Supply-side Economics

06.06.2015 |

Episode #9 of the course “Brief History of Economic Thought”

In the latter half of the 20th century, a kind of stagnation began to occur in global economic trade, causing economic theorists to seek new understandings of economic functions so they could make predictions about future patterns or suggest corrections to current crises. Associated with supply-side economic theory, which emphasizes the needs and value of the producer rather than the consumer, are two prominent economic thinkers: Robert Mundell and Arthur Laffer.

Some people equate “supply-side economics” with “trickle-down economics,” although the two do have a distinct difference. While supply-side economics is an established framework that organizes and theorizes how an economy might function within a specific set of parameters and circumstances, the idea of “trickle-down” is a loose and abstract ideology that could attach itself to a number of frameworks in order to function. Recently, supply-side economic practices have been used to illustrate the potential of the trickle-down economics theory.

Focusing on the macroeconomic scale, supply-side economists propose that the best way to stimulate an economy’s growth is to make it easy for businesses to grow. According to the theory, when a business can grow and is not inhibited by taxes or stringent government regulation, the business will increase production and be able to hire additional workers to meet the increased demand.

Like classical economists of the past, supply-side economists emphasized the importance of businesses, producers, and institutions that make contributions. One of the most unique features that distinguishes supply-side economic theory is its focus on lower taxes for pragmatic economic reasons, rather than lowered taxes as an anti-governmental political stance. Supply-side economists recognized that lowered taxes to businesses would result in more jobs, which was a practical and non-moral reason to advocate for more corporate freedom.

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