Yellen’s ‘Modern Supply Side’ Really Just ‘Old-fashioned Demand Side’ Economics
They say imitation is the sincerest form of flattery.
Freedom-lovers could be forgiven if they blushed a little when, as reported in MySanAntonio.com, Treasury Secretary Janet Yellen characterized President Joe Biden’s economic policy as “modern supply-side” while speaking to the World Economic Forum recently.
The blood then likely rushed out of their faces when they caught a whiff of the exhaust fumes.
Broadly speaking, supply-side economics revolves around the ability to produce, free of excessive rules and regulations, and without fear of having subsequent earnings taken by government. It also means that income has solid value, unmolested by currency manipulation.
It does not include government as a major player. Granting it an outsized presence is like putting Chris Farley on equal footing with Patrick Swayze at Chippendales tryouts.
The state has already damaged the areas Secretary Yellen indicated it wants to bolster.
Going back at least a generation to Hillary Clinton’s social demotion of women who “baked cookies” while staying at home with their children, there’s been this assumption that if only there was “affordable” child care, they could achieve more independence by getting a job.
Regardless of whether or not elites actually suffer from this delusion, their prescriptions to remedy this supposed problem makes matters worse.
First, when they talk about increasing “access,” they typically mean doling out taxpayer-funded assistance. This is in addition to the child-care credits available when we file income taxes. Actual access already exists by virtue of the mere presence of child-care centers/preschools.
The very money politicians and bureaucrats throw at it causes prices to rise artificially. Providers see the gravy coming at no direct expense to parents. This phenomenon is also found in education, another area they want to help … more.
Plus, the regulations already in place increase compliance costs.
If and when this all becomes too much for local operators, the temptation naturally grows to either close their doors, or sell to a larger enterprise. The larger the company, the more ability it has to absorb such costs.
The cynic would say politicos are aware of this prospect. Big business is more amenable, and open to the likelihood of the resulting regulatory capture. It secures their position in the marketplace at the expense of the smaller operations they might very well gobble up.
Those less cynical give them the benefit of the doubt that they are simply clueless, slim as their experience is in the real world they’re attempting to regulate. Their lofty academic credentials provide them a cocoon of obliviousness.
There’s a reason this industry is found in the upper echelon of Mark J. Perry’s inflation graph.
Secretary Yellen raises more eyebrows when she claims that “achieving a high topline growth number … is unsustainable.” History says otherwise, as we experienced just such growth during the last two decades of the 20th century, when the economy almost doubled in size.
We went out on a bang largely because of advances in computing and the commercialization of the internet. In the eyes of her fellow travelers however, that’s a problem.
Citing the “pandemic-induced surge in telework,” hastened by the government shutdowns, she relays a “concern” that “productivity growth” stemming from “technological advancement … may exacerbate, rather than mitigate, inequality.”
When translated into policy, this attitude throws a wet blanket on the economy. Just the signal it sends has a dampening effect on the market. The more-rigid economic pie they’re willing to live with might explain why growth was underwhelming the last time they held power.
Their policy preferences are self-fulfilling prophecies.
In truth, growth this whole century hasn’t been anything to write home about. Compared to the 80s/90s boom, the economy has grown by less than half. One not-insignificant difference between the two periods is dollar policy.
Whereas Presidents Reagan and Clinton supported a strong dollar, no president this century has been much more than lukewarm in their stance. Some have outright preferred a weaker greenback.
Unfortunately, this doesn’t seem likely to change.
When investors become less certain of the value of the return they’ll get, they commit less to growing, newer industries. Fewer, more-efficient machines come along. Productivity stagnates.
Instead, they park a greater portion of their resources in safer, already-established assets, attempting to guard against the deterioration of the currency.
That’s why the value of something so ordinary as the roof over our heads is susceptible to occasional surges. It’s why we see increasing prices for energy.
Incidentally, if “curbing CO2 emissions” is a genuine concern of theirs, they’re on the right path. A weaker dollar is what spurred the fracking technology that unlocked the natural gas that contributed to the precipitous drop in emissions in recent years.
Also, it arguably causes less “environmental damage” than the politically popular renewables. Alas, this doesn’t fit the narrative.
Viewed in this light, it’s somewhat unsurprising Secretary Yellen looks toward infrastructure (however it’s defined these days) as a new source of productivity. The self-awareness is almost as refreshing as the likely results are depressing.
The fact that hardly any pol in D.C. has the courage to slash Uncle Sam’s seizure of private earnings close to the new “global minimum” of 15% all but makes that point irrelevant. Nevermind that the U.S. et al strong-armed other countries to take more from their citizens to get to that level.
In other words, actually discouraging them from supplying.