Chickens, Eggs, Supply & Demand

By the time this is being read, the Debt Deadline will have been crossed. While I would welcome the catharsis of having my cynicism meet the fate of a bug on the windshield of common sense, I fear this bug will still be dancing over the garbage.  Either we’ll be in the throes of unprecedented austerity trauma or, more likely IMO, having kicked the can down the road in some smoke-and-mirror compromise, we’re back to the chest-thumping, finger-pointing, sound-bite-spewing, (sur)reality show version of governance.

The spotlight on political/fiscal hi-jinks in this flicker of the news cycle is justifiable, but it’s the sideshow, the undercard or warm-up for the featured act.  Fiscal responsibility is a necessary, but insufficient antidote to economic cancer wreaking havoc to our institutional organs.  Under the big tent and in the center ring the main event has yet to unfold: just what will be the nature of the post-industrial American economy? 

Some paraphrased quotes from the Blogosphere:

“Technical jobs are disappearing, factory jobs are disappearing; anything that can be done outside of the country is disappearing.” … “The future of this country looks more and more that the only kind of work that will be available is in the service industry where someone actually has to be here to do those jobs.”

I’m not sure which generic statement scares me most; the first, a phenomenon I have been lamenting for decades, or the second—putting all your eggs in one wet paper bag.

Concerning the latter, service industries, public (education, public safety, transportation, health-care, etc.) or private (accounting, finance, even retail) cannot constitute a self-sustaining economy.  They cannot flourish long-term without a market to “serve” from outside the service sector—a population producing tangible goods.  Do the math.  If all employed service workers recycled all their salary on service—theirs and others  (they can’t of course, they must purchase goods to live)—where would the overhead costs for the service industries come from?

Whatever the tax structure—and God knows there is a desperate need for tax reform—sustenance can only be provided by growing the GDP.  Both parties talk the “growth” game—ultimately the only source of increased employment and the resultant revenue necessary for services both public and private—but unfortunately, only in the jingoist rhetoric of class warfare.

I don’t understand the appeal to anyone without a Bentley of this upper class “job creator” myth.  Spun from a perpetual Republican misunderstanding of supply-side economics, this corollary Republicans since Reagan have obsessed with is that “Laffer Curve” that says there is some optimal tax level which maximizes revenue. (too high it stifles growth, too low it gathers only crumbs).  Whether or not there actually is an optimum, the assumption that the optimum always lies below wherever we are seems never to be questioned by these true believers.  Probably they don’t care about optimizing at all and gathering only crumbs is the objective.

I do understand the desire, at least, to cling to the myth of deficit spending as stimulus, especially if it is someone else (those corporate jetters) footing the bill for the benefits one has become accustomed to.  “If those guys are supply-siders, we must be demand-siders” this argument seems to go.  Throw enough cash out there and the resultant demand for goods & services will grow the economy.  Except that it doesn’t—for two reasons.

One: most government spending, satisfies demand; it doesn’t create it. The 2009 “Stimulus Package” spending didn’t by any measure stimulate.  It probably saved jobs—primarily public sector jobs—by kicking state budget crises a year or two down the road.  Maybe that was necessary and we would have been otherwise worse off, but alternate universes are impossible to confirm and futile to deny.

Secondly, I am beginning to think that the supply/demand, chicken or egg cycle begins with the egg (supply).  An egg preceded the first chicken, a mutant descendent from its genetically distinct proto-chicken ancestor.  This is essentially a supply-side argument independent of the distraction of the infamous and possibly irrelevant Laffer Curve.  Supply does IMO create demand, and not just demand for the product supplied, but a compounding effect of spin-off production, demand and economic growth.  The availability of smart phones created a demand for Apps and in turn an increased demand for smart phones, etc.   This is growth, quintessential growth.

To grow the GDP we need to produce real stuff, and we have to produce it with our own hands and minds, not surrogates from afar.  The “offshoring” issue is crucial and very complicated.  Again we are besieged by a food fight over taxation (tax off-shore profits vs. reduce domestic corporate tax) when the GAO reports that “the higher education level of foreign workers in technological fields” trumps tax policy among the prime factors in manufacturing outsourcing.

Now there’s a supply-egg hatching a demand-chicken.  Maybe a stimulus is in order.

 

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