I've read that supply side economics is a theory that states that supply creates demand. A bit strange considering that overproduction has always been a big problem for manufacturers. Perhaps there's something else meant by 'supply-side' economics, known by only a few: The Law of Supply and Demand describes a simple bidding system, whereby, it is assumed that the supplier of a product has some abundance of that product and want to sell it for maximum profit. So they make it available on the market. Buyers effectively bid on it. The more a buyer needs it or wants it, the more they are willing to pay for it. Now, it is also assumed that there are costs to seller associated with not selling the product, so the seller will tend to lower the price in order to sell off all (or nearly) of the product. These force the amount paid in the supply vs. the demand for the product to balance out in a way that maximizes profit for the seller while holding the price down for the buyers. In a hypothetically perfect economy this is how it would be, but not in the real world: What happens to the law of supply and demand when there is one portion of the people who have outrageously more wealth than the majority of the people? The law of supply and demand falls apart. In a society that has a huge disproportion in the wealth distribution, the wealthy can and do spend more for a product than it would otherwise sell for in a society of relative equal wealth. Why do the wealthy spend more? Prestige, whims, and just because one dollar and a thousand dollars isn't very much different to them. So what happens to the supply side? More production costs more to the produce. By increasing the profit per unit sold the producer/seller needs to produce less to make an equal profit. So they cut back on production and lay people off - sending the economy into a recession. Of course, since they control the supply side of the law of supply and demand, they get to determine how much is produced and for as long as there are wealthy people out there, to set the price at whatever they'd like - unless of course there's a chance of political repercussions leading to government regulation. This in turn lead to a situation where the producers/sellers become the very same wealthy class that is willing to pay enormous prices. In the end the society is divided between two economies - one for the wealthy and one for everyone else. Large corporations, with irresponsible managers along with government willingness to pay inflated prices contribute to this problem. Now, the typical answer to this assertion would be: free market competition. Nope. Business people in a free market aren't stupid. The last thing they want is to cut their own throats. So free market competition doesn't drive prices down the way it should. In fact, most markets are divided between three to about six major players, and though they may compete a little for small changes in market share, they only really need to lower prices enoughto make it unattractive for new competitors to enter the market. Besides that they keep the prices high as they can. And so why hasn't the economy collapsed? Well, it finally did. The reason that it took so long to collapse after supply-side was initiated was due to CREDIT. Credit served to falsely keep our economy afloat by giving the working class more buying power than they could really afford. This resulted in a slow but steady trickle up of wealth in the American economy.