Obama Demand-Side Economics Fail?

Discussion in 'Economy' started by eagleseven, Aug 2, 2009.

  1. eagleseven

    eagleseven Quod Erat Demonstrandum

    Jul 8, 2009
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    I've heard many both in the media (Paul Krugman) our government (Geitner, Paulson) say that Keynesian stimulus and Demand-Side economics is the way to solve our problems.

    They are wrong.

    Why? For a simple fact that modern Demand-siders ignore, a feature Keynes never had to consider when he formulated his theory.

    Americans now import more than we export.

    The fundamental idea behind Demand-Side economics is this: giving cash to consumers increases demand, which increases prices, and eventually profits, allowing for an expansion of production and thus the economy.

    In Keynes' time, America produced more than it consumed, and so any money given to consumers went directly to American factories.

    Today, we import more than we export. Thus, when the average lower-middle-class family gets a Stimulus check, they will go to Wal-Mart and purchase goods made in China. Rather than seeing American retail, manufacturing, and raw resource production industries benefit from the Stimulus, China sees the majority of the benefit.

    This is why Demand-Side economics, and the Stimulus, are failing modern America. By stimulating demand via redistribution programs like the stimulus, we are primarily stimulating countries like China, Japan, and Mexico. Since Americans would rather buy the cheaper, readily-available imports, American producers never see the Stimulus money, and so they don't earn the profits they need to expand. No American profits means no new American jobs.

    Thus, American producers cannot expand and create new jobs, which means unemployment stays high. Surprise surprise, unemployment continues to skyrocket despite all our Demand-Side stimulus.

    Understanding this, can we be surprised that Washington is calling this a "Jobless Recovery?" As long as Obama follows the obsolete Demand-Side economics, his efforts will continue to fail and we will continue to fall.

    P.S. Nor am I advocating for Supply-side economics. Both Supply and Demand need to maintain proportionality, or else any economic growth will be unstable and lead to bubble-formation.
  2. PoliticalChic

    PoliticalChic Diamond Member

    Oct 6, 2008
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    Brooklyn, NY
    Yes and No.

    A basic tenet of American capitalism is that supply precedes demand, as can be see in the case of all airports being closed down: the long lines of people unable to get to their destinations is the demand that cannot be fulfilled. This is why entrepreneurs must be given a free hand to produce, to speculate, as the building of more and mere airports will lower prices, increasing demand. This is especially true in the case of new technologies.
    Both high taxation and over regulation place a damper on this freedom.
    “The proceeds from these speculations ? the capital paid for stocks and bonds ? may seem misspent. In the long run, the results are called infrastructure, and they are what economies are built on.”
    “Many European postal systems, telegraph lines and railroads were built with government money, and sometimes with insufficient capacity. But in the United States, instead of burdening taxpayers, we sell investors the equivalent of high-priced lottery tickets each time one of these technologies arrives.”
    In Technology, Supply Precedes Demand - The New York Times

    And the United States of America is the largest exporting country in the world, by a factor of two-to-one over the next largest.

    1. The US is the 3rd largest exporter of goods (8.3%) , after Germany ( 9.5) and China (8.7)
    2. The US is the largest exporter of services (13.9 %) followed by UK (8.3) and Germany ( 6.6)
    3. Taken as a total of goods and services, the US is more than twice as prolific as the next nearest nation.

    This is not meant to say that the US does not import more than export, just that there is a strong element of employment in the export areas.

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