Last communication on this (I hope):
Please excuse simple grammer and simplifying of concepts (w/ details left out) for simplicity as I am short of time and want to be clear.
Keynesianism would say tax cuts w/o accompanying spending cuts will stimulate economic growth.
Supply sider would say tax cuts (period) will stimulate economic growth.
Cut to real world: Taxes cut. Economic growth occurs.
Keynesian explanation = govt spending while taxes were cut (and $ stayed in public pocket and got spent) increased aggregate demand over what it would have been w/o the tax cut.
Supply side explantion = tax cut increased incentive to produce leading to increased supply.
Which is right? Impossible to prove. Besides, when price and production are produced by a free market, supply = demand. How can one know which really drove the other?
Supply side proponent would say demand didn't drive economy cause demand should have pushed up inflation. True, in theory, IF there is nothing else but demand which will affect inflation. In academic theory, one can assume this or anything else. But in real world, there is really something else affecting inflation - Fed. Res.
To me, demand explantion makes more sense. What business decides to increase goods/svcs produced because it's tax rate is now lower? In real life, businesses produce more only because they think they can sell more above marginal cost - this means they think demand will be there for more of their goods/svcs. Business responds to perceived, anticipated demand. That's my experience. I've seen (& experienced) energy projects (mines) built on spec and the result was generally disappointing. Better to have contract in hand, then get out and get capacity to supply it.
You are a free lance writer, I believe. Would a 50% drop, say, in your income tax cause you to write more for pay? I suspect it might make you more likely to write less for pay as you have more $ in your pocket and need the income less. Or perhaps, to spend more on travel or something (hey, that would produce more demand for travel, lodging svcs, or whatever wouldn't it?)
What would get you to produce more (i.e. increase supply)? Well, a new customer for your written work might, I would guess. Or a past customer wanting more material from you (customer demand, again).
Just my thoughts - please excuse stripped down language. |
