Welcome to Finance and Fury, the Furious Friday edition.
We are continuing the series on supply-side economics. Today we will focus on the down-side of supply-side economics. Remember, supply-side economics believes that governments should remove barriers to production.
How is this done?
- Lowering taxation and decreasing regulation
- The aims of the policies?
- What are the 4 major downsides?
- Those that supply more also accumulate more wealth
- Results in a disproportionate amount of the tax savings going to those on the highest incomes
- More wealthy people is a good thing
- More supply means lower inflation and cheaper goods
- The billionaires of Australia own companies that supply jobs, they don’t sit on piles of cash
- Countries with more billionaires have lower rates of poverty
- We are very well off despite what you might think
Deregulation will Destroy the Environment and Public Safety
- Experts do agree, lower regulation leads to increases in profits and increased GDP
- Deregulating coal mining will lead to more destruction of the environment? Really? Cheaper and cleaner power isn’t appealing to you?
- It’s about opening the door to new ideas and new creation of those ideas
- Using the private sector to achieve the creation of new ideas, the government never innovates, just adopt it
- Deregulation can lead to more competition within free markets for better ideas to replace old ideas
- Who have higher safety rules? The government or companies internally?
- Deregulation from the US about the railroad industry
- There will be mistakes in deregulation, but compare that to mistakes in increased regulation
These first two strawman arguments highlight misconceptions, the next two arguments are real potential downsides
- This comes from a reduction in tax revenue but maintained levels of spending
- Lowering the tax rate increases wealth, so the pie to take taxes from is larger
- Critics say under president Reagan, there were decreased tax revenues. However, there was a recession just before this.
- Demand side economics increases deficits
- Deregulation can make the economy more volatile
- Like investments, volatility is your friend
- The slow down in GDP growth is from the increased size of government, spending, debts, regulation increase, and increased taxes or introducing new taxes
- When you look at a lassie-
faireeconomy, it can be more volatile than a centrally planned one
- When you look at the regulation of the taxi industry, it created an industry that needed protection from Uber. Because the regulation of taxies was inefficient.
- Recessions occur when there are 2 or more consecutive quarters of negative gross domestic product growth. We are in a per capita recession as of this week.
- Creative destruction – innovation is destructive
- No government bailouts – recessions can be a forest fire, and bailouts
incentivisemoral hazardous behaviour
- Deregulations and lending guarantees
leadsto the banks taking on additional risks if it is backed by the governments
- No government stimulus, if there was a stimulus from the government – where did it come from? Do people actually spend it? Australia had a slow rebound from the GFC
- Industries that require protection from the government lead to inefficient workforces. Look at the prior example of railroads and inefficient rail tracks.
- Flying industries, the airline deregulation act of 1978 eased controls on fares
- We will run through the policies of Thatcher in a few weeks. Lead to a massive loss of jobs in manufacturing.
- Creative destruction does happen – this is what the government should focus on
- We have explored the 4 criticisms of supply-side economics
- It leads to inequality, deregulation causing a destruction of the environment and worker safety, deficits and recessions
Next episode: We will look more into recessions and some real-world examples of recessions. And we will break down supply-side theory and a demand-side theory for dealing with recessions.
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