The graph below was so unintelligible to me that I fled Economics after the first class in high school. I never looked back.
Not until I read “Basic Economics” by Thomas Sowell. It made all the difference.
Anyway, I digress…
The demand of goods and services and their supply decide the price that is charged for by the providers and paid for by consumers.
In any economy, supply has to increase to keep pace with the high demand for goods and services.
For providers of such goods and services, this is a good thing – it hopefully means more revenue (as long as they are operating at a profit).
Increased supply means owners of companies that produce these goods and services have to increase output. This can be done by automating processes and/or hiring more workers.
So, increased demand can lead to more work for the population.
What can lead to an increase in demand? Affluence and population growth are two things that come to mind.
Which brings me to the question – can either supply or demand be influenced selectively to affect an an economy?
The “Supply-siders” want to make it easier for business to produce goods and services with lower taxes and less regulation. They hope that these measures will spur businesses to expand production which can lead increased hiring. The increase in the number of working people will only increase the number of people with demands for goods and services.
The “Demand-siders” want to leave more cash in the hands of consumers to increase demand. The belief is that an increase in demand will force businesses to produce more. This will hopefully necessitate hiring more workers. The increase in the number of working people will only increase the number of people with demands for more goods and services.
Ronald Reagan is famous for believing in the “Supply-Siders”. He cut taxes which were in the 60-70% range and created a rather friendly business environment. Many credit the turn-around to those “supply-side” policies.
Many contend that the policies of this present administration are on the demand side. The Stimulus package, unemployment benefits, payroll tax-cuts – these are all geared to stimulate more spending i.e. increase demand. The theory is the increased demand will in turn stimulate the supply side and with that the jobs will come.
For some reason, the theory does not seem to be panning out. Was the stimulus too little? Do we need more on the demand side or do we now switch over to the supply side? Is it one or the other?
Remember, I am not an economist…just someone with a lot of questions and very few answers.
Going back to the demand versus supply question, two thing skew the attempts of the “Demand-Siders”. Sure an increased demand leads to increased supply.
The problem is that the supply of goods especially is coming from outside the US – most manufacturers have moved jobs offshore. So that boost in hiring is seen outside the US.
Then is the issue of increased and improved productivity due to technology. A few workers can do a lot more.
Can we manipulate the supply side to improve the employment picture?
Well, we could create conditions in the US that attract manufacturing jobs back. Good Luck with that. Foxconn is the Chinese company that manufactures Apple’s iPad. The monthly wage there is between $168 to $176!
Beside, most corporations are very profitable even in these tough times – American corporations are sitting on some trillions of cash!
So, the answer may not be either on the supply side or the demand side.
Maybe the answer is in the creation of a whole new industry. An industry with jobs that cannot go offshore. An industry whose product or service can really revolutionize our lives.