending”
I'm talking long-run aggregate supply shifts right. Basically economic growth literature, Solow and going forward. Capital investment shifts LRAS to the right. YsubN = AxF(K,L,H,N). The most vanilla of macroeconomics.
Yeah, of course the investment spending itself has AD affects as well. C + I + G + NX. But it increases potential output as opposed to being pure stimulus.
Supply-side theory is bullshit because simply giving money to the rich doesn't encourage increase in supply but giving to consumers almost universally does encourage spending.
While I agree that the political forces that have laid claim to the term "supply-side economics", i.e. your "trickle down" types, are overstating the benefit of decreases in marginal tax rates, it's not like tax cuts are the only type of supply-side policy that exists. Investing money in education, for example, is also a supply-side policy. A nation's potential output is determined by the factors of production it has and the level of technology that's available. A common, simplified, theoretical expression of this is that the major components of potential output are:
Labor, Natural Resources, physical capital (structures, equipment, etc), human capital, and the level of technology.
A supply-side policy would be anything that attempts to boost those in our economy, e.g. investments in human capital (education), R&D funding (technology), etc.
Investment(govt or not) is typically on the demand side. I agree that those things are valuable but when economists say “supply side”, especially in the public vernacular, they do not mean “fiscal solutions but different fiscal solutions than what were doing now”. They mean “non fiscal solutions”
I am not current on the literature but this is my understanding of the body of new keynesian work as well. At least in terminology. If its not then you need a new terminology, because your policy prescriptions are being read as “reduce taxes and cut investment” and not “increase spending”
I'm talking long-run aggregate supply shifts right. Basically economic growth literature, Solow and going forward. Capital investment shifts LRAS to the right. YsubN = AxF(K,L,H,N). The most vanilla of macroeconomics.
Yeah, of course the investment spending itself has AD affects as well. C + I + G + NX. But it increases potential output as opposed to being pure stimulus.
i am aware. But i dont think your fellow macroeconomists are promoting in in that way. Theyre more likely to say that govt investment crowds out and is a net negative rather than saying that it can have stimulating effects.
Supply-side theory is bullshit because simply giving money to the rich doesn't encourage increase in supply but giving to consumers almost universally does encourage spending.
While I agree that the political forces that have laid claim to the term "supply-side economics", i.e. your "trickle down" types, are overstating the benefit of decreases in marginal tax rates, it's not like tax cuts are the only type of supply-side policy that exists. Investing money in education, for example, is also a supply-side policy. A nation's potential output is determined by the factors of production it has and the level of technology that's available. A common, simplified, theoretical expression of this is that the major components of potential output are:
Labor, Natural Resources, physical capital (structures, equipment, etc), human capital, and the level of technology.
A supply-side policy would be anything that attempts to boost those in our economy, e.g. investments in human capital (education), R&D funding (technology), etc.
Investment(govt or not) is typically on the demand side. I agree that those things are valuable but when economists say “supply side”, especially in the public vernacular, they do not mean “fiscal solutions but different fiscal solutions than what were doing now”. They mean “non fiscal solutions”
I am not current on the literature but this is my understanding of the body of new keynesian work as well. At least in terminology. If its not then you need a new terminology, because your policy prescriptions are being read as “reduce taxes and cut investment” and not “increase spending”
I'm talking long-run aggregate supply shifts right. Basically economic growth literature, Solow and going forward. Capital investment shifts LRAS to the right. YsubN = AxF(K,L,H,N). The most vanilla of macroeconomics.
Yeah, of course the investment spending itself has AD affects as well. C + I + G + NX. But it increases potential output as opposed to being pure stimulus.
i am aware. But i dont think your fellow macroeconomists are promoting in in that way. Theyre more likely to say that govt investment crowds out and is a net negative rather than saying that it can have stimulating effects.
While that has only been my experience with the most hyperconservative of economists I chat with, for example even a "regular conservative" like Greg Mankiw seems to think that government spending on R&D increases LRAS, we are getting a little off track here anyway. The point I'm trying to teach is much simpler.
There is a widespread sentiment around here that tax cuts for poor people are always a good idea because poor people spend more of their income and that will grow the economy. While I think there are many fine arguments for given tax cuts to poor people, increasing consumer spending only grows the economy when there is an output gap. If we are at the natural rate of output already, we need the supply-side of the economy to move for economic growth.
EDIT: In simpler terms: I read a lot of comments around here that suggest LRAS is horizontal. I think it's a lot more reasonable to think of it as vertical.
Cutting taxes on those who have (almost) no money isn't the solution either, IMO. What we need to do is greatly increase taxes on those who have (almost) all of it.
Unfortunately, because they do, the latter can just say "nah". And that's the end of it, until and unless we hit some tipping point.
Supply-side theory is bullshit because simply giving money to the rich doesn't encourage increase in supply but giving to consumers almost universally does encourage spending.
