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85. ECONOMIC THEORY OF SUPPLY
In contrast to Keynesianism, this economic theory favors supply as a growth factor.
Supply Economy - this is not a holistic concept, not a complete and interconnected system of views, methods of theoretical analysis, but mainly a system of econometric calculations on which practical proposals and recommendations are based.
Supply-side economics covers a range of practical issues aimed at stimulating production, investment and employment. Among them one can highlight:
1) proposals in the field of tax policy;
2) the policy of privatization of state enterprises;
3) improvement of the budget;
4) reducing spending on social needs. Supply-side economics was developed mainly by American economists. Among them - A. Laffer (Professor of Economics at the University of South Carolina) M. Feldstein (Harvard University), R. Regan (former US Treasury Secretary). Together with the monetarist school, this direction is referred to as conservative wing of neoclassicals.
According to supply-side economists, market represents not only the most efficient, but also the only "normal" way of organizing the economy. They oppose government regulation of the economy.
Regulation - an inevitable evil leading to a decrease in efficiency and binding the initiative of economic activity participants. The views of the supporters of this concept are reminiscent of the starting points of economic philosophy. Hayek, his concept of "spontaneous order".
The basic idea of supply-side economics composed:
1) in the rejection of Keynesian methods of stimulating demand;
2) in the transfer of efforts to support the factors that determine the supply. The causes of inflation are seen in high tax rates, in the financial policy of the state, which provokes an increase in costs.
Price increase - the reaction of manufacturers to undesirable turns of economic policy and unstable market conditions.
The main recommendations of this "school":
1) tax cuts to stimulate investment. An increase in the tax burden creates a budget deficit and hinders economic growth. A proposal is being put forward to abandon progressive taxation, to reduce tax rates, primarily the so-called marginal rates on income, capital, as well as on wages and dividends;
2) privatization of state enterprises.
Privatization - a measure aimed at reducing state participation in economic activity. It will make it possible to obtain additional financial resources and reduce the size of the public debt. The efficiency of enterprises transferred to private hands will increase; competition will intensify; the quality and competitiveness of national products will increase;
3) budget recovery. Supply-side theorists oppose budget deficits. Unlike monetarists, they believe that the budget should not be considered as an instrument of monetary policy;
4) "freezing" of social programs.
Author: Tatarnikov E.A.
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