Supply side economics, a term coined by Jude Winniski, is a macro-economic perspective that (and forgive my gross oversimplification) revives a Frankenstien version of classical economics together with Say’s law. Classical economics is the period and school of economic thought ushered in the 18th century by Adam Smith in part as a rebuttal against mercantilism, and laid to rest in theory by John Keynes and in practice by the Great Depression. It is also characterized as trickle-down economics, or as George the first said “voodoo economics“.

Keynes characterized Say’s law as “supply creates its own demand,” because of Say’s and classical economics’ implication that demand is merely a consequence of supply. A more sophisticated reading might be to say that supply allows related latent demands to manifest themselves. This allows for Say’s law to be wrong (by omission as Keynes believed) while also revealing how it could appear to be right.

Curiously I have never come across the notion of supply side apart from it economic heritage, despite its pervasiveness as a mode of thinking well beyond economics. In all cases supply side thinking is toxic. Here are some of its failures.

• The War on Drugs. The idea here is to restrict supply by guarding borders, jailing agents within the supply chain as well as end consumers, conducting not-so-covert foreign wars, increasing militarization of security, and increasing law enforcement powers, etc… The results are quite simply an endless and catastrophic failure that has virtually no impact of drug usage while creating an artificially high price on commodities that cost virtually nothing to produce, making criminals very very very rich, and driving that money underground. Supply side thinking blinds one to the essential truth that as long as demand for drugs persists supply will find a way.
• The War on Terror. The idea here is to stop terror by targeting supply—known terrorists. This of course ignores the underlying causes that created the supply of terrorists in the first place, leaving these causes free to continue incubating more terrorists. Supply-side thinking here is a recipe for endless war (of course that might actually be the goal).
• The War on Obesity (Are you noticing a pattern here with the war metaphor? War is almost a necessary consequence of supply-side thinking it seems) Americans are obsessed with being thin, spend the most money on diet related products, and are consistently and unhealthily the most over-weight people on earth. That’s quite a paradox. Well the root is supply side thinking. Look at the solutions to obesity we have in the marketplace—nearly all of them are supply side solutions. Diet pills that allow you to eat as much as you want and never get fat. Extreme diets that prescribe eating certain unpalatable foods at certain times of day. Prepackaged engineered weight loss foods with points you can count to restrict your daily supply of fat and calories. How many solutions aim at modifying demand? How many try to help people want to eat less, or help people want to eat better? In the meantime you can now buy “husky” size car seats for your children who are too fat to fit in the regular sized ones. Supply-side efforts to make us thinner are actually making us fatter earlier.
• …endless movie sequels, fourteen different flavours of Law and Order, more features, super sized fries, etc…

And I won’t even get into supply-side’s economic failures (ok well just a little–the supply siders have bankrupted our children and our children’s children).

In other words, supply side thinking often has disastrous results, making worse what it meant to make better. This seems especially true in term of intractable predicaments (like crime, drugs, terror, obesity) and wicked problems (like new product innovation).

So how is supply-side thinking toxic to new product innovation? Because it begins with the question “what have we got?” This is the wrong question to start with (and it is after all the question that drives us). The question should be “what do people need?” All too often new product development means the engineer looks on his shelves to see what stuff he’s got, and the marketing manager tries to figure out who she can talk into buying it. This results in cold cornflakes in India (cheers niti).

Supply-side thinking restricts creativity to the known, to the controllable, to the certain and discourages reframing issues. Supply-side thinking seeks to find alternatives to gasoline. Demand-side thinking wonders why we need gas. Actually its not gas that we need, its the power to move things from here to there; gas has just been what has most commonly helped us accomplish this. What if we could move things without combustion fuel? What if we could produce more locally? What if we planned different kinds of cities? Then alternative fuels become just one of many possible solutions on the table, instead of the only one–and almost for free we discover solutions to bigger structural problems, of which petroleum scarcity is only one.

The most creative people I have worked with (and yes that includes lots of people who are not designers) are folks who do this kind of reframing naturally. Furthermore they do it from the demand-side, from the perspective of the users or customers (demand) rather than executives or managers (supply). These are the kind of people who are capable of real breakthrough innovation, the kind that redefines categories, the kind that give you exponential growth.

Put your innovation on detox—forget about the supply side.