Voodoo economics

The economy's bogged down by a lack of demand, so why is the GOP still falling back on the usual supply-side ideology?

By Alex Koppelman

Published February 17, 2009 10:05PM (EST)

The best part about supply-side theories, the ones the first President Bush called "voodoo economics," is that their magic is strong enough to be applied to literally any situation, even one to which it's quite obviously unsuited.

The Washington Post's Annys Shin has a really interesting article in Tuesday's edition of the paper, especially in the context of the GOP's continued reliance upon supply-side ideology.

"The world is suddenly awash in almost everything: flat-panel televisions, bulldozers, Barbie dolls, strip malls, Burberry stores... Business everywhere are scrambling to bring supply in line with demand," Shin writes. She goes on to quote Richard Yamarone, chief economist at Argus Research, as saying, "There is over-capacity in everything... retail to manufacturing to housing."

Moreover, Shin notes, "As long as capacity far outstrips demand, businesses have little reason to expand, buy new equipment or hire workers... Some analysts say over-capacity is so rampant that it will stymie government efforts to unfreeze credit markets. Banks have little reason to lend not only because they still have bad debt on their books but also because businesses don't have a pressing need to expand."

What Shinn doesn't get into -- the article wasn't about this -- is the political implications of the phenomenon she describes: There's a big problem caused by a lack of demand, but the GOP's argument during the debate over the stimulus has been based mostly on a purported need to stimulate the supply side of the economy.

Just today, Minnesota Rep. Michele Bachmann wrote a guest post for Townhall.com in which she called for a cut in corporate tax rates. Arguing a point that Salon's Andrew Leonard has previously debunked, Bachmann wrote that "the United States is near the top of the list of industrialized countries with the highest corporate tax rates" and said slashing the rate would "increase firms' productivity and investment incentives."

Alex Koppelman

Alex Koppelman is a staff writer for Salon.

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