Thursday, April 18, 2013

What Happened to Supply and Demand?

The down fall of are economy must be observed in a historical sense. While many will point to globalism and international treaties as the main reasons for our present economic situation. I feel that these are talking points that have nothing to do with solving the problem of our bad economy.
Supply and demand has long been the first basic lesson learned in economic courses around the world. Prices will rise and fall as the relationship between supply and demand shift. However, one must have both elements present for the system to work. If there is no demand, supply will be worthless. No supply means that demands will not be met, meaning no profit.
For decades we have been killing our ability to create demand. Falling wages, jobs moving off shore, and increased costs of living have decreased the ability for people to purchase items and goods. This has caused a decline in demand and the loss of business. Entrepreneurs now have no reason to start new businesses or create new inventions with no one present to buy the product and create a profit for their work and ideas. While people my be full of desire for a product, they have lost the ability to buy that product and create demand.
How to create demand? Simple, government projects. An example of this can be seen when studying President Roosevelt’s labor programs such as the Tennessee Valley Authority (TVA). When these formerly unemployed people were given jobs they now had money to spend. This extra money created demand. When the demand was present businesses began to get the supplies to meet that demand. This new demand not only gave rise to stores (small businesses) but also to the factories that supplied those stores and business.
At each level more people became employed. These employed individuals created demand in their areas and thus spurred the same response. The growth of stores and businesses. Supply and demand in action. A beautiful thing!
We have allowed this simple yet effective, economic model to be dismantled. Businesses no longer share their profits with employees. A rising tide no longer lifts all boats. Businesses profits seem to be reserved for top executives. Businesses try to turn over employees to avoid giving them benefits, thus adding to the cost of living and eliminating demand. Businesses shift and move to follow profits taking their low wage model with them creating no demand at the new location.
The economy is a flowing mechanism. Money must follow and not pool in a single account or economic class. This explains why the tax rate was 91% after three million dollars under President Eisenhower. That high tax rate kept the money moving, not allowing it to pool at any level in the economy. America’s economy was strong during those days and remained strong until the tax rate was lowered under the President Carter Administration.
As money flows it is taxed at every transaction helping to fill public coffers. Money earned by the working and middle class will be spent. This spending will create demand and serve the business environment and the factories that supply them. The answer to our problem is simple. Bring back demand!

1 comment :

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