For almost everyone, Say’s Law is something they know nothing about, and especially among economists who are taught that Say’s Law is unambiguously wrong, who themselves not only do not know what Say’s Law is, but would not even know where to look to find out. But as the success of the American economy most clearly shows, Say’s Law is the most important single element in understanding how an economy can be made to grow. And as we find out, the American economy is being managed based on the application of Say’s Law.
The passage below begins at 13:13 of the video, and it is Donald Trump’s economic advisor, Larry Ludlow, specifically stating that the economic policies of the United States at the present time are based on the application of Say’s Law to the American economy. The greatest disaster in the history of economic theory was the Keynesian Revolution and the forced disappearance of Say’s Law. If you would like to see some of this, there is my article on Keynesian economics and Say’s Law that I published in February 2009 just as the stimulus was beginning across the world: The Dangerous Return to Keynesian Economics. It is not just about how damaging modern macroeconomics is, but how disastrous economic theory has become with the disappearance of Say’s Law. This is exactly what Donald Trump believes as is made clear in this discussion from Larry Kudlow.
I just want to note that we are in a boom. We had this blockbuster jobs number today. There is no inflation. There is no inflation. More growth, more people working does not cause inflation.
These old Federal Reserve models are outdated and have proven to be incorrect. Right now the inflation rate is probably less than one and a half percent even while unemployment is low and jobs are soaring and we are growing at three per cent. Why do I say that?
Because that is a point of view which the President holds and I think the President is exactly right.
This is supply side revolution. We’re creating more goods and services. We’re increasing the capital stock and business investment and that’s what creates incomes and jobs.
I’m sure you remember Jean-Baptiste Say. He wrote in the early part of the nineteenth century. He was a French economic philosopher. I met him awhile back, you perhaps did also.
Say’s Law: supply creates its own demand. This is not government spending from the demand side, this is lower tax rates from the supply side, and it is businesses that ultimately drive the economy.
I would like Jay Powell to hear that argument from President Trump who knows the argument very well. Now Jay I think does too – he’s a very smart guy. So I’m just saying that they can benefit from an exchange of views.
Let’s understand that more people working and solid percentage growth is not – IS NOT – causing higher inflation, and therefore Fed policies should take that into account.
Say’s Law. He may have to go and commune with him to fully understand it.
Everyone will need to commune with Say’s Law if they are going to understand how an economy works. If these sorts of things interest you, the third edition of my text, Free Market Economics, sets it all out in fine detail. And let me add this, the endorsement of the book found on the back cover from Art Laffer of Laffer curve fame, who drove the economic policies of the Reagan administration back in the 1980s.
‘This book presents the very embodiment of supply-side economics. At its very core is the entrepreneur trying to work out what to do in a world of deep uncertainty in which the future cannot be known. Crucially, the book is entirely un-Keynesian, restoring Say’s Law to the centre of economic theory, with its focus on value-adding production as the source of demand. If you would like to understand how an economy actually works, this is one of the few places I know of where you can find out.’
A restoration of Say’s Law is an essential if we are ever going to get our economies to thrive and grow.