While I agree that the political forces that have laid claim to the term "supply-side economics", i.e. your "trickle down" types, are overstating the benefit of decreases in marginal tax rates, it's not like tax cuts are the only type of supply-side policy that exists. Investing money in education, for example, is also a supply-side policy. A nation's potential output is determined by the factors of production it has and the level of technology that's available. A common, simplified, theoretical expression of this is that the major components of potential output are:
Labor, Natural Resources, physical capital (structures, equipment, etc), human capital, and the level of technology.
A supply-side policy would be anything that attempts to boost those in our economy, e.g. investments in human capital (education), R&D funding (technology), etc.
Investment(govt or not) is typically on the demand side. I agree that those things are valuable but when economists say “supply side”, especially in the public vernacular, they do not mean “fiscal solutions but different fiscal solutions than what were doing now”. They mean “non fiscal solutions”
I am not current on the literature but this is my understanding of the body of new keynesian work as well. At least in terminology. If its not then you need a new terminology, because your policy prescriptions are being read as “reduce taxes and cut investment” and not “increase spending”
I'm talking long-run aggregate supply shifts right. Basically economic growth literature, Solow and going forward. Capital investment shifts LRAS to the right. YsubN = AxF(K,L,H,N). The most vanilla of macroeconomics.
Yeah, of course the investment spending itself has AD affects as well. C + I + G + NX. But it increases potential output as opposed to being pure stimulus.
i am aware. But i dont think your fellow macroeconomists are promoting in in that way. Theyre more likely to say that govt investment crowds out and is a net negative rather than saying that it can have stimulating effects.
While that has only been my experience with the most hyperconservative of economists I chat with, for example even a "regular conservative" like Greg Mankiw seems to think that government spending on R&D increases LRAS, we are getting a little off track here anyway. The point I'm trying to teach is much simpler.
There is a widespread sentiment around here that tax cuts for poor people are always a good idea because poor people spend more of their income and that will grow the economy. While I think there are many fine arguments for given tax cuts to poor people, increasing consumer spending only grows the economy when there is an output gap. If we are at the natural rate of output already, we need the supply-side of the economy to move for economic growth.
EDIT: In simpler terms: I read a lot of comments around here that suggest LRAS is horizontal. I think it's a lot more reasonable to think of it as vertical.
That's a pretty significant if, though, and one I do not really see as meritorious. We haven't had an accelerating rate of wage/price inflation since the late 90's. That was a literal generation ago. Inflation can hardly break 2% now, and top line unemployment is ~4%. There's a disconnect somewhere (or a lot of somewheres) that suggest a significant gap still exists. Likely from hysteresis over the '08 collapse, but possibly other factors including monopsony in a lot of sectors. Regardless, the risk of overheating the economy seems pretty low compared to keeping it tepid. It would also help to undo some of the damage from a decade of underperforming.
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https://www.capitaleconomics.com/publications/us-economics/us-economics-update/737-max-woes-will-continue-to-weigh-on-gdp-growth/
It's not that simple. Our economy has a supply side and a demand side. A simplified expression of Keynesian economics (I consider myself a New Keynesian) is that stimulating demand (spending) is useful in boosting real GDP (growth) when the economy is operating below its potential level of output. However, boosting supply (land, labor, capital, technology, etc) is necessary for growth beyond closing the gap between actual and potential GDP.
To me, saying that giving consumers money to boost the economy is always the right move is just as silly as the supply-siders who argue that lowering marginal tax rates is always the right move. The correct policy depends on current economic conditions.
I'd argue the bump was mostly the election concluding. Uncertainty stagnates markets and simply knowing who won gives you some idea which horses to start betting on.
While true, the fact that there has been a demand side deficit and supply side glut for some 20 odd years makes it more of a 'technically' the case. Inflation hasn't really been a concern for the whole of my working life, and doesn't seem likely to be a concern for quite some time still.
Yeah but if demand increases, supply will also increase because as the demand increases, the cost for the good/service will go up, and more people/companies will want to enter the market because of the greater price.
Supply can be constrained by exogenous factors. Drought, famine, locusts, war (closing the Straits of Hormuz will immediately spike oil prices, which touches literally everything), or more banalities like regulations or Government policy. No amount of demand will allow the corner Walgreens to stock Cuban cigars, or the tony suburbs to build midrise affordable apartments.
This is what $900,000 buys you in San Jose.
Demand is not always were supply can reach though.
For example, there is little doubt the affordable housing and rent is something there is a demand for, but the demand is largely in places were demand for housing in general is high, so prices are usually above what people can afford, forcing them to live outside of the city and further away from well-paying jobs.
That's probably one example were supply-side could be the answer, though more precise than just "give people who build houses more money to build more houses."
That's because rich people occupy too much space not because there isn't enough space.
Yes that is why it was one of my examples that you then said was nearly impossible to cause.
The shortage in housing supply is largely not artificial and the best way to address it is absolutely supply side stimulus, ie building more housing.
What are you defining as "too much space" and what does that even mean?
Land is a quantity that is supply constrained. Heavily so when it comes to land people actually want.
When we talk about need for new housing stock, it's new housing stock on the same amount of land.
