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Supply-Side Economics

  Supply-side economics is a focus on variables that affect the supply of goods and services rather than on demand, in a search for policies to stabilize the economy. Supply-siders are particularly concerned with tax reforms, regulatory reforms, and other policies to stimulate supply by promoting such activities as savings, work effort, education and training, investment in plant and equipment.

Economists have long recognized the importance of the productive capacity of an economy, its stock of capital and labour, and the incentive needed to get the best out of them. However, these elementary points may have been obscured by the Keynesian emphasis on managing demand (see Keynesian theory). Attention to the supply side is a reaction to what many consider to be an overemphasis on the demand side by Keynesians and neo-Keynesians. As part of this reaction, some politicians and economists began stressing the need to encourage supply instead. This became trivialized by the belief that cutting taxes would release new energy into the economy. The reduction ad absurdum of this view was the Laffer curve—cutting tax rates would raise tax revenues is a supply-side concept which some economists thought was relevant to the US economy of the 1970s, while others laughed. In the 1980s, supply-side became a politically-charged term, used by either left or right to abuse the other. In reality, it is politically neutral. For example, because of Marx\'s emphasis on the means of production and the relationship between capital and labour, he was in many respects a supply-side economist. TF



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