"The Supply Side"
In the following chapter of Wealth and Poverty,written by George Gilder, (refer to last week's blog for information on chapter three) Gilder lays out "supply side economics". Gilder dives into the idea that "the source of the gifts of capitalism is the supply side of the economy", he explains that many people aim to control the supply side (51). This is something we see to today in tariffs, taxes and regulations. The allure and influence that controlling the supply has lead to the desire for control over supply side politically and it is the main reason we see "crony capitalism" today.
Later on in his chapter, Gilder explains that the displaced of supply in the order of priorities has a negative effect in our economies and that these effects manifest themselves in the form of inflation, low productivity, etc. (53). He uses the word "sluggish" and "uncreative" specifically to describe this economy. Thinking back to his third chapter and the gift of giving, as well as what we know subsidies to do, this makes sense in his description. If the government gives a subsidy to build a transcontinental railroad, that railroad wont fully connect the U.S. and some miles of the track will be two times longer than they need to be. Why? Because there is not incentive to think of new ideas/ways and productivity is not awarded in these situations.
Gilder also goes on to again, highlight the important of supply. Demand should not be first, because consumers can not know what unforeseen goods they need. That is the job of the entrepreneur. Supply is also important to competition, which in turn, creates a more prosperous and lucrative economy for all. He explains the negative effects and why it is not logical to place demand before supply and why controlling supply to meet demand dampens the economy and does not work out to the equilibrium that some theorize it would create. Gilder writes "Demand is in the mind of the supplier", this allows the supplier to mitigate/calculate their risks and find the best option or alternative for what they hope to put on the market. He also mentions the theory behind "supply creating its own demand", which I believe to be true. Something that comes easily to mind is fashion, I do not create fashion forward outfits, rather I see an outfit advertisement and desire to buy it. It fills a demand that I did not know I had.
Gilder also refers to some of the work of Galbraith that questions the motives of businessmen/entrepreneurs/etc. and their hypocrisy. While they may benefit from the profits they make in the free market, they cheer when government blocks competition. Gilder defends that while they may have these interests, that does not mean a free market or competitive market is bad and those who are only morally good participate in a meaningful manner. He argues that it is the government to blame for these occurrences and it is of the public sector to maintain a fair and free market. The influence of political power and the balance that the government plays in this chapter is apparent and Gilder spends his time stressing the importance of equilibrium. In today's U.S., with a system that many call "crony capitalism", it is easy to say that the government and politicians have too much money. I would say we decrease government salaries and only draw in those who are have a true desire and will to help the public, but I know it is more complicated than that. How do we balance this power the not only does the government have but businesses have? As we have seen too much control creates a stagnated market, but what risks do we run with too little control? They can enter contracts, gain personal assets and much more while protecting the liability of the owner (ex, LLC.). While that may be what is best for our economy, I find it to be a little crazy at times.
Indeed, Gilder also points out the difference in tone between his optimism and Adam Smith's pessimism on the entrepreneurs of a prosperous society. Adam Smith focuses on the greed and self interest that early businessmen had in the U.S.. While their contributions were important to society does their motivation negate the effects of their actions? I think that both Gilder and Smith are correct in their assumptions. It is up to the government though to keep businessmen in check for crossing the line between entrepreneurship and controlling the economy in their favor. (Much like Gilder believes). However, it seems that the government has ended up on the wrong side of things when it comes to supply side economics and that what the government believes will help only alleviates the pain but causes the problem to manifest further.
Works Cited
Gilder, G. F. (2012). Chapter Four: The Supply Side. In Wealth and poverty (pp. 51–74). essay, Regnery Publishing, Inc.