Law is a very real exogenous constraint, not a false one. Changing the law to legalize new housing is also a very real supply side stimulus that would go a long way to solving the issue. (Though not all the way. Market urbanism needs social housing assistance to produce affordability.)
Buy apartment building with 20 units
knock down half the walls.
Sell 10 units for much higher rate.
Regulation reform is supply side stimulus!
Also, buy multi-acre lot and put a 12,000 square foot home with 10 bathrooms on it for me and my family of 5 to live in.
With a bunch of abandoned homes and people having lost however much wealth they put into those homes.
We'll see as similar problem with a lot of just "normal" suburbs in general as various costs (maintenance, fuel, etc) rise and subsidies (implicit or explicit) diminish and the whole project becomes less sustainable.
What does this have to do with my question?
While I agree that the political forces that have laid claim to the term "supply-side economics", i.e. your "trickle down" types, are overstating the benefit of decreases in marginal tax rates, it's not like tax cuts are the only type of supply-side policy that exists. Investing money in education, for example, is also a supply-side policy. A nation's potential output is determined by the factors of production it has and the level of technology that's available. A common, simplified, theoretical expression of this is that the major components of potential output are:
Labor, Natural Resources, physical capital (structures, equipment, etc), human capital, and the level of technology.
A supply-side policy would be anything that attempts to boost those in our economy, e.g. investments in human capital (education), R&D funding (technology), etc.
You're thinking of the supply of a specific product. If its relative price increases, ye old law of supply and market entry kick in (constrained perhaps by barriers to entry or a hard limit on supply). A nation's potential output is limited by its resources and technology. If we are below that potential (recession), then yes "demand creates its own supply" as idle resources are brought online. But once you are at full-employment, additional demand becomes inflationary.
If economies could grow simply by stimulating demand, developing economies wouldn't be able to grow so much faster than advanced economies. We could just spend our way to economic progress. But outside the occasional technological breakthrough, we are limited to something on the order of 3% growth per year.
I don't know if their is an actually economic term for the supply-side of things that hasn't been hijacked to mean tax cuts for the rich. If not, perhaps it's time one was created because at this point supply-side economics has been thoroughly made useless for anything but tax cuts in the public discourse. Given the issues we have, probably not worth fighting the wealthy assholes over it, since that just means they can keep the clock running on wealthy inequality.
battletag: Millin#1360
Nice chart to figure out how honest a news source is.
Wealthy neighborhoods with superior school systems and infrastructure don't become that way from stimulus. They have higher income residents and they tax those higher incomes' property to build their neighborhoods.
@enc0re
Investment(govt or not) is typically on the demand side. I agree that those things are valuable but when economists say “supply side”, especially in the public vernacular, they do not mean “fiscal solutions but different fiscal solutions than what were doing now”. They mean “non fiscal solutions”
I am not current on the literature but this is my understanding of the body of new keynesian work as well. At least in terminology. If its not then you need a new terminology, because your policy prescriptions are being read as “reduce taxes and cut investment” and not “increase spending”
Partially empty lots that remain unfinished for the next 8 years
Same as the shopping mall that never was outside of Elk Grove
It was just a bunch of steel frame and exterior structure that wouldn't have looked out of place in a future segment in a Terminator movie
I'm talking long-run aggregate supply shifts right. Basically economic growth literature, Solow and going forward. Capital investment shifts LRAS to the right. YsubN = AxF(K,L,H,N). The most vanilla of macroeconomics.
Yeah, of course the investment spending itself has AD affects as well. C + I + G + NX. But it increases potential output as opposed to being pure stimulus.
i am aware. But i dont think your fellow macroeconomists are promoting in in that way. Theyre more likely to say that govt investment crowds out and is a net negative rather than saying that it can have stimulating effects.
While that has only been my experience with the most hyperconservative of economists I chat with, for example even a "regular conservative" like Greg Mankiw seems to think that government spending on R&D increases LRAS, we are getting a little off track here anyway. The point I'm trying to teach is much simpler.
There is a widespread sentiment around here that tax cuts for poor people are always a good idea because poor people spend more of their income and that will grow the economy. While I think there are many fine arguments for given tax cuts to poor people, increasing consumer spending only grows the economy when there is an output gap. If we are at the natural rate of output already, we need the supply-side of the economy to move for economic growth.
EDIT: In simpler terms: I read a lot of comments around here that suggest LRAS is horizontal. I think it's a lot more reasonable to think of it as vertical.
Unfortunately, because they do, the latter can just say "nah". And that's the end of it, until and unless we hit some tipping point.
That's a pretty significant if, though, and one I do not really see as meritorious. We haven't had an accelerating rate of wage/price inflation since the late 90's. That was a literal generation ago. Inflation can hardly break 2% now, and top line unemployment is ~4%. There's a disconnect somewhere (or a lot of somewheres) that suggest a significant gap still exists. Likely from hysteresis over the '08 collapse, but possibly other factors including monopsony in a lot of sectors. Regardless, the risk of overheating the economy seems pretty low compared to keeping it tepid. It would also help to undo some of the damage from a decade of underperforming.