Economist Scott Grannis writes in his blog Calafia Beach Pundit – Retail Sales and Supply side economics. 10/14/11
The reason Obama’s “stimulus” plans haven’t worked is that in grand (and mistaken) Keynesian tradition, they have focused on stimulating demand, not on stimulating supply. As the late Jude Wanniski used to say, “we can’t spend out way to prosperity.” Prosperity comes only from more work, smarter work, more and better computers, more entrepreneurs, more efficient companies, and more risk-taking. Redistributing income from the rich to the poor, in the belief that the poor are more likely to spend it than the rich, and thus more likely to “stimulate” the economy, is just plain nonsensical. If anything good has come out of pouring $1 trillion of “stimulus” money down the drain, I would hope it will be understood as a failed experiment in Keynesian economics.
Both supply and demand must reach some sort of equilibrium, but it is an ever changing number. Demand may stimulate supply of a product that is in existence, but innovation is supply driven and as such so is economic growth. No one demanded an iPod until Steve Jobs created it, and now we can not live without them. The supply not only drove demand it created real wealth and the jobs to design, manufacture and distribute them. A demand that is stimulated by real economic growth and progress is sustainable. Demand that is created by short term stimulus and loose money is not.