In ​​economics, supply is the number of goods or services that producers will sell at different prices in the market. In this sense, “supply-side economics” implies a series of policies that aim to increase aggregate supply. This policy is based on the belief that higher production rates will lead to higher rates of production economic growth.

Supply-side economics

This economic policy aims to improve the productive capacity of an economy, promoting a better business climate through deregulation and tax cuts, which leads to the creation of more jobs, increasing demand levels, and originating economic growth. Its approach is focused on improving the four pillars of production: labor, capital, land, and entrepreneurship; in this way, economic policies of this type lead to the reduction of the unemployment rate.

Some economists claim that successful “supply-side” policies contribute to economic growth, albeit in the long term, without increasing the inflation rate; it is important to note that these policies are not perfect since they have some difficulty in implementing and are sometimes unpopular since they require a certain time to have the desired effect.

According to the supply economy, consumers would be the beneficiaries of a greater supply of goods and services at low prices, resulting in increased employment. Its counterpart or the opposite is the “demand-side” economics, which mentions that the government should guarantee sufficient demand and employment through fiscal policy (for example, through an economic stimulus provided by the government).

Where did this economy originate?

The supply economy had its development in response to the phenomenon of “stagflation” in the 1970s. They based it on a series of non-Keynesian economic thoughts, and including those of the New Classical School and the Chicago School; currently, supply-side economics is associated with a policy to reduce taxes in all circumstances; it is common to hear people who are against taxes claim that tax “cuts” always generate higher income.

What sets the economy apart from the supply side

It should be noted that what distinguishes supply-side economics as a modern phenomenon is its argument in favor of low tax rates, mostly for collective working-class reasons rather than traditional ideological reasons. The economics of supply proposed that production or supply was the key to economic prosperity and that consumption or demand was only an “additional” or “secondary” consequence.

What do you think about this topic? Is supply-side economics a good option?

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