The Norman Transcript

October 22, 2012

Down with demand economics


The Norman Transcript

NORMAN — Editor, The Transcript:

RE: Donna Brasile’s article, 10/7/12

Since the end of FDR’s reign, the liberal economic bible has been Keynes’ book on economics. Keynes said the depressions could be eliminated by government spending. Subsidies put money into customers’ pockets, they purchased things, demand increased, factories began running again and jobs were created. Demand-side economics.

Historically, demand-side economics has ushered in depressions. Examples: The Tulip craze, Holland the 1800s. Results: Almost drove Holland into bankruptcy. The farm land craze, U.S. the 1920s. Results: Almost drove the U.S. into bankruptcy and started the recession of 1928, which lasted until the start of WWII. Our housing boom has caused another deep depression with no end in sight.

Why did these catastrophes occur? As demand increases, suppliers take two actions. They increase production to meet the demand and they raise prices. Prices are easy to raise. Supply is slower and much harder to ramp up. Increase in prices outpaces the increase in supply. With a populace living off of credit, demand cannot be sustain. Consumption slows drastically and rapidly. Supply is not easily reduced and people are laid off. Depression is close behind.

Demand-side economics has no self-limiting features to keep prices from getting out of hand. It is easy to prey on peoples’ desires and envies. Customer demands can quickly drive up prices. If the items being inflated are essential items — gasoline, housing, tulips — the whole economy is quickly infected.

Supply-side economics has self-limiting features that will drastically reduce the probabilities of such disastrous economic events from occurring.

Politicians, regardless of their ilk, use the demand-side approach when running for office. Suppliers use demand economics to promote their products. To bastardize an old selling slogan, “Promise them anything, but don’t tell them the truth.”

Many people today have discovered one cannot spend themselves out of debt. Like bad habits, it is a lot easier to stay out of debt than it is to get out of debt. This is true for governments. Getting our government out of debt will be just as painful as it is for the individual to get out of debt.

New college graduates will find this out in the future as they begin to pay back what they borrowed to get that degree. So will our government when these potential future spenders don’t have the cash to spent nor the credit to further mortgage their futures.

Politicians are just hucksters. Hucksters play on creating envy in the buying public. Wanting to be like the rich, the average person gladly goes into debt. They do not realize that they are mortgaging their future to pay for indulging their present envy.

A subtitle result of the escalation of envy is how easy it is for politicians to float the idea of fairness. Fairness is the sibling of envy. One does not think of fairness unless they wish they had what a more fortunate person has. One does not think of fairness unless there is envy present.

Envy and fairness are the parents of class warfare. Much of the crime we read about is the result of the feelings of envy, the feelings of unfairness and simply another kind of class warfare. The religion of demand-side economies ultimately sets the stage for class warfare and the resulting economic dislocations.

JOHN BAUGHER

Norman

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