Supply Side?

The jobs report in December was a bit disappointing but one month is not a trend.

The impact of the tax breaks on employment will only be seen over time.  This is a supply side approach where reducing the cost of production leads to cheaper products and more consumption.

It looks good on a graph but is that how it actually works in real life?

If there are products that people would buy if they could afford them, lowering those prices would result in a purchase.  The question is how significant is that event and do the lower prices make sense for the manufacturer.

If you accept the supply side theory it implies that manufacturers are eager to expand production an accept lower profit margins for the sake of market share.  This may be true in some cases.  However, expanding production and hiring more workers, the essential part of the theory is risky.

Expanding is a risky endeavor and hiring workers is a bit of a commitment.  Each industry is of course different but the other factor is simply will the demand materialize?

Take something like smartphones.  Market saturation is close and the future seems to be in developing new features rather than making the product cheaper.  There are already cheaper alternatives available so how much incentive is there for the market leaders to reduce prices in the hope of greater market share instead of simply increasing profit margin?

I don't think its much.

A lot of these theories seem to assume that demand will simply materialize but if America is a fairly mature market will limited population growth, I would wonder where this demand is coming from?

Certainly some new demand may be generated by lower prices but is it going to stir the type of economic growth we would need to offset the loss of revenue?  I don't see anyone predicting that and it doesn't seem remotely likely.

Increased profits is very likely and the stock market reflects that.

More jobs?  Maybe a few.

More debt?  Quite a bit and a likely attack on entitlements nearly certain.

Boring Economics

It looks like this so called tax and jobs bill is going to pass and be signed even though there are no jobs in it.

Don't get me wrong, some people will be able to afford additional domestic help around the mansion, but as far as jobs that help working class Americans its all smoke and mirrors.

Of course the monkeys in the monkey house buy into a concept that America can achieve the type of growth it did in certain past periods including a number of notable economic eras.

There was a lot of growth during and after the world war with the amount spent to fight the war and afterword's with the veterans education and interstate highway as well as the fact that American manufacturing had a bit of a monopoly while the other industrial powers rebuilt.

You then had the baby boom generation entering the workforce and a increase in defense spending that continues to this day.

So what inspires growth?

Spending, by Government or Consumers.

Businesses don't make products they can't sell or expand facilitates to make products no one needs.  The supply side premise is based on the supply and demand chart, but the concept that supply can drive the chart is a conservative concept that is a mathematical construct, not a real one.

While decreasing the cost of items (supply) theory will have an impact on demand, limits exist.

Agriculture is a good example since years when crops exceed demand are not generally very good years for farmers, in fact it makes them lose money.

Simply reducing the cost of production doesn't mean there will be more production, unless there is more demand.

More demand is driven by more consumers since any one consumer can only consume so much.

Further, as our demographics age you have baby boomers leaving their peak earning years and consuming less.

Will the boost to corporations bottom lines somehow change all this?  Well since the people who run businesses aren't generally monkeys and dotards, the answer is only if customers appear.

It might have some impact on exports but as far as greatly increasing our GDP, by itself, its just going to make rich people even richer.

Happy Reindeers!

The Republicans buy into the idea that if you reduce the cost of supply, prices will get cheaper and more items will be bought.  This increase in economic activity will lead to more jobs, more income and a better economy overall.

There is a certain validity to this, especially when the economy is sluggish and there are available idle facilities.

However, businesses invest money where they can get the most profits and as we have seen over the last few decades, the main returns are in overseas manufacturing and automation.

To the extent that people are suffering in this economy it is the people who were replaced by cheaper overseas labor or robots.

Statistics on income inequality generally focus on the top end and point out how the top 1% have a large percentage of the wealth.

As true as this is, the inequality is much more basic and visible.  Few people get to see the very wealthy on a regular basis.  However the economy now pays its well educated technical and business people quite well, although they don't think so and these people live in safe suburbs, with children in good schools and they eat at good restaurants and generally enjoy what is middle to upper middle class life.

I'm not talking about the heads of the company, just the talent that demands good pay and bonuses.

Meanwhile in the next town we have our displaced factory worker where both parents are working at low paying jobs, or government benefits, kids in private school and struggling to afford a few presents at Walmart, where they may get an employee discount.

The one group gets paid in the hundreds of thousands and the second group in the tens of thousands.

The first group may very well buy another new car if the prices go down, the second group may have to replace the used car they drive if it breaks down.

Not too long ago, the lesser paid group had jobs that bordered on the higher paid groups pay scale in auto plants and steel mills.  They were however not a good investment and so they lost most of those jobs and find themselves working in the service industry or not at all.

There is nothing in supply side theory that is going to restore these jobs.  It looks like the business tax cuts are going to happen and the odds of any dramatic changes in the economy are slim. However, in fairness, predicting the economy is pretty much a crap shoot so while a recession is more likely than a boom, stock prices will rise since profits are looking brighter.

What happens to those Walmart Happy Reindeers when the season is over?