Ronald Reagan promoted a “supply-side economy,” focusing on increasing the supply of goods and services, thereby bringing prices down and increasing prosperity. Donald Trump is promoting what could be called a “demand-side economy,” cutting supply while increasing demand, thereby increasing wages and raising prices.
Here is what conservative economics columnist Robert Samuelson says of this classic liberal tactic:
We tried this in the ’60s and ’70s, and it failed abysmally. It led to double-digit inflation, frequent recessions and public demoralization. No matter. Trump is moving toward this sort of inflationary system by raising the economy’s demand and constricting its supply.
Here’s Trump’s check list.
First, pass a large tax cut financed by more borrowing. Check. The Tax Cuts and Jobs Act will reduce taxes by $1.5 trillion over a decade and be financed by larger deficits.
Second, increase government spending without, of course, offsetting extra demand with higher taxes (see above). Check. The recent budget plan is estimated to raise federal outlays by another $1.5 trillion over a decade.
Third, reduce government regulations, making it easier to begin new investment and construction projects. Check. This, too, would raise demand, though estimating how much is hard.
Fourth, limit competition from foreign workers and businesses by restricting immigration and imports. Check. From the border wall to rescinding Deferred Action for Childhood Arrivals, the administration has been anti-immigrant. Likewise, it has been protectionist; last week Trump announced new tariffs on steel and aluminum imports.
These various policies are familiar. What’s less familiar is their collective impact, which (again) is to stimulate demand and shrink supply.
[Keep reading. . .]
Such policies, says Samuelson, have been favored by the left because they seem to help less-skilled workers. But the consequent inflation ends up hurting them the most. We learned that in the 1970s. (Does anyone remember those days of ever-higher prices and shortages in the stores? I do.) Do we really need to learn that lesson again?
Photo by David Falconer, 1973-1974, (USA Flicker stream) [Public domain], via Wikimedia Commons
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