This encapsulates the entire problem with supply side tax cuts: if you cut taxes on the supply side without doing anything for the demand side, then the supply side has absolutely no incentive to increase supply. This means prices won’t go down, and employers won’t hire new employees to produce more goods: there’s no need b/c there’s no extra demand. A supply side tax cut without a comparable boost to the demand side simply increases profits for the owners of capitol. It’s elementary economics.
Just think about it: supplies pay less taxes, but the demand for that supply is unchanged. So there’s no economic reason for supply to increase, which means no economic reason to hire more workers, and also no reduction in consumer prices due to increase supply.
This has always been clear to anyone with even a mid-level understanding of economics. It astonishes me that the obviously incorrect model of “trickle down economics” continues to be espoused after 45 years of failing to deliver on its promises.
The idea was to “promote investment” by increasing the capital supply. OK, but without any increase in demand all that does is increase the return on capital; it does not actual “super-charge” the economy. In general terms, if you want to “super-charge” the economy you would provide boosts to both supply and demand, by, you know, maybe borrowing money at low treasury rates and investing in long term productivity boosts like infrastructure, health care and education. Pump money to workers increasing demand and at the same time buy the goods and services of suppliers, providing more profit to invest.
It is true that if you are in a period of big capital shortage with high interest rates, a direct boost to the supply side, is probably necessary to increase the capital pool and make possible an expansion. But at the same time, you need to boost demand to complete that cycle. Trickle down economics is like supercharging an engine by pumping up the intake and doing nothing for the exhaust. Yeah, you’ll get a small short term boost, but, um, that whole cycle thing is not going to work long term.
And when interest rates are low, and the capital pool is ginormous, like now. you don’t even need to boost supply directly: the increased profit produced by increased sales to meet increased demand will fund expansion. (That’s an example of how a credit/finance model works. Wall Street is actually pretty damn good at this step.)
Bah, I’m just repeating myself. Because this is so easy and obvious, and yet they keep peddling it.
