The Chicken Or The Egg??

Unlike the famously unanswerable question “what came first, the chicken or the egg,” the economic question of what comes first, Supply or Demand, is easily answered. It’s not rocket science. Without consumer demand, nothing happens, regardless of how much capital businesses have on hand.

 

Entrepreneurs and inventors do not begin by asking themselves “how much will it cost to make” or “what capital will be required to begin.” These things become important later in the process, but the process begins by identifying a want or need that consumers have that is not being filled. How many people will need or want my product? How many people will be able to afford it? How much will they be able to afford to pay for it? The answer to these questions is what drives innovation and business growth.

 

It is true that, when businesses and corporations have cash on hand, they can grow their business by investing in increased production and hiring more people. BUT, this ONLY happens if the consumer demand for their products and services is high enough to justify an increase in production. No business person in their right minds is going to invest in increased production if there is no consumer demand for their products!

 

So, what factors influence the level of consumer demand for a product or service. The two main types of demand are determined by what consumers NEED and what they WANT. Everyone NEEDS the bare necessities of life, like food, shelter, and health care. The need for these things is fairly static and is not impacted by cost, availability, or affluence. Just because these things become expensive does not mean that people can afford to go without them. Conversely, as people become more affluent, the quality of the necessities they purchase may continue to increase, but not the amount. If you are not hungry, you are not going to order more food at a restaurant. One can own only so many houses, and if you are not sick, you’re not going to be spending a lot more on health care. So basically, consumer demand for the necessities of life is tied more closely to how MANY people there are, not how much money they have.

 

The 2nd category of consumer demand involves what people want to have or would like to have, and this is directly tied to their discretionary income – income that is above and beyond what is needed for the basic necessities of life. Discretionary demand is by far the largest component of consumer demand, and it is the most variable and volatile type of demand. This is where most of the opportunity for economic growth and increased profits lies. And this kind of demand is tied directly to how much discretionary income consumers have.

 

The economic law of Supply and Demand basically says that, if the Supply of a product increases, the price is reduced due to competition, and this stimulates increased demand. But businesses can not and will not reduce their prices to a point where they are losing money. On the other side of the coin, if Demand increases, then consumers are willing to pay more, and this stimulates businesses and corporations to produce more – Supply increases to satisfy Demand. And if businesses and corporations do not have enough cash on hand to increase production or enter a new market? Well, there is a whole segment of the economy dedicated to providing the funds necessary – banks and other financial institutions, and venture capitalists. If you can demonstrate unfulfilled Demand for your products, you will have no problem obtaining the cash, but if there is no demand for your products, then banks will not lend you money, venture capitalists will not invest in your business, and there will be no competition in your market.

 

So, I assume that all Americans want a robust and growing economy, increasing profits, and a higher standard of living for all. So, what economic policies should government institute to cause this to happen? The rhetoric from the Right and the GOP would have you believe that “Trickle-Down Economics,” another name for Supply-Side economics, is the way to go. They talk about the “Job-Makers,” and say we need to have more tax breaks for the wealthy, subsidies for corporations, and lower wages for employees, all so that businesses can afford to increase production and create more jobs. And when doing this results in huge government deficits, out of the other side of their mouths they try and tell you that we have to cut social programs and reduce funding for the Arts and other programs to reduce the deficit.

 

This strategy is, of course, trying to put Supply before Demand, and as such is fatally flawed. In fact, cutting social programs and not increasing the minimum wage is actually reducing the amount of discretionary income consumers have, and thus reduces discretionary demand for products and services. Think of it this way: if you were a manufacturer of toasters and coffee makers, or a retailer selling these items, what do you think would better stimulate the economy and make your business more profitable, having the government give a million dollars to each of a hundred billionaires, or having the government give a hundred dollars to each of a million poor or middle class folks? How many toasters or coffee makers do you think the hundred billionaires will buy?? How about the million middle class and poor folks who now have an extra hundred dollars to spend?? As I said, it isn’t rocket science, it’s common sense.

 

So, the best way for the government to help build a stronger and more robust economy is not to give money to the wealthy and hope it “trickles-down” to everyone, but instead to give more money to the average consumer, and it WILL “bubble-up” to everyone, including the wealthy!

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January Letter To The Editor

My latest letter to the editor:

It ain’t rocket science.  It’s the economy, and it’s not that difficult to understand.  Whether you call it “Trickle-Down” vs. “Bubble-Up” economics or “Supply-Side” vs. “Demand-Side” economics, it boils down to one simple question.  In a recession, do you get more money into the hands of consumers, or do you try to get more money into the hands of the wealthy?

When consumers are suffering and have no money to spend beyond the necessities of life, there is NO discretionary spending, and thus NO demand for products and services.  Proponents of Trickle-Down argue that getting more money to “Job Makers” creates jobs that will put money into the hands of consumers.  The fatal flaw in that argument is that it’s putting the cart before the horse.  No matter how much cash they have on hand, business decision-makers in their right minds will NEVER add jobs and increase production if there is no demand for their products – period!

The purpose of any business is to make a profit by satisfying consumer demand.  No demand, no profits, no new jobs.  However, if consumer demand is high and businesses have no on-hand cash, banks love it because that’s when giving business loans is low-risk because of the potential profits.  No bank ever loaned dirt-poor consumers money to increase their spending power.

Sorry Conservatives, but your stoic belief in Trickle-Down is misguided, and the GOP’s constant mantra about “Job-Makers” is a deception, especially in a recession – an intentional deception.

