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What the supply-siders get wrong What the supply-siders get wrong
by Joseph Gatt
2020-01-20 08:49:58
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China, Japan and Korea believe in supply-side economics. That is the Chinese, Taiwanese, Hong Kong, Korea and Japan believe that if you supply a product, there will automatically be a demand for the product.

Now why do East Asians believe in supply-side economics? Why do they believe that if I supply phones or furniture of housing there will automatically be a demand for it? East Asian nations are mostly authoritarian regimes where the government and business can get people to buy or do pretty much anything they wish. But that authoritarianism has its limits.

supl01_400Let's take ghost towns for example. East Asian governments had long believed that if you supply housing, demand will follow for housing. Now business-government relationships meant that housing in ghost towns could be kept at artificially inflated prices. East Asian governments even relocated government agencies and businesses to those ghost towns hoping to force employees to buy housing at an inflated price in the ghost town. The result? Employees either quit their job, or shared motel rooms in the ghost town during the working week and went back to their families in the city during the weekend.

The problem with supply-side economics is that the demand for a product is never very clear. Board games in the 1990s made for wonderful Christmas presents. In the 2010s, you can play pretty much any board game you want online for free, and with anonymous people of like-minded enthusiasm.

China also encouraged board game developers to start business in China and aim for the Chinese market, but little did people know that board games in China were never part of the culture. One-child policy, and strict hierarchical relationships between parents and children (parents are not your “friends”) means that anyone who set up a board game business in China saw sales flop.

Other supply-side mishap. Korean and Chinese construction companies were lured into construction projects in Africa and ASEAN nations, and to a lesser extend Latin America, where they were promised that the supply of housing and real estate would lead to a demand from local Africans for housing. Problem is, while corrupt African and ASEAN dictators made commissions from the construction projects, the average African does not have a bank account, much less money to spend on real estate or housing. In sum, Africans stayed in their “huts” (excuse my French).

Other supply-side mishap: transportation. Many countries believe that by building subway and train lines there will be a supply of transportation that will be met with a demand for moving around the city or country. Problem is, you don't just take transportation. You need some kind of family visit or business purpose to use transportation, or perhaps touristic reasons to travel around. The problem is many African countries built train transportation systems, dictators made hefty commissions from the projects. But, there were no hotels built around train stations, business opportunities lacked around train stations, and more importantly, train stations were invaded by drug addicts and other criminals that made riding the train unsafe. So again, supply did not meet demand.

OK. Here's a supply-side project gone awfully wrong. In a country that I won't name, a powerful general decided to important tons of stationary and sell it around the country. The general set up a chain of stationary stores. But you know that government agencies in that country force employees to buy and bring their own stationary, that schools ration stationary for teachers, and that the average citizen can not afford to buy stationary in bulk. So stationary sales were not stellar. What did the general do? Force pretty much every cigarette and newspaper stand to buy his stationary and sell it at the shop. Just like newspaper sales, stationary sales were dismal.

Final supply-side hiccup. Some countries decided to supply brand clothing, thinking that with the Internet local people were familiar with the brands. Local people were familiar with the brands indeed, and some saved everything they had to buy a pair of Nike shoes (which they often never wore and kept in their closet like a trophy, only wearing them if they go on a date with a really, really hot girl) but brand fashion sales flopped.

In sum, supply-side economics is a tactic used by generals and government officials in authoritarian dictatorships. Such dictators believe that supply can create demand. But even in the richest countries in the world, supply can be met with lackluster demand. Look at all those empty buildings in Doha or Dubai, despite the average citizen making 100,000 dollars a year without having to work too much. So even when people have money to spend, supply does not always equate good demand.

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