Here’s the subhead to an article on the editorial page of the AFR today with the title: Job creators don’t need subsidy.
The billions spent on industry support seems to make very little difference to new job creation.
This is the rediscovery of classical economic theory, and here let me quote John Stuart Mill:
“Demand for commodities is not demand for labour.”
Alas, the amount of unlearning that would have to happen for Mill’s point to be understood is an impossibility, but it is interesting that someone has noticed the actual facts on the ground even if they don’t understand why it’s true. As a wonderful example of someone who sees the point but doesn’t understand it, here is the abstract of a paper by an economist by name of Roy Grieve criticising my paper on Mill’s Fourth Proposition on Capital in which I have, for the first time in more than a century, explained what Mill and the classics meant:
Steven Kates has recently (2015a) attempted to explain and justify J S Mill’s paradoxical “fourth proposition on capital”, which states that “demand for commodities is not demand for labour”, a proposition which notoriously – over generations – has baffled many eminent commentators. Kates intends to resolve the puzzle by offering “a proper understanding of Say’s Law as it was understood by Mill and his contemporaries.” We conclude that Kates does indeed reveal the logic of Mill’s proposition, making it clear that from Mill’s lost “supply-side” perspective, it is in no way puzzling or paradoxical. However, at the same time it becomes evident that Mill’s whole position is undermined by his acceptance of the untenable belief that “demand is constituted by supply”, which leaves us with the clear understanding that his fourth proposition, despite Kates’s rationalisation and defence thereof, as well as certainly being paradoxical, is simply untrue.
I hadn’t even known the paper had been published until just now, but found it only because I was looking online for my own. But this is wonderful since he says five things I am extraordinarily happy to have said about what I wrote:
1) I really am the first economist in well over a century to understand Mill’s Fourth Proposition.
2) I do indeed “reveal the logic of Mill’s proposition”.
3) And what is shown by the Fourth Proposition on Capital is “Mill’s lost ‘supply-side’ perspective”.
4) Say’s Law is the central proposition of supply-side economic theory.
5) And what does Say’s Law teach: that “demand is constituted by supply”, that it is only through increased production that increased demand can occur.
That Grieve thinks Mill’s Fourth Proposition is untrue only has him lining up with around 98% of modern economists. That it actually is true is demonstrated by the failure of every single peacetime stimulus package in history to increase the level of employment. There has never been an exception to this rule.