Say’s Law – Supply Creates Demand

“A well-known dictum of macroeconomics is Say’s Law: that supply creates demand.”

I independently discovered this, I didn’t know it was called Say’s Law.

Before I created the Pet Foil Hat Technology, no one bought foil hats for pets. My supply, created the demand.
The same can be said for plenty of things in dollar stores, and even Value Village shelves at Halloween.

The Bank of England explains how it’s liable to overlook climate change action, until it’s too late.

Human drivers are judged extremely likely to have been the dominant cause of global warming since the mid-20th century.
The horizon for monetary policy extends out to 2-3 years. For financial stability it is a bit longer, but typically only to the outer boundaries of the credit cycle – about a decade.

In other words, once climate change becomes a defining issue for financial stability, it may already be too late.

This paradox is deeper, as Lord Stern and others have amply demonstrated. As risks are a function of cumulative emissions, earlier action will mean less costly adjustment.

The desirability of restricting climate change to 2 degrees above pre-industrial levels leads to the notion of a carbon ‘budget’, an assessment of the amount of emissions the world can ‘afford’.

Such a budget – like the one produced by the IPCC – highlights the consequences of inaction today for the scale of reaction required tomorrow.


One response to “Say’s Law – Supply Creates Demand

  1. Say’s Law is junk economics. The post-war Keynesian era (1945-1980), that created modern living standards (unprecedented in history,) was based on the opposite: that the demand creates the supply.

    So people and businesses create new products because they expect there will be a demand for them. They target a demographic. If they hit the sweet spot they make super-normal profits until competitors move in (which can be delayed with patents.)

    The reason the Western economy collapsed was due to 35 years of failed supply-side reforms. A really bad, but self-serving, analysis of incentives.

    Stimulating an economy in recession using monetary policy alone is a supply-side stimulus. (Which has worked extraordinarily poorly over the past 8 years since the 2008 derivatives meltdown brought on by supply-side deregulation of the financial industry.) A demand-side stimulus is fiscal spending, which worked wonders in the Keynesian era.

    Say’s Law shows the economy will eventually break down in a deflationary death spiral when machines create permanent crisis levels of unemployment. Then no matter what the supply, the people can do nothing to earn money and create the demand. (Which is a contorted agenda-driven way of looking at things.)

    With the centrist Keynesian system, people will be given a guaranteed income so there will always be a demand for new and old goods and services.

    The reason Friedmanian supply-siders hate demand-side Keynesians? Taxes. The top 20% makes over 50% of the income and pays over 50% of the taxes. (56%/60% in Canada.) So they oppose demand-side spending to keep their taxes low.

    But this self-serving ideology is ultimately self-defeating. During the Keynesian era, stock market growth was strong and stable. Over the past 35 years it has been chaotic and is now at a standstill — good investment opportunities are hard to come by. So the selfishness and greed of the rich has come around to bite them in the arse.

    That’s why a Keynesian democratic economy is superior: the people have no agenda; they won’t, for example, cause a global meltdown playing musical chairs with a market manipulation scheme to make a quick buck. The people’s self-interest is everyone’s self-interest.

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