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'It's The Supply-Side' Said Robert Mundell

Apr. 06, 2021 7:28 PM ET7 Comments
John M. Mason profile picture
John M. Mason


  • Robert Mundell, Nobel prize-winning economist, who just died this past weekend has a lot to teach us about the current economic situation, pointing us to focus more on the supply-side.
  • The current recession was caused by supply-side effects spreading from the pandemic and is already recovering due to the resilience of the supply side adjustment now taking place.
  • Investors need to read more of what Mr. Mundell has written and learn that a great deal of what happens in economy is not demand-side based, but is supply-side generated.
  • Failure to focus on these factors in the current situation could lead to a further loss in U.S. competitiveness in world markets and even a surrender of global currency leadership.

Robert Mundell, Nobel prize-winning economist just passed away this last weekend.

His name is not always mentioned when people talk about the top economists of the last fifty years or so, but I consider him one of the individuals that people, interested in how the economy is progressing, should contemplate.

Furthermore, it is particularly interesting to me, that Mr. Mundell’s name should be reaching the press just at this specific time when analysts are starting to see that the economic problems we are dealing with right now have an explicit connection with the supply-side of the economy.

Robert Mundell is well known as one of the architects of supply-side economics. Supply side economics is something all of us should pay a little more attention to because the tendency is to discuss demand side economic policies and to just assume that the supply side will follow along and respond to whatever the demand side of the economy wants.

But, it is important to see right now that the latest recession a supply-side phenomenon.

The Latest Recession

The beginning of the last recession has been dated by the National Bureau of Economic Research (NBER) to have begun in February 2020. Right now, we are breathlessly waiting to hear when the recession ended, if it has.

The advent of the recession is tightly tied to the spread of the Covid-19 pandemic. It was a supply-side generated recession. The contraction occurred because suppliers “closed up” and businesses “closed down.”

We did not have a liquidity crisis or a debt dilemma or a bankruptcy shock or anything of the sort. The drop off in economic activity came immediately and it came because of a withdrawal of supply.

But, that has been changing and it is supply-side changes that are making the difference.

The Editorial Board

This article was written by

John M. Mason profile picture
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (7)

tim.rohrer profile picture
I had a hard time reading past the suggestion this was a supply-side recession. Suppliers didn’t shut down because of their choice. They shut down because:

1) governments ordered it, and,
2) people quarantined (either by order or by fear/common sense).

Internet-based markets boomed, and any supply-side that became problematic was because of #1 above.

There is obviously more to supply side economics but the opening tripped me up.
TDune75 profile picture
China’s Renminbi or some digital derivative there of, will become the world’s reserve currency when:

1) China becomes the world’s largest economy.

2) China has the largest & most technically advanced military in the world.

3) China becomes a democracy with trusted legal, human rights and IP institutions.

Looks like the $USD will remain the world’s reserve currency for many decades.
One problem here is that the 2017 tax bill took place when the economy was growing.
Seems backwards
Well I don't think supply side economics will work when we have had near zero inflation for 12 years. Circumstances are differant from the 70s and 80s when supply side worked very well. If inflation roars its ugly head supply side would be a prudent policy. Now we have so many deflationary technologies hyperinflation could be very difficult to come by if possible.
John, a very good read. Thank you!

I see 'green shoots' most everywhere today, just like this new Spring. Even Wisconsin has embraced vaccination and is quickly inoculating residents. I might be simplistic, for macro economists' theories, but I am looking at a 'march of time' process that beats COVID19 before it mutates further. If THAT is 'supply side' good... if not, still very good for humans.
Owen13 Exactly!
Owen213 profile picture
So - should I buy or sell?
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