Demand Side And Supply Side Economics

Demand Side And Supply Side Economics – Russ Daggatt’s latest message is about whether the stimulus bill had a positive effect. His analysis is worth checking out…and expanding the link.

My view of things is more abstract. So let’s take a step back and examine how Democrats and Republicans are characterized by two completely different economic theories. Let’s start with Republicans who continue to resist allegiance to supply-side economics (SSE), a theory that George Bush Sr. once called “voodoo” and has now been a key conservative theme for three decades.

Demand Side And Supply Side Economics

The supply side believes that you can best stimulate economic activity by increasing the net wealth of the upper echelons of society—people and groups who do not need essential goods. Instead of spending it on direct “demand” purchases, these wealth owners invest any small wealth gains (say from tax cuts) into things that increase “supply” – factories, new businesses, goods and innovative services. Hence the name Supply-Side.

The Economy: The Supply Side Versus The Demand Side

Interestingly, the most famous proponent of this approach was Karl Marx, who argued that the capitalist class drives industrial development by reinvesting profits in its plants and equipment, thereby building society’s capital and means of production. In this respect, SSE is a purely Marxist theory.

Of course, Marx then looked further. He thought that there would be a final “completion” of this process of capital formation, a final stage when all the factories were ready – an image that now seems silly to us, since it must be able to update the product at high speed. (Therefore, capitalists will always be needed.) Still, it is rather unfortunate that SSE advocates will never recognize the fundamental root of their theory. They do not check their ideological ancestry. They do not try, as Marx did, to extrapolate where their recipe might continue.

But let’s examine SSE’s key predictions. (All theories should make reliable predictions that are clear and testable.) For thirty years we have listened to supply-side enthusiasts predict that tax cuts on the rich will: 1) lead to direct investment of wealth, released in the capacity of “supply” for innovative production. goods and services. 2) stimulate so much new economic activity that even lower tax rates will bring in enough new revenue to offset any potential deficit resulting from tax cuts for the wealthy. 3) elimination of public debt, thereby resolving any conflict between revenue reduction and fiscal responsibility.

This lengthy explanation is necessary to understand why the credit deficit is now weighing on the Republican coalition. In the 1980s, 1990s and 1920s, the mantra was:

Supply Side Economics

If the federal budget is in deficit, cut taxes on the rich to fix that deficit. – if there is a surplus in the federal budget, cut taxes on the rich because it’s their money, not the government’s, and then there will be no rainy days. – reduce taxes on the rich in peacetime, because the government has a lower priority in peacetime. – he cut taxes on the rich during the war because… well, that didn’t even make sense with conservative logic. Indeed, it was the first time in US history that a clade of superwealth claimed a growing country, even though the country was in mortal danger.

In any case, it must be recognized that the main demand of SSE’s creditors was completely consistent. Cutting taxes for the rich is good for America, across the board, in all circumstances, and to no end.

For three decades, SSE advocates have told skeptics to “just watch and see what happens!” (When top tax rates were lowered.) OK, we looked. And virtually every big prediction by proponents of supply-side economics has failed – diametrically – without major exceptions.

The uber rich didn’t take advantage of the tax break and didn’t invest it in innovative/productive equipment. They spilled over into passive investments – what Adam Smith derided as “rent seeking” – or risky financial instruments and asset bubbles. Above all, the direct prediction that lower revenues would eliminate federal deficits ran directly counter to observed reality.

Pdf] Supply Side Climate Policy: The Road Less Taken

The only period in which deficits actually disappeared came after Bill Clinton passed modest tax increases on the rich in 1993, followed by tight budget management. Then we saw a combination of budget balance, strong economic activity and revenue-led debt reduction.

Named after FDR’s longtime mentor, John Maynard Keynes, this theory states that economic activity is driven by the demand for goods and services. In addition, money moves more quickly into the hands of the middle and lower classes—that is, a given dollar is spent and then spent again more often than the middle class provides through bulk purchases. collected in the care of a rich man.

(Remember, according to this theory, tax cuts for the rich can make sense when rapid inflation in an overheated economy requires a lower velocity of money! intended goals .)

According to Keynesian or demand-side theory, the government should spend heavily, even deeply in debt, when the country is in recession in order to restore rapid economic activity. Hence the recent increase in stimulus activity in the first year of the Obama administration (see Daggatt’s article)… in stark contrast to the equivalent “stimulus” measures taken in George W. Bush’s last year in office, most of which were to boost the position of those at the top socio-economic arrangements.

Contrary Brin: A Primer On Supply Side Vs Demand Side Economics

Now, for someone who really despises deficit, both the SSE and DSE methods can be awesome. Both argue that they use deficits and a large government to stimulate the economy, believing that this will increase economic activity and that the resulting revenue will wipe out their debt. There are only a few major differences.

1) A demand side deficit (Keynsian) goes where every dollar has a high velocity effect as their theory predicts. Conversely, supply-side largesse for the wealthy certainly did NOT lead to the expected capital formation. (Marx was wrong.) It simply made the wealthy richer.

2) Quite apart from macroeconomic effects, demand-side beneficiaries – the poor and middle class – may have a very direct need. Meeting this need (if done well) could create more skilled workers or more small businesses. Conversely, it is hard to see how the supply side puts money where (wealthy) where the needs simply justify government intervention.

3) The offer is monotonous. “Give money to the rich in ALL circumstances, at all times and circumstances, no matter what.

Solved] What Is The Best Approach To Managing The Economy, Supply Side Or…

In contrast, the Keynesians proved their policies flexible and changeable, careless and situational. They spend relentlessly to get out of recession because that’s what Keynesians do. (It’s just hypocrisy that the right to fight the current ruling party consistently works with their own economic theory. You had your chance – now it’s theirs.)

But the 1990s prove that Democrats have a reputation for flexibility. When the recession ends, they spend more carefully, put away more of it and start saving. Of course, if Bush had continued Clinton’s debt-buying policies in good times, there would have been a large reserve fund to help us get out of the current crisis – now.

4) Supply-side economics is generally despised by experts – professionals who have studied this difficult field all their lives. This may look good from the point of view of those who increasingly argue that experience is a disqualifying factor. From scorning the U.S. civil service and civil service to trusting universities and climatologists who have achieved weather forecasting miracles, it has become clear that there is no side in our catchy, weak “culture war” that the experts can hear. . regardless of the economy.

.5) Of course, the situation is not completely black and white! Keynesianism was a failure. Economics is a boring “science” and the demand side has a lot of trouble dealing with a complex economy. Furthermore, pre-Clinton Democrats sometimes acted as if the law of gravity didn’t apply. This ability will always be on the left (witness Greece, today). Additionally, Democrats played a (minor) role in deflating our recent wealth bubble.

Demand Side V. Supply Side

The government should spend more revenue in a recession and direct rapid stimulus to the middle class. Then, in good times, he should use the adequate income to build up reserves. The Pharaohs knew this. It’s even in the story of Joseph in the Bible. It makes sense.

What doesn’t make sense is to hastily adhere to another “voodoo” theory – Supply Side Economics – which has always and completely failed in all its major predictions after being tried again for three decades.

A theory that is semi-Marxist in that it openly seeks to promote the rise of an all-powerful wealthy aristocracy in the way Marx prophesied, leading us towards the kinds of class divisions old Karl wrings his hands about. , moaning “Yessss!”

Just… in that context, take this confirmation of who I’ve been for a long time. The plain truth is that supply-side economics has never been true. In the Nov. 1 report, we learn that Senate Republicans pressured him

Supply Side Demand Side Economics In Powerpoint And Google Slides Cpb