supply-side economics/reaganomics

Post Reply New Topic

Reaganomics, in my opinion, is one of the greatest failures of the 20th century. In theory, giving money to rich people means that they can more readily create jobs for the lower classes, and thus the lower classes will have money to buy more consumer products and services, thus stimulating the economy (commonly referred to as "trickle-down")... However, this never works as such in practice. The rich people hoard the money and spend it on themselves, in the process not creating the jobs that were supposed to be created. That's why I see the concept as a failure...

I think most economists who weren't biased by standing to benefit from Reaganomics or sufferers of the appeal to authority logical fallacy saw the problems with supply side economics and knew it wouldn't work.

Unfortunately those who stood the most to gain from it were also the most influential people in the country so it was pushed through and hyped so much people got on board thinking that someone else must know something they don't.

In almost all cases putting more money in the hands of the lower and middle class will give more benefit to the economy since they will spend it in the market or use it to start new small businesses instead of sitting on it.

May I simply post a disclaimer that supply-side is not the way normal capitalism works? Many people have used the failures of Reagonomics to condemn free market policy, and this is a straw man.

socialized corporate favoritism doesn't work.


supply-side economics only works in a free market...not a socialized system designed to allow the strongest to write whatever laws they wish.

from what I've noticed- it works well as long as the consumer boycott works too.

if a consumer boycott can make the company change it's ways into more moral, worker-friendly ones than yes, it might just work.

I don't believe in the state providing for all the losers because I grew up in socialism and know for a fact that it is a failure and not a real alternative to capitalism.

If money is going to be doled out, then Keynesians would probably point to a higher marginal propensity to consume among the lower classes along with the Keynesian multiplier to justify giving the money to the poor rather than the rich. Of course, diminishing marginal utility of having more and more money means that giving the rich more money isn't likely to make them co much different.

i like you.

Well, let's just get things straight:

Supply side economics is usually not just "let's give money to a certain group of people" but rather usually seeks to cause changes in behavior in the populace, the reduction in marginal tax rates is usually partially understood to be an incentive for these people to work more by giving them a greater amount of the wealth generated, it also can be understood as a means of causing accounting manipulation to be less desirable, as such is costly to the economy and to the user of accounting practices, so by reducing taxes, we can reduce the use of this sort of accounting. Now, of course, the issue with tax rates on income is that there are income effects and substitution effects, and it is argued by some that the substitution effects work against the effectiveness of tax decreases in generating greater productivity. However, in other matters, tax decreases can cause greater levels of growth, such as I think research has come out positively on the matter of decreasing taxes on investment returns leading to higher rates of investment, and I think that the stance that corporate taxation is inefficient is also not unpopular either.

In any case, the aim of supply side economics is usually to create better long-term growth, which is why supply-siders will usually want like ideas such as dynamic scoring models, which determine the changes in GDP caused by supply side actions, and this emphasis on the long-term is what separates supply-side economics from Keynesian "demand-side" economics, which focuses on creating a short-term manipulation of demand. Now, to be honest, supply-side economics has rarely been popular in the academic mainstream, and the few intelligent defenders are likely misrepresented by the politicians that use their ideas. For example, increases of deficit spending actually *work against* the desired growth effects that the supply-siders seek, but increases of deficit spending are what people usually see when they hear "supply-side economics". In any case, it is also somewhat unfair to label supply-side economics purely in terms of trickling down, because that represents the economy as mostly being benefited by the flow of money, however supply side economics does not seek to increase the velocity of the dollar so much as increase supply.

As for the criticisms of supply side economics, the matter of "hoarding" or "sitting" on the money isn't so much a problem, as unless the rich have a giant bathing pool for their money, in a Scrooge McDuck from DuckTales fashion, then they won't sit on it so much as invest it. The matter of spending it on themselves though is a valid criticism, as supply side economics mostly seeks to increase capital and labor in the economy, so if the determinants of economic growth are unaffected, then supply side economics fails.

AG: is part of that basically saying that supply side economics is not the same thing as the corporatism that has gone on with US economicy policy for the last 20 or so years?

The problem isn’t that the wealthy sit on their money. They do invest, just not always in ways that create new jobs. When employment and wages stagnate they survive by creating bubbles. Then when the bubble starts to deflate they run on their investments since they were only in it for monetary gain (and that’s all a bubble is good for since nothing of real value is created). Then it’s not just the bubble but the whole economy that deflates. It all seems very logical that this kind of thing is bound to happen.

Somewhat, supply-side economics in the political sphere has really been a word meaning "corporatism" for the last 20 or so years, however, if we were to actually be decent enough to give this term meaning other than corporatism(because let's face it, there's been corporatism with so many faces now that it seems right to distinguish between the faces) then there can be a supply-side economics separate from dumb corporatism.

I don't buy the concept that a single monetary or economic policy is the answer to the World's problems.

I have to admit, compared with Zimbabwe, we're working quite nicely...It needs work, but we have the freedom to alter policies, or even abolish them.

What the economy will look like in a few years, I don't know. Injecting that much cash into the world economy could lead to rampant inflation, something like zimbabwe itself, only without the goons...

I wasn't condemning free-market capitalism in the OP... just the idea that the rich are generous people...

Well, actually bubbles do create employment, they also crash, and the employment is lost simply because there was little . To be honest though, I don't think anyone fully understands how bubbles are created, and certainly there is little reason to think that investments by the wealthy are more likely to result in bubbles than investments by any other group of people. I mean, we could argue that somehow the wealthy get together and trick everyone else into buying into the bubble and then leaving, however, that seems like it'd require a lot of coordination that could not be expected of an entire group of people. In any case, I think the dominant theory on bubbles is actually just that they emerge due to psychological flaws in processing information, and that'd be problematic in any society.