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Author: aleax Big gold star, 5000 posts Top Favorite Fools Global Fool Pro Community Winner Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 459259  
Subject: Re: VW Chattanooga blowback Date: 2/24/2014 12:58 PM
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You and your source may see this as supply side policies, but I see them as demand side policies.

You may choose to "see" iced tea as being hot, but that does not in fact change its temperature in the least; it just makes you eccentric on this point, and damages the chances of having meaningful exchanges of information and opinions with you on the subject of hot versus cold beverages in general.

By definition, the demand side of any policy is the one concerned with the policy's effects on the effective demand for goods and services (one normally thinks of policies meant to increase demand, but policies meant to decrease certain kinds of demand can be demand side as well of course -- for example, when inflation threatens, the Fed can raise interest rates to try and decrease the demand for borrowed money).

Similarly, the supply side of any policy is the one concerned with the policy's effects on the effective supply of goods and services (one normally thinks of policies meant to increase supply, e.g by improving productivity via infrastructure enhancements, but policies meant to decrease certain kinds of supply can be supply side as well of course -- for example, Federal subsidies to farmers for destroying crops or leaving land fallow are attempts to decrease the supply of certain agricultural goods).

Of course supply and demand are related (though not quite as strictly as Keynes' caricature of Say's Law, "supply creates its own demand", over-asserts). If demand increases with constant supply, the resulting rise in prices will in turn provide economic actors with incentives to improve supply; if driving from A to B becomes faster and cheaper thanks to a new or improved highway, it enhances productivity and thus supply of transport services, thus reducing the cost of the services, and the cost reduction in turn will increase the demand for such services and the goods that are instrumental in providing them.

But analyzing supply-side and demand-side effects of a policy (or event, e.g a baby boom would have both demand and supply side effects over the course of the years) is nevertheless useful, indeed indispensable, for sound macro-economics.

On the other hand, Humpty-Dumpty-like defining of a word or phrase to mean "just what you choose to mean, neither more nor less" is neither helpful nor at all necessary.


Yes just about every economist accepts the need for such dynamic policies, but that does not make all economists thinking that way supply siders at all.

Any good economist studying a phenomenon or policy will presumably analyze and relate both the supply and the demand side effects thereof; otherwise, unintended and unpredicted consequences are extremely likely.

The major policy difference between supply side and demand side policies is expediency.

Nope, it is whether they're focused on affecting supply, or, respectively, demand.

If it is expedient like cutting a rich man's taxes or that of a corporation the results show up real fast. If it takes time to wait on more business by raising minimum wage the results take longer to be reflected, but the policy can be far better for the nation.

Bush's 2008 tax rebate checks (at a cost to the Treasury of $168 billion) was quite expedient and popular [*] (and indeed passed with a strong bipartisan majority in Congress) but nevertheless clearly and entirely a demand side maneuver -- it couldn't really affect supply going forward because it did not change future taxes, but rather it rebated to all taxpayers a fixed amount ($600 per adult, plus $300 per child) of taxes previously withheld from them; so everybody got a check in the mail and presumably spent it, immediately stimulating demand (the multiplier for that maneuver has been estimated at around 1.2, so a relatively successful demand side maneuver).

[*] except maybe with "rational expectations" theorists who claimed the checks would not be spent but saved -- and based on actual measurements of the effects appear to have been wrong

So any attempt to define demand and supply sides in terms of expediency are, clearly, not well-founded. Results, depending on details of a certain policy, maneuver, or event, can be either fast, or slow, quite independently of whether intents and effects are supply- or demand-side.

I am sick for the last few days. So at this hour I wont belabor the point.

Get well soon!
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