Supply-side economics haven’t been effective

Dan Olivier, Bullhead City, Ariz.

Sunday, Feb. 27, 2011 | 2:02 a.m.

Gordon W. Moss, in his Feb. 22 letter to the editor, headlined “More government spending doesn’t ensure recovery,” writes that economists Paul Krugman is wrong and John Maynard Keynes was wrong.

When I studied economics and business in college (Kansas State University) 60 years ago, the going economic doctrine was that demand was the factor that decided the strength of the economy and the old trickle-down theory, or “supply side” as it is known today, was a big joke among economists.

President Ronald Reagan tried supply side (cutting taxes to stimulate businesses to produce), but he soon found out it didn’t work and had to raise taxes to prevent a deficit increase.

Lo and behold, rather than precipitating an economic disaster, the economy took off to a strong recovery — much to the chagrin of the supply-side gurus.

In fact, David Stockman, Reagan’s Office of Management and Budget director, later admitted that supply-side policies failed miserably!

No business worth its salt is going to produce products there is no demand for, therefore you need Keynesian policies to stimulate demand. Right now businesses are sitting on billions of dollars rather than producing goods there is no demand for.

So the logical solution should be to stimulate demand (even to the extent of cutting taxes for the middle class and raising them on the upper class) with government spending to put money in the pockets of consumers — not for the rich to put in foreign bank accounts to avoid taxes.