The Economic Ship

In the 1980's, President Ronald Reagan popularized the economic theory of "supply side" in justifying his quest for tax cuts. Essentially, if individuals (investors) and business have more money through tax cuts then they can invest it in money making ventures and generate economic growth which in turn will create more jobs. Many criticized this theory as "trickle down" economics because it would allow the rich to get richer and little benefit would be realized by the poor.

Several decades later, supply siders still believe in this theory and have been successful in so far as cutting some taxes (but not all) and developing an environment where new taxes or tax increases are all but impossible to obtain.

In the meantime, the term "demand siders" has been coined to describe recent efforts to encourage economic growth (to get us out of the recession) by stimulus spending. The idea behind spending (whether by government, individuals or businesses) is to generate economic activity that could lead to economic growth. The catch to stimulus spending is the government usually has to borrow money to spend it (through sales of U.S. Treasury bonds and securities). Budget hawks have blasted this approach as creating enormous debt that in the long run will sink the American ship.

Deficits have a negative influence on the credit market. If a governmental entity is seen has heavily in debt and perhaps having difficulty in repaying the debt (via balanced budgets), then borrowing becomes more difficult and costly and eventually we'll be in a downward spiral where we have huge and growing debt that we'll never be able to repay. If it gets that bad, we won't be able to function because no one will lend us credit anymore to keep our operations going.

Thus critics of "demand siders" forecast this eventual bankruptcy and oppose all new spending as well as demand spending cuts to begin reducing debt. Interestingly enough, both demand and supply siders agree that the key to good fiscal health is to generate economic growth. But that's where the agreement ends. What's taken for granted here for both sides is that a free market based, capitalistic consumeristic system is the best economic system. The fall of the Soviet Union and the conversion of the Chinese communism to free market capitalism is the proof.

Social work however isn't on the leading edge of economic growth, but rather trails behind picking up those left behind by the economy. Our goal is not to slow the economic ship but to make it large enough so many more can climb aboard. To do this, we need a healthy economic that creates jobs and has decent spending for education, healthcare and rehabilitation. So we'll be on the supply side when it comes to creating jobs and on the demand side when it provides the funding to help those who've fallen off the ship to get back on.