Repeal Say's Law

   If supply creates its own demand, as propounded by the French theorist Jean-Baptiste Say in 1803, then the way to prevent economic illness is to increase supply.
   But an emphasis on supply is an over-simplification, and reflects classical, laissez-faire economics, which continues its zombie-like existence among supply-siders today.
   As a central tenet of classical economic theory, Say's Law emphasized the need to encourage production. Then, as more goods become available, consumers -- those on the demand side of a society -- will respond and buy, thus improving general economic health.
  However, this theory ignores a reality, that consumers may not want or even be able to respond to an increased availability of something. When people are unemployed and have no income, they cannot buy. And as demand slackens, producers have no incentive to boost supply. Therefore, they cut back production as buyers retreat. Result: A recession worsens.
   Here's another example to refute Say's Law: A firm introduces a new product, creating a new supply. But there is at first no demand, and the product is greeted with comments like, "What do I want with that?" Or, "That's the dumbest thing I've ever seen, and I don't want it."
   Consider the introduction of Post-It notes by the 3M Corp. The public had never seen anything like it, didn't know what to do with it, and so didn't want it. The company reportedly had trouble giving it away.
   However, with shrewd marketing and promotion, 3M not only created a supply, but a new demand as well.
   Or this example (which may also be apocryphal): When canned tuna was introduced, marketers had to overcome the overwhelming demand for canned salmon, preferred by many families. The marketing strategy was a new slogan: "Guaranteed not to turn pink in the can."
   The point is that supply does not necessarily create its own demand, which must be encouraged, if not created, by the supplier.
   Here then is a major flaw in supply-side economics, a doctrine subscribed to by conservative politicians aided by economists who still hold to a one-sided classical view that limits government intervention.
   Conclusion: Both supply and demand considerations are important in encouraging economic growth. And government, far from being a non-participating observer, may -- indeed must -- at times intervene on either of the two sides. Sometimes by increasing (or limiting) supply, or sometimes by encouraging (or restricting) demand.
   By encouraging demand through public works projects that employ workers who then have paychecks to enable them to buy, a slump can be reversed. Conversely, by limiting supply, government can bring about higher prices, thus benefiting private companies.
   The trick is in knowing when to do what.