Thursday, January 22, 2009

Supply-Side or Demand-Side Economics

Everyone wants the recession to end - but I doubt that many want it to end more than the hundreds of small business owners in America who are struggling and blaming the economic conditions for their current problem.

Unfortunately, success of a business has little to do with economic conditions. What it does have to do with is sound business practices and producing a product that consumers want and that you can produce with sufficient profit to continue staying in business.

I bring this up, because I've had a few discussions with people recently on whether the solutions to our economic woes would be better off coming through "supply-side" or "demand-side" economic practices.

Well, to be honest with you. I'm not a big fan of the government fixing the problem - because they tend to focus only on the symptoms not the disease - and NO bureaucratic agency can react fast enough to compensate for rapidly changing market conditions. I, my estimation, it would be like trying to see and capture a single electron traveling on the internet: one, you can't track it, and two, you couldn't catch it if you wanted to.

But, since our current government determined to do something, in my estimation, the only real solution has to come from "supply-side" economics.

Demand-side economics (aka Keynesian Economics) is the concept where Government should stimulate economic growth through interest rate control, taxes and public projects - basically flood the market with money and let the demand generate new growth in industry.

Conversely, Supply-side economics is the concept where economic growth should be stimulated through providing incentives for those who produce goods and services (for example income tax adjustments and capital gains tax cuts).

They both will fix the symptom of economic sluggishness. And the truth be know, demand-side economics will actually treat the symptoms faster than supply-side. Unfortunately, only one will actually solve the disease of the market - excessive government interference and poor business practices.

The problem is simply that we have become a society that is more worried about today than tomorrow. We are more focused on quick fixes than creating long term solutions to the underlying problem. So, it's no surprise that our current Administration is going to fix the problem with a supply-side injection of capital of proportion never seen in the history of our Nation (or any other for that matter).

This may sound cold, but we all have the world that we have chosen to have. Plain and simply, the businesses that are struggling today should be struggling, because the decisions they have made in the past have resulted in their current economic conditions. Should we be rewarding them for bad business practice? As a coach, I can think of absolutely nothing worse that you can do - to fix the real problem.

Some may say that this blog entry may not seem to fit into the concept of helping businesses grow. But I would have to disagree with them. What I want individuals and small business owners everywhere to know is this:

The Government giving you or anyone else money is going to fix your problems. It might make you feel a bit better, but the problems will still be there. If your cost of labor was too high before a bail-out, then it will be that way after the bailout - you will be just numb to it. If you had a horrible marketing strategy before suddenly customers walked into your store, just because they government gave them $2000, then your marketing strategy will suck just as bad after the economic boost's effects are long over. You will have just survived a couple more months.

Bottom line - the symptoms make it feel like the problem is so big that only the Federal Government can fix them, but the truth of the matter is the actual disease is so simple that it can only be fixed by the individual.

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