Are Reagan and Bush really supply-siders?

[flaminbats]

Based on my knowledge of history, supply-side was considered the classical branch and Keynesian was the newer branch of economic thought. Supply side was originally based on the understanding that money doesn't equal wealth. The ownership of something which is limited in supply and greatly in demand is wealth. Supply siders believe that the size of the money supply has no effect on the real economy. Changing the price of a product or demand will not effect the supply, but changes in supply do effect the price. Classical economists also believe that tax rates and government spending should set with the assumption that everyone is employed. Supply siders consider full employment to be the natural state of the economy.

How can Reagan and Bush claim tax cuts will increase revenue by stimulating the economy? Supply siders believe that the money supply has no effect on supply and demand, and the economy is naturally stimulated. How can tax cuts have any effect on a fully stimulated economy? Why hasn't military spending been reduced with the assumption that revenue will drop when taxes are cut?

In closing..true supply-siders believe that with no taxes or government spending, the economy will be fully stimulated. Republicans believe that the economy will be stimulated by tax cuts, resulting in more revenue for government spending.

[pa28]

1. You could probably call them Monetarists more accurately.

"Monetarists are a group of economists so named because of their preoccupation with money and its effects."

http://www.bized.ac.uk/virtual/economy/library/theory/monetarist.htm

Milton Friedman was the best known and very influential during the Reagan years. The "supply side" tax cuts that were supposed to raise revenue but resulted in massive deficits instead came out of his theories. Friedman was known as Reagan's favorite economist.

He won the Nobel prize in '76 I believe. That was, of course, before his theories were shown to be disastrous in actual practice.

W tried it again reasoning all of our economic problems would be solved with massive tax cuts and kickbacks for the rich. Thanks Milton!

[flaminbats]

2. or Keynesianlite..

Forget about differences in saving and investing. Tax cuts increase supply not demand, which lowers prices. Unlike Keynesian economists, true monetarists believe that the natural state of the economy is full employment.

[happyslug]

3. From the Press Release for Friedman's 1976 Noble Win:

"From the purely scientific point of view, Friedman's other achievements are of greater interest than his monetary analysis. Of primary importance here is his re-fashioning of the theory of consumption based on the hypothesis that "the permanent income" and not year-to-year income is the determining factor when assessing total consumption outlay. He makes the extremely valuable distinction between the temporary and more permanent incomes of households; Friedman has demonstrated that a much greater proportion of the former type of income is saved than the latter."

My Comments: In effect he won the prize that people prefer stable pricing and income over varying prices and income than his work on monetary policy. He determined that people will pay an premium for stabled pricing and Income, even if unstable pricing and income would produce more money over the same time period.

http://nobelprize.org/economics/laureates/1976/press.html

[flaminbats]

4. Where are those Milton clones of the 21st century?

those who would criticize policies of the FED..for playing political monopoly with our interest rates, those who would criticize Greenspan for abusing his power and influence to control the interest rates instead of the money supply? Where is the economic research proving the natural state of any economy is full employment?

Where are the explanations for why those who gamble would also buy insurance? Why would a President concerned with saving Social Security, borrow from the trust fund to gamble on tax cuts and wars with no public benefit? Where are the arguments that EU and US banking systems, thanks to preset exchange rates, will eventually collapse? :hurts:

[trezic]

5. They did it in the early 80s

to Volcker. Monetarism, as a pratical belief, died a hard death in the early 80s. It turned out that the money supply was not as good a method of controlling inflation as interest rates. "Secrets of the Temple" by William Grieder is a history of most of Volcker's time as Fed Chairman.