This is one of the best commentaries on economics I've heard. I've been trying to explain this to people forever!
What to do about raging unemployment? Many Republicans and a few Democrats are peddling supply-side solutions. Cut corporate taxes. Reduce the cost of capital. Cut the employer share of payroll taxes.
This is nonsense. The problem is not on the supply side.
Companies don't need financial incentives to hire. They're sitting on $1.9 trillion of cash. They don't even know what to do with it all. If they wanted to use this cash to hire additional workers, they could. Instead, they're buying back their own stock and buying other companies.
Nor is the cost of capital an issue. Capital is cheap. Companies can get bargain-basement interest rates on new loans.
Nor does it make any sense to lower the employer share of payroll taxes. This won't create jobs. Payroll taxes are not deterring companies from adding employees.
Let's get real: The problem is on the demand side. It doesn't make economic sense for businesses to hire more workers unless businesses have more customers. And they don't.
These days consumers are reluctant to buy. That's because their real wages are falling, their home values are plummeting, they're still under a huge debt load, and they're worried about keeping their jobs.
Supply-side solutions have nothing to do with any of this. They're like pushing wet noodles. The economy needs a boost on the demand side.
For 30 years now we've been hearing from "supply-side" economists say that if we reduce tax rates on the rich and on corporations -- and keep the cost of capital low -- we'll get more jobs and growth. And the benefits will trickle down to everyone else.
Well, we've tried the theory out, and little or nothing has trickled down. Tax revenues are now 15 percent of the national economy. That's the lowest in 60 years. And capital is cheaper than ever. But the economy is going nowhere.
Can I be blunt? It's the demand side, stupid.
