supply-side economics

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supply-side economics,

economic theory that concentrates on influencing the supply of labor and goods as a path to economic health, rather than approaching the issue through such macroeconomic concerns as gross national product. In the United States during the 1980s, supply-side economics was associated with conservative proponents of the free-market system. Such measures as tax cuts and benefit cuts to the unemployed are basic supply-side tactics, with the intention of increasing the incentive to work and produce goods and services. The theory holds that high marginal tax rates and government regulation discourage private investment in areas that fuel economic expansion, and that more capital in the hands of the private sector will "trickle down" to the rest of the population. The theory gained popularity during the late 1970s, with a tax revolt in California and economic hardship during the CarterCarter, Jimmy
(James Earl Carter, Jr.), 1924–, 39th President of the United States (1977–81), b. Plains, Ga, grad. Annapolis, 1946.

Carter served in the navy, where he worked with Admiral Hyman G. Rickover in developing the nuclear submarine program.
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 administration (1977–81). Arthur Laffer and his "Laffer curve" doctrine became the heart of the economic programs of Ronald ReaganReagan, Ronald Wilson
, 1911–2004, 40th president of the United States (1981–89), b. Tampico, Ill. In 1932, after graduation from Eureka College, he became a radio announcer and sportscaster.
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's presidency, during which tax rates were cut substantially. Although supply siders maintain that the tax cuts of the 1980s were responsible for the decade's economic growth, critics argue that such policies caused massive federal deficits, penalized the poor and middle class, and induced excessive speculation that severely damaged America's economy. The subsequent tax increases under Presidents George H. W. Bush and Bill Clinton and the concurrent corporate investment, economic growth, and drop in unemployment during the 1990s further undercut supply-side suppositions.


See V. Canto, Foundations of Supply-Side Economics (1983); R. L. Bartley, The Seven Fat Years (1992).

References in periodicals archive ?
While more on this question will be presented in the next section, the contrast between for-profit and nonprofit behavior provides a useful framework for summarizing the implications of the supply-side theory of nonprofit organization for the division of labor.
"Reaganomics" came to mean supply-side theory put into practice.
Lindsey, a member of the Council of Economic Advisers during the Reagan administration, says be originally thought the supply-side theory to be hokum and that explosive growth of the 1980s was the product of Keynesian demand stimulus.
(If they think Reagan brought us debt, I can't wait to hear historians spin the Obama presidency, where deficits are already twice as large a share of GDP as the highest deficits under Reagan.) Slate columnist Michael Kinsley calls supply-side economics "the classic Republican phony theory." The liberal blog page Daily Kos refers to supply-side theory as "the greatest lie ever told over the last 30 some odd years."
Supply-side theory, after all, assumes that the very wealthy will not buy more cars and houses but will invest the surplus income in industry, thereby making more jobs for the rest of us.
Indeed, the fact that real wages in the United States have been declining for decades now, with productivity continuing to rise, completely undercuts the supply-side theory that a wage squeeze on profits is the problem, and that a shift from wages to profits would offer the solution.