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I came across a very thought-provoking quote by JK Galbraith concerning supply-side economics. The quote is as follows:

The poor don't work because they have too much money. The rich don't work because they don't have enough money. If you believe that, you'll believe anything. -- J.K. Galbraith

With famous titles like: The Affluent Society, Galbraith was a expert in economics. Also he is very witty, and between these qualities I'm having a hard time connecting the dots for myself. I'm not sure how much of his explanation/comment is sarcasm and how much is genuine.

Question: Is there any notion/assumption/principle in supply-side economics that could legitimately be alluded to in Galbraith's remark here?

In other words, he must have phrased it this way for a reason; and let's not forget, this is in the context of supply-side economics. So by juxtaposing these false statements with our intuitive understanding of supply and demand, it's as though he's mocking that school of thought. So what is the original concept of the supply-side school of thought that he his mocking?

Surely there is something he thought was paradoxical in supply-side theory that made him say this comment.

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The poor don't work because they have too much money. I believe this refers to the common conservative position that unemployment benefit should be cut or abolished, because if it is sufficient to enable the recipient to lead a dignified life, then it undermines the incentive for them to find a job in order to increase their income.

The rich don't work because they don't have enough money. This is a clear reference to the supply-side belief that marginal tax rates on high-earners are so high that they stifle any motivation to work, and that lowering tax rates for this group will lead to a marked increase in the amount they choose to work.

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Here is the quote, rephrased:

This is a false statement: (A) the poor don't work because they have too much money.

This is also a false statement: (B) the rich don't work because they don't have enough money.

If you believe those false statements (A) and (B), you are very credulous.

The poor have a much higher marginal value of money than the rich, so their incentive to work, to earn more money, is very high. For the rich, it's the other way around.

Ken is making explicit two assumption that are fairly common (in that school of thought and some other Conservative groups), but rarely spoken so plainly, and rarely spoken together. When they made explict and are put together, it makes it much clearer that to hold both of them at the same time is absurd.

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  • $\begingroup$ thanks for helping me out. I understand that the quote has false statements. I'm trying to figure out why he phrased it the way he did. He said this quote in the context of supply-side economics. So by juxtaposing these false statements with our intuitive understanding of supply and demand, it's as though he's mocking that school of thought. So my question is actually, what is the original concept of the supply-side school of thought that he his mocking? Let me edit the question for clarity. $\endgroup$ – Arash Howaida Mar 7 '18 at 7:22
  • $\begingroup$ I've added a final paragraph - does that help at all? $\endgroup$ – EnergyNumbers Mar 7 '18 at 9:34
  • $\begingroup$ that helps a lot, the only thing I'd maybe want more clarity on are short formal definitions of those 2 assumptions. I'm still not sure exactly which 2 supply theorist assumptions he is mocking. $\endgroup$ – Arash Howaida Mar 8 '18 at 2:40

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