Supply Side Theory: The Government Did It

Supply-Side Theory

Supply-side theory was cooked up on Wall Street in conversations between a Wall Street Journal opinion editor and a young economic theorist who had worked in government. The basic idea is this. When some part of the economy goes into a slump, say housing or auto,

  • it is not because people decide to buy fewer houses or autos (too little demand),
  • it’s because government regulations make them too expensive (supply-side problems).

But that would mean that the reason house-construction started to crash clear back in 2006, was because George Bush and his Congress suddenly imposed extremely expensive new housing regulations. Nothing like that ever happened. And, once the economy really started to slide, people stopped buying cars in 2008, but the supply siders claim it was because the government (George Bush again) imposed harsh new regulations on the auto industry. This is just nuts. Of course the supply siders don’t actually look at the details, like when did it happen and what did George Bush actually do, they just say “The government did it; it’s the government’s fault; they are hurting the supply side.”

Cut Taxes and Regulations?

David & Charles Koch

Republicans say cut government regulations and taxes to create jobs. Did people stop building houses in 2007 because of all the new housing taxes and regulations imposed by five years of Republican rule? That’s just crazy. Will cutting regulations on house building fix the housing market? Don’t be ridiculous. Business is off because people aren’t buying. And that’s exactly what business is saying.

So who’s behind the Tax-and-Regulation myth? The biggest money behind that myth comes from the Koch brothers, who have been fined for pollution from their oil business and for cheating the federal government on oil extracted from Indian land. They’ve spent, literally, hundreds of millions (starting with founding the Cato Institute in 1977) on lobbying for lower taxes and no regulation. David Koch even ran against President Reagan in 1980. In 2005 they started organizing the Tea Party