Supplying New Arguments for Supply Side Economics


Economist Tyler Cowen picks a fight with this claim: "Left-wingers should be the real supply-siders."

The core of his argument:

The left often stresses how wealthy people have superior opportunities in life. They can save more, avoid debt, buy better educations, they have a better chance to start a company, and so on. Furthermore this is seen as unfair. Right?

To put the point in simple quantitative terms, equity yields an average of about seven percent, while holding debt claims yields a bit over one percent. Most poor people don't hold much equity, or for that matter they tend to take out debt rather than hold it. Smart rich people stock their portfolios with equity quite heavily. So on average rich people get richer. That is even more unfair. Right?

OK, to oversimplifiy the numbers just a bit, rich people earn—at least—six to seven times more on their money than do poor people. Many of the poor earn negative rates of return.

The contemporary left often seeks to remedy this unfairness, but in the meantime it is true true true. Right?

So for each extra dollar we leave with rich people, the economy earns six or seven times more in net terms—at least—than if that dollar had been given to the poor.

He concludes:

The real supply side story is about how different social classes use resources in different ways and to achieve different rates of return. Right?

Read the whole thing.