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Supply Side Economic Theory |
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This research examines the contemporary state of supply side economic theory. Supply side economic theory is an approach to fiscal policy (Gwartney, Stroup, & Studenmund, 1989). Supply side economic theory opposes the Keynesian model, in which aggregate demand is the propelling force (Eke lund, & Hebert, 1988). BACKGROUND ON THE IMPLEMENTATION OF The Keynesian model was based on the premise that, until the capacity constraint is reached within an economy, supply remains passive (Gwartney, Stroup, & Studenmund, 1989). In this model, supply always reacts to the stimulus of aggregate demand (Gwartney, Stroup, & Studenmund, 1989). Thus, in the Keynesian model, there is a link between a full employment deficit or surplus, and aggregate demand (Gwartney, Stroup, & Studenmund, 1989). Within this model, thus, fiscal policy attempts to stimulate demand, as a means of promoting economic growth. In the late 1970s, the Keynesian model appeared to be losing its ability to accurate explain economic events, as the phenomenon of stagflation developed. Supply side fiscalists stepped into this apparent breech. The supply side fiscalists emphasized the interrelationship between governmental tax and expenditure policy, and aggregate supply (Gwartney, Stroup, & Studenmund, 1989). It was the contention of the supply side fiscalists that relative price changes induced through govern mental tax and expenditure policy woul generate production incentives; th
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agan administration were the (1) enormous federal budget deficits, and (2) a rapidly growing national debt of almost unbelievable magnitude. These outcomes are partly the result of the implementation of supply side fis cal policies at an inappropriate time, but are largely to 6result of the borrowing of bits and pieces of supply side fis cal theory by the Reagan administration, which then added those bits and pieces Keynesian style pump priming, and created alarming long term consequences for the economy.following discussions.
The Federal Budget Deficit
When Ronald Reagan campaigned for the presidency in 1980, one of his most consistent themes was that of the economic evils of the irresponsibly high federal budget deficits attri buted to the Carter administration. Candidate Reagan pledged to restore economic sanity by, among other things, eliminating federal budget deficits by the end of the third year of his first term as president.
During the four fiscal years in which Jimmy Carter was president (fiscal years 1977 1980), the federal budget deficits totalled $226.8 billion (Council of Economic Advisers, July 1988). This cumulative Carter administration deficit followed a cumulative deficit of $144.1 billion i
Category: Economics - S
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Economic Advisers, Nixon/Ford Carter, President Reagan, Stroup Studenmund, National Debt, Reserve Board, Recovery Act, Reaganomics Reaganomics, Carter Reagan, Reserve Democratic, federal budget, reagan administration, economic advisers, federal budget deficits, council economic advisers, federal debt, council economic, budget deficits, budget deficit, fiscal policy, publicly held, gwartney stroup studenmund, federal government, stroup studenmund 1989, economic advisers 1990,
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