The Supply Side is the Only Side!

Posted by $ mshupe 11 months, 1 week ago to Economics
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Lower monetary earnings without money creation represent a higher standard of living than do higher monetary earnings with them. Even in the absence of money creation, lower national income signifies a more rapid rate of increase in wealth and improvement in human well-being than does a higher national income.

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  • Posted by $ 11 months, 1 week ago
    From the article, this seems to also apply to the fallacy of trade deficits, and why imports subsidized by foreign governments create wealth in the US economy . . .
    "Every participant in the economy is aware of the effect of things on his own specialization. Yet he does not stop to consider their effect on other specializations. The failure to look beyond one’s specialization is the confusion between money and wealth."
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    • Posted by TheRealBill 11 months, 1 week ago
      For me I think a lot of this is really industrialism versus capitalism and the grand confusion around the two.

      From an industrial point of view, foreign subsidies of products into a different country is always a net positive because the spread of the industry grows. From a capital perspective, its conditional.

      If those subsidized goods are used to directly increase the capital output of the receiving company, it is a clear positive for capitalism. However, if that subsidy artificially drives price of the domestic production to the extent that capital suffers, then it would be a net harm.

      The quote about specialization speaks to that, IMO. Importing cheap plastic toys from China (subsidized or not) does nothing for capital in the U.S. However, if machinery used to make things are subsidized like that, then the import of them at cheaper prices serves the growth of capital.
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      • Posted by $ 11 months, 1 week ago
        Thanks, but I'm not so sure. "If subsidized goods increase capital output, it is a clear positive," is not a clear positive. The subsidies create temporary incentives for ultimately inefficient capital flows. If that capital had financed equally productive enterprises that were not subsidized, that would be best for everyone and everything. Also, importing cheap Chinese toys does wonderful things for capital in the US. The money saved by US consumers can be spent elsewhere, which is good for everyone and everything, or saved and invested with the same positive impact.
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        • Posted by TheRealBill 11 months, 1 week ago
          It is a complex equation, to be sure.
          "The subsidies create temporary incentives for ultimately inefficient capital flows. " this is possible, but not certain. In general capital increasing capital output is a clear positive in capitalism - that being the true focus of capitalism. Between two possibilities that are equally productive, the less expensive one is clearly a positive. It may not be in the future, but would be until circumstances changed.

          As far as cheap toys, your argument applies to the capital aspect. The money a capital producer saves on the subsidized capital they import can be spent elsewhere producing more capital or reducing the price of their product.

          The sticky bit is when the subsidized capital production goods are a direct competition for the receiving country. Thus the companion sentence to the one you're objecting to. Perhaps a more specific example will be more useful.

          Let us say I make manufacturing robots. This is a capital producing enterprise. I will need equipment to do that. If I can get some of that equipment at lower cost (assuming quality is on par, of course - low quality goods is a different subject) that is a clear positive in that I can produce more capital for the same cost or charge less for the capital I produce, or I can try to split the difference. Money I don't spend on that equipment could be used to expand, do research, or a variety of things. But from the capital perspective, I've had an increase in capital capacity.

          However, if others like me buying that same subsidized equipment simply lower prices and we get into a cycle such that it crowds out other, non-subsidized sources of that equipment, it becomes a net harm as it pushes that market toward an unnatural monopoly reliant on the political whims of a (foreign) country. Hence why I specified the two cases.

          In contrast money saved on cheap toys usually goes to more cheap toys. It essentially the same thing that happens with "reduced calorie" snacks or foods - people eat more; or with ABS - people drive faster and brake later expecting the ABS system's shorter braking distance to save them. Your argument there is the one I make as being from an industrial perspective, not a capital one. Buying more cheap toys from China does not lead to more spending on capital production in the U.S. Instead, it produces the industrial impulse to make more of them, and for U.S. companies making toys domestically it puts the pressure on moving their production to the cheaper countries - thus reducing manufacturing capacity but more pointedly reducing demand on domestic capital production.

          There has been no indication that these companies shift that money to producing capital. At most they make more toys, or more profit. If they had an increase in capacity through cheaper capital it could produce an increase in demand for domestic capital. But in the example given, the capital being used is foreign, thus increases in demand/production of cheap toys benefits the country where capital is used.

          It is the capital that is the distinction. Capital -> Industry -> Consumers is the chain, and the influence through the chain is mainly limited to the immediate neighbor. More (or less!) capital has a major direct influence on Industry. However, whether that feeds down to Consumers is almost entirely determined by what Industry does. Changes in Consumer behavior have a great effect on Industry, but that may or may not feed to changes in Capital production depending on what Industry does.

          This does place a lot of emphasis on Industry because it is basically the middle. I suspect this is part of why so many think that Industry == Capital, and conflate industrialism with capitalism. For me, that was one of the great breakthroughs of Smith et al. when "Capitalism" was basically discovered - they broke through the industrial production of consumer goods to get to the underlying capital foundation. It is also why I don't buy into the binary supply-side vs demand-side angle - it over-reduces the situation and the way it does this is to drop capital out of the equation/chain.
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          • Posted by $ 11 months, 1 week ago
            No, actually, its elegantly simple. Government is force. Subsidies are the force of government picking winners and losers. Subsidies are arbitrary and capricious; capitalists are prolific long-term strategists and require government to be hands-off in order to be most efficient. Force and the threat of force impair the cognitive ability of everyone, either negating or paralyzing reason. There's a great novel about this, its title is We the Living.
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