Neat and simple, in the short run.In the long run (by which I do not mean centuries, nor decades, nor years - but months at the outside, perhaps weeks) people will react to the increase in the number of dollars by demanding more dollars for the same goods. This will require the government to accelerate its production of dollars, leading the people to accelerate their demand for payment and accelerate their spending in order to not hold a depreciating currency that was worth a loaf of bread when earned but will only be worth one slice of bread if held for a week.
The fallacy of the Phillips Curve theory of a tradeoff between inflation and employment lies in the fact that people respond not only to the number of dollars they are getting but the number of dollars everyone else is getting. The result of which is not merely constant inflation, nor even a constant rate of increase in inflation - the result is accelerating rate of increase in inflation which, in the case of no taxation at all and unchanged governmental spending as a percent of GDP, results in the collapse of the economy in a matter of months or perhaps a year. The economic collapse occurs because, even as the dollar supply diverges exponentially, the money supply collapses because the dollar ceases to be money at all.
And the government itself loses all credibility along with its currency. But hey - "Other than that, Mrs. Lincoln, how was the play?"
I was being facetious, of course. The hard truth is that someday the government will have to crank up the printing presses to pay interest on the debt and also to redeem the “Baby Boomer” Social Security IOU’s that the Treasury issued for surplus FICA taxes collected and immediately spent by those horrid congressional mealy mouths.
I wish to confess. I’m not an economist. In fact, I have never had a formal course in economics. I am also not a mechanical engineer. My understanding of economics is based on common sense, which tells me that you cannot get more work out of a machine than the energy you put into it. (I believe that this is one of the postulates of thermodynamics.)
Supply siders say that reducing marginal tax rates will induce the average Joe to work harder, smarter and more efficiently resulting in a huge increase in economic activity which will produce more tax revenue than was lost through the tax decrease. Well, it didn’t happen during Reagan’s first term (you may recall that he said that the budget would be in balance by 1983) and it hasn’t happened during the reign of George W. Bush. Instead, our direct Treasury debt is approaching 10 trillion dollars.
Since the only true test of the validity of an economic theory is its real world results, supply side comes up short.