I rashly promised yesterday to suggest what some supply-side socialist policies might comprise. Here goes.
1.Invest in education, especially in the early years. The demand for unskilled labour has collapsed, and we shouldn't bet in on recovering. Instead, we should try to raise human capital. This requires pre-school interventions, improving the standards of schools in poor areas (pdf) and, perhaps, simply more intensive education. If inequalities of human capital can be reduced, so will one source of income inequality.
2. Shift the tax base. Efforts to tax profits don't work. Better ways of taxing the rich, whilst preserving incentives to work and save would involve taxes on land, inheritances and a progressive consumption tax.
3. A state investment bank. Personally, I'm sceptical of the idea that banks systematically starve promising companies of funds; I suspect the bigger reason for low investment is the lack of innovation. Neverthless, we should ensure that the few good investment ideas there are get funded. And most of the arguments against a state bank are exaggerated.
4. A citizens' basic income. This is normally seen as a redistributive policy, a way of increasing workers' bargaining power. It might raise productivity through at least two routes. First, it would give workers the chance to reject bad jobs, and wait until a better match turns up. Second, the increased wages which would follow from this rise in bargaining power might compel firms to raise productivity in order to maintain profits.
6. Coops.The financial crisis is, in many ways, a crisis of managerialism and ownership. Top-down bank CEOs got overconfident and made terrible decisions; failed to solve principal-agent problems that led to excessive risk-taking; and failed to adapt well to the new macroeconomics of the 2000s.Outside shareholders did nothing to prevent this. This suggests the need for new forms of ownership. The obvious (though not only) candidate is worker ownership. There's good evidence that this increases productivity, and it might have longer-term benefits for growth too, insofar as it helps encourage a culture of trust.
7. Shrink the state. It's possible - I put it no stronger - that a smaller state is conducive to faster economic growth in the long-run. Hopi's proposal for zero-base spending review might therefore make sense. But you cannot cut spending intelligently from the top down. A precondition for intelligent cuts is to empower public sector workers, who are better placed to identify genuine waste.
8. Macro markets. One role for government should be to encourage - perhaps via nationalized banks - markets for insurance in income risks, as Robert Shiller has proposed. Such moves might be egalitarian - insofar as such products are given freely to worse-off workers. But they might also help encourage real innovation by allowing entrepreneurs to insure against the background risks (eg of recession) which can undermine otherwise good investments.
This is not a complete list, and there are countless details to examine. This list should, however, remind us that supply-side economics needn't be the preserve of the right.
Another thing. Some of you might remember my book. Some chapters, however, were not published. This pdf is one of them.