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 Keynensian 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 Keynensian 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 campain, 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. The idea gained wide popular support, and eventually became known as "[[Reaganomics]]". | + | 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 campain, 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]]". |
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. | 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. | ||
Revision as of 18:54, March 30, 2007
Supply-side economics is a macroeconomic concept developed in the 1970's as a counter to the dominant Keynensian 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 campain, 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".
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.
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 Clinton years can be partially attibuted to the decreased military spending allowed by the end of the Cold War.
