Look, Prof. Reagan. I've been paying fairly careful attention, but every time I try to explain your theories to this cabbie I know, he gets me confused. I was hoping you'd clear up a couple of points for me. I think I understand the basic supply-side theory. The idea is that the best way the government can help the overall economy is to help the part that produces -- the supply side -- to become more efficient and more productive. If you do this, by cutting taxes or lessening regulation or whatever, producers will produce more, which means that they will hire more workers, who will then buy more, which will boost production even more. That way, unemployment decreases, income goes up and, as a result, government revenues increase, even though marginal tax rates are lower. Right?
Oh, thank you, sir. I told you I've been paying attention. But this cabbie keeps asking me why that is so clearly superior to helping the demand side. That is, if you help people get jobs -- whether by establishing training programs or by giving businesses incentives to hire the the jobless--wouldn't that increase demand to the point that producers would naturally produce more to meet that demand? And wouldn't that mean that they would have to have more workers, which would reduce unemployment and enhance personal income and, along with it, tax revenues?
Oh, I see. That would have too many consumer dollars chasing too few goods and that would fuel inflation. I told him that. But he asked me why a producer would turn out more goods if there weren't more dollars for them to chase. The way he put it is, why would he want to buy more taxicabs, even with government incentives, if the cab he already had was sitting idle half the day? He's got this notion that the best thing you could do for him is to fix things so more people would be able to afford to take a cab.
Yes, sir. I told him that. But he says your way isn't working either -- you know, record unemployment, record numbers of bankrupticies, and all that.
Of course. I told him he ought to give your program a chance. We've got to stay the course, I told him. But he says the landmarks -- he persists in mixing metaphors, sir -- indicate that you're steering the ship in the wrong direction. What he wanted to know, sir, was why won't you put people to work repairing roads and bridges. He called it the "infrastructure," but I doubt that he knows what the word means. What he was really thinking about, I suspect, was the axle-breaking potholes he has to keep dodging. Anyway, he thought that if the government would finance the refurbishing of our highways and bridges and parks and so on, we'd get a lot of people off welfare and unemployment and turn them into wage earners. The goods they could then afford to buy would boost production and create private jobs, he says. He seems to think that would be good for the economy.
Exactly. That's just what I asked him: who's going to pay for all this work? In fact, I gave him a pretty good little lecture about deficit spending. But he kept saying that businesses engage in deficit spending all the time in order to make more money down the road. I also told him that make-work programs are no good, but he kept muttering something about how FDR used them to save the economy. If I could quote him, sir, he said "Why is make-work so much worse than make-jobless?" I'm afraid that is how he described your policies.
Why that's remarkable, sir. That's precisely what I told him: "Shut up."