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Letters To The Editor

Here are my two most recent letters to the editor at the local newspaper:

11/10/14

It seems that Republicans had a huge victory in the mid-term elections.  It is difficult to fathom why Conservatives in this country continue to support the GOP.  For 6 years, the GOP has grid-locked the government with unprecedented obstructionism, including unprecedented use of the filibuster in the Senate and government shut-downs.  The GOP has only one agenda – get as much money as possible to the wealthy at the expense of the middle class and poor.  The GOP still thinks women should be barefoot, pregnant, and in the kitchen, they continue to preach the huge hoax known as trickle-down economics (which has never worked and never will), if they could they would get rid of Social Security, Medicare, welfare, unemployment insurance, and any other social program that puts spending power in the hands of the non-wealthy.

The GOP has blocked (or tried to block) immigration reform, student debt relief, equal pay, women’s rights, health care reform, minimum wage increases, gay rights, and just about everything else.  The GOP still wants to deregulate corporate greed and make slaves of workers, while causing financial meltdowns and destroying the economy.  They want to force everyone into the same religion. At the state level, they have engaged in massive voter suppression of minorities, and disbanded elected local governments in minority areas.  The anti-science GOP adjusts the facts to fit ideology instead of the other way around.

And yet, they win elections??  America is dying a slow death from self-inflicted wounds.

12/15/14

Do you miss the economic collapse of 2008?  Do you long for the good old days of double-digit unemployment, predatory lending practices and skyrocketing foreclosure rates?  Do you wish that the DOW was below 8000 again?  Well take heart friend, the Republicans are taking control of Congress, and they can get us back to those good old days in nothing flat!  In fact, they have already started deregulating the big banks again by slipping an amendment into the current budget that removes restrictions preventing big banks from practicing high-risk behaviors (like derivatives, etc.), while putting at risk the money entrusted to them by their depositors – one of the exact practices that caused the 2008 collapse in the first place.  And guess what?  That amendment was actually written by CitiGroup!  Way to go GOP!

Nothing good ever comes from a Republican-controlled Congress, but heck, just blame it on the black President and an imaginary massive invasion of illegal immigrants like you always do, and throw in them Gays for good measure. That will fit right into the alternate, anti-reality universe called the “Conserverse.”

But don’t worry about those of us who have escaped our Matrix pods and can see clearly and think for ourselves.  Don’t worry about the increasing number of Americans born into such deep pits of poverty that they can never climb out.  If any of us protest, we can simply be shot down, unarmed in the streets, by some para-military police force, right?

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Change We Need

Republicans have a pretty sweet deal. They obstruct, lie, deceive, filibuster, and completely resist ANYTHING the Democrats try to do in Congress, and to appease them almost everything passed in Congress is watered down and made much less effective. Then when things do not get better because of the weakened legislation, the Republicans can say “see, we told you this is not good. We were right to fight against it.” They come out smelling like a rose and the Dems look bad.

There is ONLY one solution. Obama and the Democrats need to forget bipartisanship, they need to quit worrying about how many votes they are going to get, and they need to start using every process, trick, and procedure available to get done what they know is right! They need to fight the lies with facts and the truth, call out the Republicans for their lies, and adopt any and all tactics that will be effective in countering the obstructionism and lies of the Right. Let the Republicans filibuster all they want. Maybe those who believe their lies will start to see the light of truth. There are only two kinds of Republicans – those who lie and those who believe the lies.

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The Insanity of Short-Term Memory

If you burn your hand on the stove and after trying several remedies it still hurts too much, it would be insane to put your hand back into the flame as a way to ease the pain. Americans are still hurting very much from the crash of the economy, and according to the pundits, Americans are about to “stick their hands back into the fire” by electing Republicans during the mid-term elections. Now, that’s insane!

There is no question that the financial meltdown was the result of extreme and risky behavior on the part of Wall Street and the big banks. That behavior was only possible because of the 8 years of deregulation and “in bed with Wall Street and big business” government during the Bush Administration and Republican control of Congress. And worse yet, even now that the Democrats have taken control, the Republicans continue to fight tooth and nail to stop any new regulation, to protect Wall Street and big business, and to stop any reform. They also obstruct and fight against any and all legislation meant to help the economy or improve the lives of Americans. They would rather the entire country go to Hell in a hand-basket than let Obama and the Democrats have any success at all. But, of course, the wealthy will be the last to go. Now, that’s insane!

I saw a bumper sticker the other day that said “so far, change sucks!” Talk about memory loss! Have we forgotten the nightmare of the Bush years? Yes, the economy still sucks, but are people seriously suggesting America is not in a better place?? Just how long do people think it takes to unravel 8 years of destruction, corruption, and crimes against the Constitution and America? Torture, illegal wiretaps, lying to the American people in order to invade another country, a redistribution of wealth from the middle class and poor to those who are already wealthy (the Bush tax cuts), exposing a CIA agent to take revenge on her husband for not supporting an illegal war, politicizing the Justice Department and threatening the very structure of our form of government in the process, and much more. That was just the short list. Just Google “The crimes of the Bush Administration” and see for yourself.

Hands down, the Bush Administration was the most criminal, the most power-grabbing, the most secretive, the most deceitful, the most destructive, and the most un-American in history. And today, the ONLY thing the Republican Party is offering America is a return to the Bush years. Voting for a Republican in the mid-terms is insanity! Americans who want to switch back to Republican rule seem to have no memory beyond yesterday. Insanity!

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