Supply-side is the 1970s in the United States the rise of a bourgeois economics schools. Supply-side school emphasizes the supply side of the economy that demand will automatically adapt to changes in supply, hence the name. Supply-side school of thought, the production (supply) growth depends on factors of production such as labor and capital supply and effective use. Individuals and enterprises engaged in business activities, factors of production and to seek reward, the reward stimulus can affect people's economic behavior. Free market will automatically adjust the supply of factors of production and use of market regulation should be to eliminate the factors that hinder. The main representative of this school one of AB Laffer to supply-side economics as "to provide a stimulus based on the analysis of individual and corporate structure to change people's behavior as the stimulus, the stimulus for the initiative to attract, see the negative stimulus to avoid the Government's task in this structure is to use its functions to change stimuli in order to influence social behavior. "
Supply-side - the background
Supply-side: after World War II, occupied the Keynesian dominance of bourgeois economics, JM Keynes, according to the economic reality of the 1930s, demonstrated lack of demand resulting economic crisis and unemployment, the government should take measures to stimulate demand in order to make the economy to achieve full employment and stability, which overthrew the "neoclassical" supply can generate its own demand, the market self-regulation can achieve full employment and economic stability of the argument. Western countries generally Keynesian policy based on economic demand management, and achieved certain results. So Keynesian very popular.
However, the wrong understanding of Keynesian economic mechanisms of capitalism, but to artificially expand the demand of capitalist production and the market temporarily cover up the contradictions, conflicts, and has not been really resolved, leading to production of the 1970s Western sluggish economy, unemployment is serious, prices continued to rise while the "stagflation" (see stagflation) situation. So the West to the Keynesian economists have challenged, and to study alternative theories and policies. Supply-side is in this context the rise.
Supply-side - the formation of schoolSupply-side is a pioneer in the Canadian school, Columbia University Professor RA Mundell (1932). The early 1970s, he repeatedly criticized the U.S. government's economic policy, put forward Keynesian counter-argument and ideas. He opposed the Ford administration in 1974 imposed an additional tax plan to control prices, advocates lower taxes to encourage production, while restoring the gold standard, stable value of the dollar to curb inflation. Mundell's argument caused by Laffer and J. Wan Ni Siji (1936) the attention and appreciation. Laffer further research and development of the Mundell's argument. Then U.S. Congressman JF Kemp (1935 -) is also attached great importance to Mundell's position. He appointed PC Roberts (1939 ~) for his proposed tax cut proposal, hire NB Tours (1923) for the measurement of tax effects.
The latter half of the 1970s, Laffer, Wan Ni Siji, Roberts, etc. using the "Wall Street Journal" widely publicize their arguments. Kemp also inside and outside Parliament to strongly advocate tax cuts to promote economic growth. 1977, Ross Kemp and Senator WV (1921) jointly by reducing personal income tax within three years 30% of the proposal. Although this proposal not passed by Congress, but had a significant impact on the community. Roberts's paper "Keynesian model of bankruptcy" (1978) and Tours of the article, "the economic effects of tax changes: the neoclassical analysis" (1980), the economic effects of proposed tax on confrontation with the Keynesian argument. Wan Ni Siji "written by way of running the world" (1978) is considered the first supply-side theory works, G. Gilder (1939 -) of the "Wealth and Poverty" (1981) described the supply-side theory of distribution of capital and , known as supply-side economics is a first-class analysis. The late 1970s, supply-side economists in the United States has become a unique school.
Formation in the school, some advocates such as M. Feldstein (1939 ~), MK Evans (1938 -) and some of the arguments and policy in the same Laffer, Wan Ni Siji, Kemp and other people's views vary widely. Because Feldstein, Evans more moderate point of view, hold on a compromise, the Western economists call them moderates, said Laffer, Wan Ni Siji, Kemp as the radical. But the latter claimed to be supply-side orthodoxy, the latter usually Western circles as supply-side representatives. The following also refers to the alleged supply-side radical.
Supply-side the rise in the United States, Britain, Germany, also appeared in some of his followers. However, although Western European countries support the U.S. supply-side supply-side of the basic ideas, but there is no emphasis on tax cuts.
