Supply side economics

What are supply side economics and why is it suddenly important for economic growth? Because some people in the Tory party are saying;

That's a good question. As I understand it , it has something to do with deregulation, reduced spending and taxes, and focusing on allowing private industry to do stuff...

edited 1st Oct '11 11:21:18 AM by USAF713

It's generally lowering taxes on investments/other high-end income in order to increase investments. It's important for economic growth if there's a lack of capital/equity in order to meet current or future levels of demand. And in the modern economy, it's basically a load of bullshit.

Edit: As well, any capital/equity shortages are probably going to be a result of bubbles causing issues with distribution of said investment/equity, and not a shortage of capital/equity as a whole. As such, measures which seek to increase the amount of investment/equity would probably end up mostly further inflating said bubbles.

A better solution when this issue occurs would be to open up a government bank of sorts to directly inject equity in terms of long-term loans for businesses where there is truly a need.

edited 1st Oct '11 11:18:13 AM by Karmakin

So, the problem isn't that it doesn't work, but rather that this is a demand crisis, not a supply crisis?

Yes.

I'm actually a moderate on this, in that in the past when demand has lagged, I would have supported say a 70-30 Demand/Supply targeted split. In the current environment, for a few reasons, it's like 95/5 or something insane like that.

What kamarkin said, but I'm going to expand a little: Investments have been incredibly high for the past decade or so, so much so that it created a bubble and people's wages have stagnated. We can see evidence that investments in capital are not needed as much as investments in stores or wages due to the fact that most banks and a lot of big businesses are reporting record profits while laying off people in the thousands and cutting the wages of those who remain.

Supply-side economics (for the jobs market anyway) is the factors that are relevant to supplying new jobs. Payroll expenses, unemployment taxes, anything that affects how difficult it is for companies to hire new workers. Theoretically, if the costs of hiring new workers goes down, employers will automatically hire more workers.

Reality shows that this simply doesn't work on its own. Politicians are ignoring Demand-side economics, the factors that are relevant to the need of new jobs. Governments can make hiring as easy as they want, but it does absolutely nothing when employers don't need to hire more workers. If a company feels the need to hire, its because they need the extra work to satisfy consumer demand, not because payroll taxes go down.

Governments (especially Washington) simply don't get this and throw everything at Supply-side, and companies simply pocket the tax breaks and lay off more workers due to the lack of demand for them.

Because corporations have billions of dollars, powerful lobbyists, and thanks to Citizens United, have the ability to give unlimited campaign contributions to politicians who support these breaks, whereas the lay person doesn't have any of these abilities.

An often stated metaphor in economics: 'You can lead a horse to water, but you can't make it drink.' Companies aren't going to hire more workers until demand improves. But without government intervention, demand won't improve until companies hire more workers. See the saver's paradox for more on that.

edited 1st Oct '11 11:39:06 AM by DarkConfidant

Citizens United didn't legalize limitless donations.

Otherwise, I agree with you.

Well the big reason for that is that there is fundamental changes in the ways that more and more businesses employ people, and by and large the study of economics hasn't really adapted to it.

It used to be that employers if it was worth it would hire an additional person with the hopes that maybe it would increase business or whatever. Now they have more firm notions on exactly how much business they're going to do at any given time and as such they know almost exactly how much labor they need.

Something that used to be somewhat balanced between supply and demand is now almost entirely demand-based.

Okay, upon actually Googling the case, it only gives them unlimited power to advertise or otherwise (quasi-)independently support the candidate of their choice. In practice, there's really very little difference in outcomes.

edited 1st Oct '11 11:44:47 AM by DarkConfidant

Yay for technology!

That's a big difference, but also off-topic.

edited 1st Oct '11 11:46:29 AM by USAF713

I think the idea of removing government intervention should come from grounds of freedom instead of direct economics. I do see that simply saying government is bad for the economy isn't enough to justify supply side economics because after all, it's indirect, and there are more things that can go wrong with an indirect process. That's my stance as of now.

edited 1st Oct '11 9:43:45 PM by abstractematics