Archive for August 2nd, 2011

Demand Side Economics

You have heard a plenty about supply side economics, based on the fact that when taxation reaches a certain level government revenue from it goes down if it increases. People do not produce when taxes are too high.

On the Nero Wolfe mysteries, which were written from the 1930s into the 1980s, Wolfe would take cases only until he hit the $200,000 income level for a year, and then he would quit for the reminder of the year. I cite this example because it shows how common it was for people to work up until they were in the high brackets and quit.

Joe Louis the heavyweight champion for many years, almost ended up in prison. Since boxers received straight incomes that couldn’t be hidden, almost all of his income went to Internal Revenue.

We knew about supply side economics at the University of Virginia twenty years before Reagan was elected and passed his supply side tax cuts.

Economics also has what I call a demand side.

When I was in Europe, the European middle class, which earned less than half of what Americans did, vacationed in Spain. You could stay in a bedroom with shared bath for ninety cents. Beer was nine cents a bottle in a bar. You could get local wine, which wasn’t bad, for about twenty cents a liter.

In fact, when my British girlfriend came down I wanted to do the American thing, get champagne. I said I wanted the most gorgeous, expensive champagne they had,

It turned out that the most expensive they usually had cost under a dollar. Then after I insisted, the guy went back and got a huge bottle which cost almost three dollars. It had a big pink ribbon on it, but he actually looked guilty for charging that much for one bottle of anything.

When I took my first time off in Spain, I faced a problem. In each town people from one country tended to flock. I found that where Americans went were at American prices and the hotels looked like American hotels. Where the French went was cheap but filthy.

So I followed the Germans. The place I went was where German tourists went. They did not pay a pfennig more than they needed to, but the place was clean.

In other words, I bought German because of German demand. German products were good because Germans would settle for nothing less. The supply in any country lives up to the expectations of the demand, though I haven’t seen any economist discuss that.

Soviet products were famously awful. But it should be remembered that Marx based his whole system on the idea that a product’s worth is not decided by the market, but by the objective amount of labor put into it.

The Soviets in sixty years never produced ONE consumer product they could sell abroad. They could only dump these goods on a captive population behind their borders. It was a special privilege of the upper class in this classless society to go to the places that sold foreign goods.

And, in places like Communist Hungary, they refused to accept Hungarian currency in those shops.

Like the rest of the quality of life, it is the population, not the Wordism in power, that gives products their reputation.