If supply side economics worked

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The inequality equals more growth formula is accepted as dogma in the U.S. Remember George W. Bush's "make the pie grow higher" claim, that Al Gore the redistributionist would sacrifice growth for more equality, but he would guarantee more growth with more inequality and "make the pie grow higher". Did Gore challenge him on that point? No. He probably figured it would have caused the audience to think him a complete kook to have denied something so self-evidently true, or so the audience had been told for decades. Either that or he accepted this dogma himself. Either is possible.

Part of the reason why a country such as Norway scores high is due to the ability to afford to be inefficient due to high natural resource income with a low population. By the last tally, I believe it was something like a 2.5 million working capable population, out of which 900.000 are working in public jobs and about 300.000 are on disability (2008 numbers), so without oil income that cannot possibly be sustained.

The reason why inequality tends to mean growth is that the higher income brackets are responsible for a huge majority of capital investment, IE job creation. However, the problem with the US lately is that investments in jobs have gone to China or other low producing countries, while public jobs have been cut as a part of austerity programs. This means that private sector jobs are being created by at lower numbers and at the mean time public sector jobs are disappearing which together kills demand.

Inequality hinders growth because in a market economy, demand creates supply. Suppliers have no reason to increase supply when the market demand doesn't justify it. There was more growth during the more equal Keynesian era than there was during the subsequent Neoliberal era, an era that unfortunately continues.

As with most macro-economic thoughts, I tend to be somewhere in the middle. There should in theory be a point of diminishing returns for both supply-side and demand side arguments. I.E a point where applying some of the principles of the other side would be more beneficial to encourage growth.

In the U.S at the moment, the economy would benefit from increased demand, through among others Keynesian policy initiatives as the problem lies not in supply of capital but in demand. However Japan has tried every Keynesian policy known to man and have utterly failed to make it work.

Where when in what country? Or do you mean just in the religion of economics?

Works that way in China and Russia. Of course, as I said in the post you didn't quote, there a diminishing return for both sides. It has to do with the balance of supply and demand.

Both China and Russia have far lower gini scores than the U.S. 21 and 12.8 to the U.S.'s 41.
so ascribing their growth to inequality is not quite obvious.
I think we have to put this inequality causes growth B.S. in the dustbin with leaches and medicinal arsenic .

Really https://www.cia.gov/library/publication ... /2172.html?

https://www.cia.gov/library/publication ... nchorRow=#

Mea Culpa. I was on the wrong row (:oops: I can be wrong but not for long)
So China and Russia have Gini scores comparable to the U.S.
Is this the cause of their growth or a product of crony-capitalism?

It depends, do you mean "crony-capitalism" as in "collusion based on personal relationships between state and business"? If so, I suppose its a little from A and a little from B. Both China and Russia have pursued government sponsored capitalist growth through a combination of cooperation between government and the private sector through putting capital in the hands of those who have proven themselves capable of creating the most growth.

You can't separate the two into neat little boxes, where one is X and the other is Y. The "crony-capitalism" is the cause of their growth, and the cause of the inequality. However, at one point more equality will = more growth, and at other times "less equality" will promote growth. It's really that simple.

I bolded the bits you can not possibly know. We know Gini scores dropped and markets opened up we do not know causality.

I bolded the bits you can not possibly know. We know Gini scores dropped and markets opened up we do not know causality.[/quote]

Ok, I'll bite, how can I not know that?

Ok, I'll bite, how can I not know that?[/quote]

1. Economic theory of any stripe is not developed to the point of showing real causality.
2. China and Russia are complex systems (using the jargonistic meaning of that phrase)
that made a myriad of decisions in the liberalization of their economies to claim the increasing inequality was the magic that made them take off is naive and not supportable. (by anything other then armchair economics). They could have very well adopted a Scandinavian model and had higher growth without an increase in Gini.

The correlation on the other hand being theory free shows no link between inequality and wealth production.
I don't see a reason to think the magic worked in Russia and China and not anywhere else.

1. Economic theory of any stripe is not developed to the point of showing real causality.
2. China and Russia are complex systems (using the jargonistic meaning of that phrase)
that made a myriad of decisions in the liberalization of their economies to claim the increasing inequality was the magic that made them take off is naive and not supportable. (by anything other then armchair economics). They could have very well adopted a Scandinavian model and had higher growth without an increase in Gini.

The correlation on the other hand being theory free shows no link between inequality and wealth production.
I don't see a reason to think the magic worked in Russia and China and not anywhere else.[/quote]

It has worked more or less everywhere it has been tried. However as I've tried to tell you in 3 or 4 posts now there is a continuum where development of supply or demand hits a diminishing return. There is a reason why Europe in general tends to show god awful growth compared to countries such as the US, China, India and Russia show tremendous growth. It's because the cost of creating a job in Europe and especially in Scandinavia is excessively high due to government meddling in labor markets, combined with redistribution politics that cause less capital to be available to invest in job creation. There is a reason that if we look at GDP growth, the first Scandinavian country on the list is at the 88th place.

I'm not arguing that increasing inequality in itself caused growth, but that concentration of capital in capable hands combined with government policies conducive to growth created growth.
Last time I saw numbers the cost of creating a $50.000 a year job in the US was $88.000 and to create the same job in Germany was $105.000 due to government meddling in labor markets. In essence demand can only grow when people have disposable income beyond basic needs, however supply can only grow when there is capital to invest and there is a return to be gained on investment.

Barro's studies touches on it, but I'll have to get back to you in a more sustainable manner after I've gotten some sleep http://aric.adb.org/pdf/seminarseries/2 ... tation.pdf

Not necessarily. A lot of high gini coefficients are due to corruption within a nation.

I'm unsure about the speculation. I mean, it may be possible, but the issue is that economic growth is more of a matter of increasing productive abilities. Maybe there is an optimal economic distribution, but I wouldn't think that a capitalist economy would necessarily break even if unskilled and semi-skilled labor were replaced with robots. (Note: The social system would undoubtedly break, and I am holding the maintenance of the social system as a constant, but still...)

I mean, the best connection I see is through the Financial Instability Hypothesis, where by promoting supply side economics, one favors the investor class, causing them to arrive at higher systemic risk rates faster. But this is a somewhat different explanation, as it relies on supply side allocating to finance speeding up the financial business cycle, rather than income distribution having an effect. I mean, I will admit that maybe I am dismissing your idea too quickly, as macroeconomics is really complicated.

Now, I don't think there is any evidence really particularly favoring a lot of the conclusions of supply side economics either. I really think it's a ploy by Republicans to favor the wealthy. This isn't to say that no intelligent advocates exist, but I sincerely doubt that Republican economic strategy has even centered on what those figures would consider sensible.