Monday, January 12, 2009

Supply Side Economics, State Style

With apologies to Tom for yet another economics post.

I caught today's Today Programme just before 9 where we had Geoffrey Wood suggesting that the government shouldn't invest in green collar jobs because there was no demand for it. I'm amazed how many supposedly intelligent people with extensive qualifications in the field of economics make this kind argument. In my opinion it's an incredibly flawed argument.

First, there's the historical argument. Did the Wright brothers, on designing a plane use the existing demand for planes as a basis for creating theirs? Whenever new inventions and innovations come about because a decision is made to take a leap in an attempt to be one step ahead of the market. What we have in the government's plan for green collar jobs is an educated guess on likely future demand.

Second, there's this idea called supply side economics, which owe's quite a lot to Say's Law. Say's law argues that supply does in fact create it's own demand, if no one buys a good, the price will fall, eventually to a point where someone will buy it. I'm not a supply sider, but I do think that demand is a flexible thing that will (within limits) adapt to the production of new goods.

I believe that these new green collar jobs can and will be created by the government and that they are sustainable for the future. Personally I think the government should do this through the creation of new state owned enterprises that will research develop and produce new green technology as well as taking a stake in existing green technology manufacturers. There are several key areas where the government could make a start, with the potential of creating some very prosperous future industries.

1 comment:

Tom P said...

Keep them coming!