Reaganomics is so well established that state officials, both Republican and Democratic, don’t call it that anymore. They simply call it smart policy.
Even so, the idea of boosting supply to raise demand, instead of the other way around, is hardly uncontroversial. States spend billions annually on economic development subsidies to try and create jobs. But recent evidence suggests tax breaks, “forgivable loans,” and the like don’t work as well as hoped.
Up to now the thinking went like this: Devoting public funds to pull companies into the state will eventually yield returns, which is to say, yield jobs. Those jobs stimulate spending, which raises demand for the very products and services of the corporation that brought the jobs in the first place. And thus the virtuous cycle is sent into overdrive. That, at least, has been the theory.
But let’s entertain another theory. What if we took those same billions and reversed the equation? That is, what if we just gave the money away. We know what people would do with it. They’d spend it. Consider the efficacy of unemployment checks. Every dollar spent on unemployment checks saw $1.61 in return, according to a 2010 report by Moody’s Analytics. It’s safe to say the same would happen if you gave those billions away.
Which brings us back to a bizarro version of our virtuous cycle. Giving away the money might raise demand, which would increase job creation, which would lead to more demand. Theoretically speaking, that strategy could do more to revive states’ zombie economies than would giving tax dollars to private interests.