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The Rule of Supply-Side Economists

by Thorsten Hild Tuesday, Feb. 14, 2012 at 2:42 PM

Supply-side economists dominate wherever one looks in politics, economics and the media. That wages and salaries are not onl.y costs but also demand usually doesn't interest supply-side economists.


By Thorsten Hild

[This article published on January 12, 2012 is translated from the German on the Internet, http://www.wirtschaftundgesellschaft.de/?p=1684.]

Supply-side policy dominates wherever one looks, in politics, economics and the media. Demand-side economists only had a brief boom season when politics was forced to act in a demand-oriented way. With the phasing out of the economic program and other state fire brigade actions to stabilize the demand and bailout financial management, economists who founded those measures substantively and theoretically for decades are not sought. As the ver.di economist Dierk Hirschel said in a recent interview, “We are now sought less by the middle class media. In the 2007 financial crisis, we were actors. We were needed for successful crisis management. We did short-time work. We had an important influence on the organization of economic programs. But now we are marginalized. Our colleagues will be directly involved with the crisis but we are not currently sharing in crisis management. The German chancellor speaks with the unions. But the unions have no direct influence on government policy. I suppose that is one of the reasons why the unions are so little present now in the media.”


Supply-side oriented economics and politics concentrates one-sidedly on individual economic costs and seeks to keep them low. The state should keep away from the economy as much as possible and claim few resources for itself because that benefits the economy, supply-side economists say. The state “costs” less and collects fewer taxes and fees to finance its reduced spending. Unions are also to be kept small because they strengthen employees in wage- and salary negotiations and raise the price of the supply of workers. That wages and salaries are not only costs but are also converted in demand does not usually interest supply-side economists. According to their interpretation, every supply – labor or product – creates its demand. It only has to be cheap enough.

On the other hand, demand-side oriented economists think in cycles and connections that can be concretize3d in trivial economic laws that are neglected on criminal punishment. The expenditures of one are always also the revenue of the other. The economist Wolfgang Stutzel once explained this generally and concretely:

“Every sales act represents a buying act for the partner…”

How could Germany seriously think of constantly accumulating surpluses in foreign trade? Must the “rest of the world economy,” above all the other economies of the Euro-zone, the target of the large part of German foreign trade relations, accept deficits? While that connection may seem trivial, it is simply ignored by Germany and others in the scope of the Euro-crisis.


Is it now a program or media clumsiness/awkwardness that Germany radio on one day interviewed two supply-side economists in detail? In any case, it is exemplary for the air sovereignty held by that economic-political school in the media.

Yesterday Germany radio interviewed the chief economist of Deutsche Bank, Thomas Mayer. His economic creed is that “Italy now needs structural reforms above all. This means a flexibility of the labor market, an opening of the different cartels in the service sector. Toward the end of 2011, Monti rightly introduced another fiscal austerity package. Now it is crucial that he carry out reforms on the supply-side of the economy to strengthen growth.”

This is supply-economics in unadulterated trash. How growth should be strengthened through one-sided spending cuts remains the secret of supply-side economists! But ideology never asks for arguments or empirical evidence.

In the afternoon the economist Beert van Rosebeeke spoke on Germany radio. The broadcast station pointed out that Rosebeecke works at the Center for European Policy in Freiburg. Here is Rosebeeck’s economic dogma:

“The markets in Italy must be liberalized. Piece-work costs in Italy rose around 30 percent since 1999; in Germany they increased around five percent in the same time period. Wages must fall in Italy. This is not only in the hands of Mr. Monti; unions etc. are also obviously needed. These are measures that should be tackled now.”

That is supply-economics in unadulterated trash. The “economist” does not speak one word about wage development in Germany. The economic rule recognized worldwide – except for Germany – is: wages must develop corresponding to productivity and price fluctuations. But Germany has broken this rule downwards for years. This is reflected in the piece-work cost development.


One must almost be thankful to economists for their unsparing openness. May demand-oriented economists make economic-political comments as clearly! There are individuals in Germany who do this, perhaps one or two who reach a wider public. On the supply-side, there are whole convoys that sit in their ideologically-armored institutes financed by the economy and tax funds while the revenue base for people is deregulated regarding their jobs and the state and preach renunciation to them.

The financial crisis has shown that politics is only ready to hear demand-oriented economists in the greatest economic distress… Imbalances have developed within the Euro-zone and in the German domestic economy between wages and profits and private assets and public debts. A policy that relies on a consistent balance of these imbalances and unequal distribution could prevent worse things.












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