Supply-side - policy in favor of
Supply-side supply-side has not established its theoretical and policy system, but school advocates the capitalist economic system, resulting in "stagflation" of the causes and policy in favor of some common views.Keynes denied the law, certain school of Say's Law that supply, 1929 to 1933, the capitalist world economic crisis is not due to lack of effective demand, but the Western governments to implement a series of errors due to policy, Say's Law is entirely correct, but the law of Cairns is wrong. Gilder insists on all the economic perspective, purchasing power is always equal to productivity; economy has sufficient capacity to buy all its products, can not occur due to lack of product demand surplus. Laffer strongly emphasized the significance of Say's Law. He pointed out that Say's Law is not only outlines the theory of the classical school, and to confirm the actual supply is the only source of demand is maintained. Supply-siders believe that government should not stimulate demand, but should stimulate supply.
Production growth depends on the supply of factors of production and its efficient use, which in turn depends on a variety of supply-side incentives for re-affirmed after Say's Law, and then confirm the decision in the production of growth factors of production such as labor and capital supply and efficient use of capital factors of production is crucial. Accumulation of capital determines the growth rate of production should be encouraged savings and investment.
Supply-siders believe that the market economy, individuals and businesses (collectively referred to as economic agents) to provide factors of production and business activities are to seek compensation or profit. Therefore, the remuneration and profit incentives will affect the behavior of economic agents. Of the stimulus will affect the real wages of labor supply; savings and return on investment of the stimulus will affect the supply and use of capital. The market mechanism into full play, to achieve a balanced supply and demand factors of production and effective use. Should be eliminated is not conducive to the supply and use of factors of production factors.
Government's economic policy, especially fiscal policy is the main business activities of the powerful economic incentives for supply-side pointed out that the government's economic policy is the main business activities of economic incentives, including fiscal policy is most important. In the analysis of economic policies on the behavior, the supply-side against Keynesian policies only pay attention to the economic effect of the main income and expenditure, but stressed the role of policy on productive activities.
Supply-side analysis of the tax system focuses on the supply of factors of production and use of the results. They pointed out that economic entities engaged in business activities is not of interest to obtain the total amount of remuneration or profit, but minus the remuneration or profit after tax net. Conditions in the progressive tax system, marginal tax rate (imposed on the income part of the class tax rates) is a key factor. Because economic agents do more work or whether to increase savings and investment depends on marginal tax rate after the increase in net pay is cost-effective. They believe that tax rates affect the behavior of economic agents is achieved through changes in relative prices. Tax rate increase, the net return after tax decrease. On labor, this means that the prices of leisure for work, leisure, people will choose not to work, labor supply will be reduced. On capital, this means that consumption of savings and investment, lower prices, people willing to be used as consumption rather than income as savings and investment, capital supply will be reduced. In addition, the economic agents in order to avoid high tax rates, also the economic activity from the market underground. These will reduce the supply of factors of production, the use of efficiency, so that decline in production.
Supply-side - effects
Although the supply-side supply-side economists have been the West's comments, but also to give a strong impact of Western economic thought, of some Western countries, especially the U.S. economic policy has a great impact.
The impact of Western economic thought are:
① shift from an emphasis on demand with supply. Recently, Western economists the macro economy, the development of models, generally only consider the demand shift from a combination of supply. Even though some scholars disagree with supply-side arguments, but also admitted in the past completely ignoring the supply side of the economy is not appropriate. ② attention from advocates government intervention to market mechanisms. Currency School and other schools conservatives opposed to government intervention had been made although the economy, promote the market to adjust itself, but only in the supply-side analysis of government policies that hinder economic growth, government laws and regulations to manage the economy an enormous burden to the enterprise, Western economists generally only Note role of market mechanism, reduce the government's economic functions. ③ shift attention from the appreciation of the average revenue productivity. Most Western economists do not agree with the supply-siders on progressive taxation and social welfare programs lead to economic "stagflation," the argument, but recently some scholars strongly endorse redistribution of income from the past turned to pay attention to production efficiency point of view.
