MAKING SENSE -- January 3, 2012 at 3:53 PM ET
Should Our Economy Run Like a Cardiovascular System?
Photo by RunPhoto via Getty Images.
Paul Solman frequently answers questions from NewsHour viewers and web users on business and economic news on his Making Sen$e page. Here's Tuesday's query:
Name: Paul Johnson, Ph.D., cardiovascular physiologist and adjunct professor of Bioengineering at the University of California, San Diego.
Question: We hear a lot about supply-side economics. What about demand-side economics? Our cardiovascular system is an example of a demand-driven supply-and-demand system in which the demand of individual organs for blood flow determines the supply, or output, from the heart. This system works very well and raises the question of whether we should not have the same relationship between supply and demand in our economic system. This would have implications for the current concept that creating more tax breaks for the supply side is the way to revive the economy. If instead we had a dollar-for-dollar shift of taxes to the demand side from the supply side it would re-balance the economy by increasing demand and create jobs. So my question is: Why don't we hear more about the importance of the demand side of the economy?
Paul Solman: But we hear a great deal about the demand side, don't we? That's what "Keynesianism" is: government assumes the job of increasing "aggregate" (total) demand because consumers and businesses have pulled back. That's the macroeconomic argument for stimulus spending: that increased demand will force firms to hire the unemployed, who will in turn have money to further increase demand. What is economic growth, in the end, but more and more people doing more and more for other people?