Supply Side Economics is better known as "Voodoo Economics" although "Tax Side Economics" would be a more accurate name.
Supply Side Economics ignores the effects of demand and focuses upon taxes. It theorizes that an increase in the marginal tax rate will result in producers making less profit and that they will, therefore, produce less.
The supply siders then ignore the tendency of the market to make adjustments. In this case, if there is a shortage with no corresponding reduction in demand the natural result will be a willingness to pay higher prices. With increased profitability supply will increase to meet demand, and equilibrium will be restored.
On the other hand, if the marginal tax rate is reduced profitability is automatically increased without a corresponding change in supply or demand. In other words, there is no need for equilibrium to be restored to the market place.
This is important because supply siders contend that the excess profits generated by the tax cut will be reinvested. In theory, these investments will result in more production, job creation, and greater prosperity, but that is illogical.
If there has been no increase in demand why would anyone want to produce more? Without increased demand the natural result would be a surplus, declining prices, and reduced profitability.
How can we know for sure if the assumptions behind the theory are false? We can look at the results produced by Supply Side Economics over the past thirty years.
Have tax cuts for business resulted in greater prosperity? They certainly have not for the vast majority of the people in this country.
It is time to say no to additional tax cuts for big business. The voodoo that they do is a false doctrine and like all false prophets the supply siders can only lead us to certain doom.
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