Difference between revisions of "Supply-side economics"

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'''Supply-side economics''' is a [[macroeconomics|macroeconomic]] concept developed in the 1970's as a counter to the dominant Keynesian macroeconomic theory  during the years of [[stagflation]].  Before the early 1980's Keynesian views predominated.  Economist [[John Maynard Keynes]] believed that "demand creates supply". This concept drove many of the ideas behind the recovery from the Great Depression.  Government played a role in subsidizing individuals by giving them jobs and therefore an income to have to spend on goods.  This "demand-side" theory posited that demand would create supply, and feedback to in turn create more demand.   
 
'''Supply-side economics''' is a [[macroeconomics|macroeconomic]] concept developed in the 1970's as a counter to the dominant Keynesian macroeconomic theory  during the years of [[stagflation]].  Before the early 1980's Keynesian views predominated.  Economist [[John Maynard Keynes]] believed that "demand creates supply". This concept drove many of the ideas behind the recovery from the Great Depression.  Government played a role in subsidizing individuals by giving them jobs and therefore an income to have to spend on goods.  This "demand-side" theory posited that demand would create supply, and feedback to in turn create more demand.   
  
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Supply-side theory is based on Say's law, which, paraphrased, states that supply creates its own demand.  A simplified version of these ideas were taken up as a popular political movement during the 1980 election campaign, with [[Ronald Reagan]] advocating for a modified policy of supply-side economics (although critics of this idea more often used the term "trickle-down" economics).  This involved a very different kind of government involvement in the economy, with decreased regulation and decreased taxes (especially capital gains taxes). It was theorized that this would create more wealth among those who created supply, such as manufacturers, and drive demand, thereby improving a stagnant economy. Wealth would be given to the wealthier producer class, and would then "trickle down" to the poorer classes via a general stimulation of the economy.  The idea gained wide popular support, and eventually became known as "Reaganomics".  
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Supply-side theory is based on Say's law, which, paraphrased, states that supply creates its own demand.  A simplified version of these ideas were taken up as a popular political movement during the 1980 election campaign, with [[Ronald Reagan]] advocating for a modified policy of supply-side economics (although [[liberals]] more often used the term "trickle-down" economics).  The decreased regulation begun in the late 1970s, together with lower marginal tax rates would provide enough savings and investment to pool new capital and drive economic growth. Manufacturers for example, would hire more people, produce more and create more demand and economic activity.  The idea gained wide popular support, and became known as "Reaganomics".  
  
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Major criticisms of the theory came from the Left, but the Right was skeptical as well.  [[George H.W. Bush]] during a campain speech famously referred to this conception as "[[voodoo economics]]", due to the hopeful but untested nature of the idea.  On the Left, it was seen as hostile to the poor, shifting wealth "upward" by government policy, then ''hoping'' for a trickle down effect.
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Most criticism came from the Left, but some on the Right was skeptical as well.  [[George H.W. Bush]] during a campain speech famously referred to it as "[[voodoo economics]]", due to discarding of [[New Deal]] orthodoxy.  On the Left, it was seen as threat to the [[welfare state]] with the loss of federal revenues in tax cuts that had funded the failed [[War on Poverty]] programs for more than a decade.
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One key aspect of the program in 1982 was tax cuts for businesses to Research and Development in high technologies for the United States to become more competetive with Japanese electronics manufactors who had dominated the industry since the late 1960s.  Liberals were critical of the idea, claiming "tax cuts for business" only benefited 'the rich"; howeever, the "trickle down" effect became a flood of prosperty in high tech industries by the mid to late 1990s.
  
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The economy did improve gradually during the two decades following the Carter administration but no single factor can be given credit for this upswing.  It has been theorized that supply-side economics helped start the recovery, however, the vast increase in military spending during the Reagan administration may also have had a Keynesian effect.  The simple optimism that Reagan imparted on the American people is even thought to have played a role. The economic upturn during the [[William Jefferson Clinton|Clinton]] years can be partially attibuted to the decreased military spending allowed by the end of the [[Cold War]]. 
 
  
 
[[Category:Economics]]
 
[[Category:Economics]]

Revision as of 19:53, May 20, 2007

Supply-side economics is a macroeconomic concept developed in the 1970's as a counter to the dominant Keynesian macroeconomic theory during the years of stagflation. Before the early 1980's Keynesian views predominated. Economist John Maynard Keynes believed that "demand creates supply". This concept drove many of the ideas behind the recovery from the Great Depression. Government played a role in subsidizing individuals by giving them jobs and therefore an income to have to spend on goods. This "demand-side" theory posited that demand would create supply, and feedback to in turn create more demand.

Supply-side theory is based on Say's law, which, paraphrased, states that supply creates its own demand. A simplified version of these ideas were taken up as a popular political movement during the 1980 election campaign, with Ronald Reagan advocating for a modified policy of supply-side economics (although liberals more often used the term "trickle-down" economics). The decreased regulation begun in the late 1970s, together with lower marginal tax rates would provide enough savings and investment to pool new capital and drive economic growth. Manufacturers for example, would hire more people, produce more and create more demand and economic activity. The idea gained wide popular support, and became known as "Reaganomics".

Most criticism came from the Left, but some on the Right was skeptical as well. George H.W. Bush during a campain speech famously referred to it as "voodoo economics", due to discarding of New Deal orthodoxy. On the Left, it was seen as threat to the welfare state with the loss of federal revenues in tax cuts that had funded the failed War on Poverty programs for more than a decade.

One key aspect of the program in 1982 was tax cuts for businesses to Research and Development in high technologies for the United States to become more competetive with Japanese electronics manufactors who had dominated the industry since the late 1960s. Liberals were critical of the idea, claiming "tax cuts for business" only benefited 'the rich"; howeever, the "trickle down" effect became a flood of prosperty in high tech industries by the mid to late 1990s.

Reaganomics

"Reaganomics" includes the idea of tax cuts proposed and enacted by President Ronald Reagan. It usually refers to the idea of "trickle down theory" in which lowering taxes on capital gains and those with higher incomes will stimulate the economy, thereby improving the economic situation of everyone.[1]

Reagan's own vice-president, George H. W. Bush, referred to Reaganomics as "voodoo economics."

Rothbard wrote:

  • Specifically, Reagan called for a massive cut in government spending, an even more drastic cut in taxation (particularly the income tax), a balanced budget by 1984 (that wild-spender, Jimmy Carter you see, had raised the budget deficit to $74 billion a year, and this had to be eliminated), and a return to the gold standard, where money is supplied by the market rather than by government. In addition to a call for free markets domestically, Reagan affirmed his deep commitment to free­dom of international trade. [1]

External Links

  1. ↑ 'Supply-side economics is better known to some as "Reaganomics", or the "trickle-down" policy espoused by former U.S. president Ronald Reagan. He popularized the controversial idea that greater tax cuts for investors and entrepreneurs provides incentives to save and invest and produce economic benefits that trickle down into the overall economy.' Understanding Supply-Side Economics, David Harper
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