FOR the last five years Republicans have valiantly tried to blame the economy’s problems on supply rather than demand. Excessive government intervention, regulation and uncertainty have raised businesses’ costs and discouraged them from hiring, they argue, while an expanding safety net of food stamps, Pell grants and extended unemployment benefits has discouraged many from working.

They lost the economic argument, because despite efforts by the likes of Casey Mulligan, the evidence was overwhelming that jobs have been held back mostly by inadequate demand, thanks to fiscal policy that turned tight too quickly, monetary policy imprisoned by the zero nominal bound on interest rates, and credit growth bottled up by post-crisis deleveraging and risk aversion. They lost the political argument, too, because they too often characterised the debate as one of takers v makers, which struck many as heartless; Mitt Romney’s famous remark about the 47% of people who wouldn’t vote for him because they got government benefits was the high (or low) point for the Republican attack on the welfare state, depending on your point of view.

Today’s report by the Congressional Budget Office on how Obamacare affects the labour market could mark an inflection point in the competing arguments about demand and supply. The CBO does not find support for accusations that Obamacare has held back the demand for workers in the past; it does, however, find that it will dampen the supply of workers in the future. Specifically, CBO reckons that Obamacare will reduce total hours worked by 1.5% to 2%, or 2m full time equivalent workers, rising to 2.5m by 2024, “almost entirely because workers will choose to supply less labor—given the new taxes and other incentives they will face and the financial benefits some will receive.”

The fact that Obamacare has negative supply-side effects is not a new discovery. In 2010, though, the CBO reckoned these effects would be only half as big, and mostly from the expansion of Medicaid. Now, most of the effect comes from subsidies on the health-care exchanges, which shrink and then disappear as income rises. This creates a very high implicit marginal tax rate, and thus a disincentive to work. Other researchers had also predicted a negative impact on supply, by reducing someone’s incentive to work simply to get employer-provided health insurance. CBO rejected that reasoning. If workers were scarce because they didn’t need employer-provided health insurance, employers would drop their coverage and offer higher cash wages instead.

The furor over today’s report has boiled down to whether it proves Obamacare kills jobs. To follow the logic of Glenn Kessler at the Washington Post, jobs are killed only when the demand for labour is suppressed, not the supply. I disagree. A job is an economic transaction between a seller and a buyer of labour, and can be “destroyed” if either seller or buyer walks away—just as a haircut is a transaction that will be destroyed if either the customer or the barber decides not to go through with it.

The word “destroy” implies the loss of work must always be bad. In fact, someone who voluntarily withdraws from the labour force simply chooses to consume leisure over whatever alternative goods and services he could obtain via wage income. Retirees do it, lottery winners do it, trust-fund babies do it, and so do beneficiaries of the safety net. This is an unavoidable characteristic of a progressive system of taxes and transfers. As income taxes rise, they become an even bigger disincentive to work and invest; but we accept that distortion as the price of equity. Similarly, means-tested transfers that phase out with income represent high, implicit marginal tax rates and thus disincentives to work. We accept this distortion because it seems preferable to the alternatives: transfers that aren’t means tested, or no transfers at all.

What is puzzling, however, is to hear the administration and Obamacare’s defenders say it’s a good thing that Obamacare means fewer people will be working. Of course, by reducing the price of leisure, Obamacare encourages some people to consume more of it, so they must be better off. What is harder to understand is why subsidising leisure should be a goal of public policy.

There may be narrow instances where subsidising leisure makes sense—maternity leave, for example, or giving the unemployed more time to find a better fit. But these are the exception. And it’s a straw man for a White House official to say, "No doubt that if we eliminated Social Security and Medicare, there would be many 95 year olds" choosing to work. The debate isn’t about whether it makes sense to force people to work; it’s about whether people on the margin of the labour force are better off working or getting transfers.

Public policy recognises that people, and society, are usually better off if they work. Work provides dignity, enhances productivity, creates goods and services, and raises GDP, generating the taxes that pay for transfers to those who really shouldn’t work. That’s the logic underlying welfare to work, the Earned Income Tax Credit (EITC), and those who argue (wrongly, in my view) for a higher minimum wage rather than a more generous EITC.

The CBO report does not provide any fix for Obamacare’s supply-side problem. It can’t. It’s inherent in the structure of the subsidies and the nature of America’s employment-based health-insurance system.

What it should do, however, is awaken Mr Obama to the shortcomings in his own economic agenda. Mr Obama is preoccupied with how income is distributed, but presidents should also care about how that income is generated in the first place. In the first five years of his presidency, Mr Obama correctly concentrated on inadequate demand as the primary restraint on growth. It will continue to be, at least through 2016, when the Fed will have begun raising interest rates. But at some point the problem will become supply. It may already be a problem. The decline in labour-force participation from 66% in 2007 to 63% now has surprised and troubled economists. CBO now reckons 1.5 points of that decline is due to retirement, 1 point to discouraged workers dropping out temporarily, and half a point to discouraged workers dropping out permanently.

Declining participation is going to eventually hold back growth; CBO says falling labour-force growth, in part because of Obamacare, is the main reason potential growth will slip to 2.1% in the coming decade from 2.2% in the past decade and 3.3% over the past 60 years.

Scrapping Obamacare isn’t an option, but Mr Obama has been sadly silent on alternative ways to speed up labour-force growth. He has flatly ruled out raising the retirement age for either Social Security or Medicare, even though this, done right, could encourage healthy seniors to work longer. He has paid lip service to retraining but done precious little to improve it, other than ask Joe Biden to come up with something. Advisors say he is bothered by the staggering growth in the number of people collecting disability benefits, but he has yet to make a single, concrete proposal to reform the programme. Mr Obama wants an expanded EITC, but is also campaigning to raise the minimum wage, which is likely to further hurt employment opportunities for the low skilled, even if the effects are small. (Marco Rubio, a Republican senator, has an intriguing proposal to replace the EITC and several other transfers with a wage subsidy.)

Critics will argue that supply-side reforms are a dangerous distraction from the present problem of deficient demand, and in any case will have no impact for years. That’s the beauty of it. Supply-side reforms that encourage the elderly, the poor and the partially disabled to work more should be introduced gradually. That means the effects will only be felt once the economy is back at full employment; it also means that Mr Obama should get started now.