Supply Side Economics

First coined by President Richard Nixon’s economic advisor, Ben Stein, and later repeated by journalist Jude Wanniski, the term Supply-Side Economics is a non-Keynesian macroeconomic theory stemming from the Chicago School and New Classical School, alluding to the ideas espoused by economists Robert Mundell and Arthur Laffer, which maintains that increasing the supply of goods and services is the ultimate engine for economic growth. Popularized by former President Ronald Reagan, his embrace of Supply-Side Economics, known as Reaganomics, advocated tax cuts for wealthy investors and businesses, as a way to incentivize entrepreneurs to save and invest, thereby producing economic benefits that trickle down into the overall economy, leading Reagan to repeatedly quote the aphorism, “a rising tide lifts all boats.”

Focus on High-Income Earners

Core principles surrounding Supply-Side Economics includes tax cuts with an emphasis on businesses and high-income earners, under the premise that wealthy individuals are statistically more likely to invest their additional capital in profit-creating ventures, thereby stimulating the creation of jobs, at the same time increasing productivity and overall economic output. Theoretically portrayed by the Laffer Curve, the tool attempts to define an optimal tax rate that maximizes federal revenue without discouraging productivity and economic growth. Other principles include a reduction in government regulations known to hinder growth, along with supply-side federal policies that incentivize saving and investment, as well as a strong emphasis on protecting property rights and free market principles.

Income Inequality

Critics opposed to Supply-Side Economic principles argue that such federal policies disproportionately benefit the wealthy, thereby increasing income inequality between rich and poor, with the further contention that the wealthy will first use their additional dollars to embellish their lifestyles before deploying windfall assets as investment capital. Critics also cite rising the federal deficit as a direct indicator of Supply-Side policy’s overt failure to increase government revenue, while still others argue that the trickle-down effect on low income individuals is marginal at best when compared to the financial benefit received by the wealthy, making Supply-Side Economics, an ongoing debate among politicians and economists alike.