It can be useful to invert an argument to examine it for holes. Here we’ve a critique of supply side economics. Which could - could - be usefully true and could also be simply a trotting out of well worn cliches. To test, invert and see if it makes sense:
From this, much else follows. Taxation (especially on the wealthy) comes to appear like an obstacle to innovation and productivity, seeing as it reduces the incentive of rich people and big businesses to put their money to work. The welfare state is accused of fostering “dependency”, reducing the incentive for people to go to work and take responsibility for themselves and their families. Above a certain level, income tax makes it pointless for workers to increase their hours or efforts, seeing as they won’t receive the full rewards. Regulation and “red tape” dissuade entrepreneurs from setting up businesses in the first place. By devaluing people’s savings, inflation punishes people for their success and reduces confidence in the system overall.
But we know that taxation - at some rate and level - reduces incentives. We know that from the taxation of the poor - that taper rate at the intersection of tax starting and benefits stopping is widely agreed to be too high to maximise incentives. Which also, neatly, disposes of that second assertion there.
Regulation which makes it more costly to innovate - or even do something - does indeed reduce innovation, or doing something. Humans do less of more expensive things, more of cheaper, that’s just how the species rolls. Inflation doesn’t devalue savings?
The inverse is ridiculous - therefore the original declaration itself is too.
There are still interesting things to say about supply side economics, of course. Even we wouldn’t say that it’s everything although we’d insist that it’s a necessary precondition for success, even if not a sufficient one.
But the implications are moral as much as economic, and this is where supply-siders encounter a paradox. On the one hand, this ideology assumes the existence of some invisible army of entrepreneurs and grafters, bubbling with ideas and determination, who are being restrained by socialists and regulators. This accounts for the bold patriotic optimism of neo-Thatcherites such as Truss. On the other, it is scornful about the population as it actually presents itself, consisting of lazy, badly educated petty criminals, with no capacity for delayed gratification or a hard day’s work. Sometimes, it is a mixture of the two: a society of people who want all of the pleasures of capitalism, with none of the pain.
No, that’s not in fact the supply side argument at all. Rather, high taxation reduces the incentives to do something, high welfare reduces the incentives to do something, regulation increases the price of doing something. Therefore, a high welfare, high taxation, highly regulated economy will do less.
Nothing moral about it at all - it’s just an observation. Raise the costs and lower the benefits of doing something and less will be done. It’s not a difficult argument to follow, is it?
William Davies is a sociologist and political economist.
Ah, sociologist. They always do have a certain difficulty following economic arguments, don’t they?