Supplyside vs Demandside Economics
2012
Alex Savitt
Economics 256W
4/23/2012
2012
Alex Savitt
Economics 256W
4/23/2012
Demand-Side vs. Supply-Side Economics
Demand-Side vs. Supply-Side Economics
Ever since the 1980s when President Ronald Reagan implemented a form of economic fiscal policy known as supply-side economics, there has been a continuing debate over whether a supply-side fiscal economic agenda or a more demand-side, Keynesian fiscal economic policy is more effective in promoting short and long-term real GDP growth. Like any analysis in economics, there are many variables at work in the economy, however the purpose of this paper is to try and isolate a few key variables in the economy such as unemployment, real GDP, consumer spending, the federal budget, and inflation in order to formulate a conclusion which can determine which economic ideology is more effective in promoting growth in the short and long-term in terms of real GDP. As a result of my historical analysis, I will show that neither extreme supply-side or demand-side economic theory is suitable in all economic climates. In order to promote sustainable real GDP growth, we must model our economic theory around the principles of the 1950s and 1980s which include fiscal conservatism, moderate tax rates, and productive government spending. In order to analyze the two theories it is first important to understand the underlying theory behind the two economic views and little about their origin. Supply-side economics, also known as “trickle-down economics” originated from the thoughts of Karl Marx, but was first formally theorized by French economist Jean-Baptiste Say. Say argued during the 19th century that supply was the dominant driver in an economy. He developed a law known as Say's Law, which states that the way to economic growth is to boost production, and demand naturally follows. This theory was supported by thinkers such as Thomas Jefferson. The idea is that even during a recession, people are still demanding
Alex Savitt
Economics 256W
4/23/2012
2012
Alex Savitt
Economics 256W
4/23/2012
Demand-Side vs. Supply-Side Economics
Demand-Side vs. Supply-Side Economics
Ever since the 1980s when President Ronald Reagan implemented a form of economic fiscal policy known as supply-side economics, there has been a continuing debate over whether a supply-side fiscal economic agenda or a more demand-side, Keynesian fiscal economic policy is more effective in promoting short and long-term real GDP growth. Like any analysis in economics, there are many variables at work in the economy, however the purpose of this paper is to try and isolate a few key variables in the economy such as unemployment, real GDP, consumer spending, the federal budget, and inflation in order to formulate a conclusion which can determine which economic ideology is more effective in promoting growth in the short and long-term in terms of real GDP. As a result of my historical analysis, I will show that neither extreme supply-side or demand-side economic theory is suitable in all economic climates. In order to promote sustainable real GDP growth, we must model our economic theory around the principles of the 1950s and 1980s which include fiscal conservatism, moderate tax rates, and productive government spending. In order to analyze the two theories it is first important to understand the underlying theory behind the two economic views and little about their origin. Supply-side economics, also known as “trickle-down economics” originated from the thoughts of Karl Marx, but was first formally theorized by French economist Jean-Baptiste Say. Say argued during the 19th century that supply was the dominant driver in an economy. He developed a law known as Say's Law, which states that the way to economic growth is to boost production, and demand naturally follows. This theory was supported by thinkers such as Thomas Jefferson. The idea is that even during a recession, people are still demanding