Demand-side/Supply-side Economics!

Keynesian Economics Demand-Side Argues that government spending can be used to stabilize the economy Challenged the traditional, or classical private enterprise theory Keynes believed that consumer spending moves up and down as peoples’ incomes rise and fall Business investment goes up and down depending on whether interest rates go up or down

 If businesses and consumers believe that the economy is improving, they may increase their spending, raising effective demand, and in turn, total output and employment  Argued that, since consumers may be hesitant to start spending again, the government can stimulate effective demand by increasing its purchases of goods and services, thereby showing consumers its confidence in the economy  Argued that one way to deal with unemployment and unequal distribution of income was to raise and lower levels of taxation and government spending  Keynesian economics became the rationale for economic policies after 1964 in Western Europe and North America.  It led to the further development of mixed economies. Most mixed economies are based on either social democracy or welfare capitalism

What are Social Democracy and Welfare Capitalism? Social democrats believe that the government should manage the economy in the interests of all Welfare capitalism saw Keynes’ ideas used to reform free enterprise so that it could provide opportunities for people to have a better economic life

Results of Demand-Side Economics Economies based on Keynesian economics were highly successful between and the fear of a post-war depression never materialized Incomes and social services rose, while unemployment and inflation remained relatively low These successes quickly disappeared after oil prices increased dramatically in 1973 and a worldwide recession occurred. Demand-side economics could not “fix” the recession Countries that had used Keynesian economics incurred huge deficits

Supply-side or Neo- conservatism Believe in reductions in all kinds of taxation, which leaves more money in the hands of consumers to spend, and in the hands of businesses to invest in increased production This, combined with privatization of state-owned companies and reduction in social spending, results in a more productive economy smaller government, more self-reliant population and greater individual freedom

 Examples of Neo-conservatism – Thatcherism after Margaret Thatcher, former Prime Minister of England, and Reaganomics, after Ronald Reagan, former President of the U.S. RESULTS OF SUPPLY-SIDE ECONOMICS  Reductions in government spending on social programs can leave many people vulnerable and unable to adapt to these economic changes  Higher rather than lower unemployment often results  It does lay a foundation for a stronger, more competitive economy  Can lead to increased government revenues, lessening of deficit, and less public debt

Based on what you have learned about Demand-side and Supply-side economics, Which type of economics do YOU feel is most desirable for Canadian society? Why did you choose this one? Discuss this with your partner and be ready to share with the class.