Economics vs Business

   The social science of economics studies what people do with what's available, and how they use resources to enhance their lifestyle -- at root, it's the study of food, clothing and shelter, with all the variations employed to make maximum use of these resources.
   Business, while it is also the study of what people do with what's available, is primarily how producers market and sell their products and services to others, providing the most benefit to the business operators.
   These definitions are simplistic, of course, but it's a good way to start understanding conflicts between producers and consumers, management and workers, as well as government and business.
   In short, economics deals with what is, while business focuses on what should be. Meanwhile, there is some overlap of business and government policy, and depending on a group's preference, politicians may emphasize benefits to consumers or benefits to business.
   
   An example of this conflict is the strategy currently employed by conservative Republicans in Washington who want lower taxes on business as a way to encourage production, which would mean more sales and more profits, contributing to more overall economic growth as expressed in a Gross Domestic Product increase of 3 percent or more.
   This is an example of what academics call "supply side economics," which stipulates that "if you make it, they will buy." Assuming, of course, that "they" -- consumers -- have the wherewithal to increase their spending on food, clothing, shelter and other necessities and luxuries.
   Another assumption is that the benefits of lower taxes will lead to more investment and production, which will bring more hiring and higher wages for workers, who will then use that increased income to buy more stuff.
   That's an example of academics call "trickle down" economics. This is a variation of "supply side" economics, as opposed to "demand side" economics.
   So which comes first? The idea that "If you make it, they will buy," or the premise that says producers make what people want -- that they supply stuff to satisfy a demand.

   A  stark reality is that neither dominates any market for any length of time. There have been products offered for sale that people didn't know they wanted or needed, until a successful marketing campaign persuaded them that they did. One example is Post-It notes. The product was introduced but went nowhere until after 3M gave it away as part of its campaign to educate and persuade people that they really, really needed it.

   Currently, we are seeing a campaign by politicians to emphasize supply side and trickle down economics to boost GDP growth to 3 percent and more, claiming that this rate, shown recently, can be encouraged and will continue for years.
   Enter the Federal Reserve Board, the independent monitor of the nation's money supply and economy, which believes that a long term growth rate of about 2 percent is the safer route. The Fed's primary tool in encouraging or slowing economic growth is controlling the money supply, which affects the interest rate, which in turn boosts or limits investment in production capacity. Next in line is hiring workers and raising wages in response to demand for products and services.
   Clearly, this is a very tricky balance to strive for, especially in the face of government policies that stress supply side and trickle down theory.
   So there can be a strong conflict between government desires and the Fed's actions. And that is what is currently brewing in Washington.
   Bottom line: Watch for the Fed to increase rates to prevent an over-heated economic growth rate, something it has hinted at several times recently, even as the White House touts policy that would have the economy "take off like a rocket."
   Now the question is, when will the Fed shoot down that rocket, opting for a steady cruiser instead?