Chapter 6 - Supply Side Economics

• In Neoliberalism there was a belief that things will trickle down from the wealthiest in society and help everyone in society.
• What are the 5 key ideas to supply side economics?

  1. Massive tax cuts to the rich
  2. Cuts to Social Programs
  3. Privatization
  4. De-Regulation
  5. Monetarism
• Massive tax cuts to the rich: Lead to the very wealthy using the money they save to reinvest in their businesses. Lead to greater employment. Lower unemployment rate. Fewer people on social assistance and paying more taxes.
• Massive tax cuts to the rich: Known as "trickle-down" economics - benefits to the rich would trickle down to other elements of society.
• Cut to social Programs: Money saved from this will go to paying down the debt.
• Privatization: Publicly owned would be sold to individuals. Publicly owned is supported by taxpayers, may have to raise taxes. Unfair competition towards the publicly owned company.
• Public: owned by the government.
• Private: owned by individuals/companies.
• De-regulation: Fewer government regulations on businesses. REgulation means lower profits for companies. Regulations require subsidies. Deregulation of airlines shows the benefits of supply side.
• Monetarism: Controlling the supply of money. Countries need to establish a central bank that would set interest rates for the entire country. This would give the government the ability to control inflation. Creating the right supply of money.
• Example of Monetarism: Bank of Canada
• In the 1970's the US and Britain were going through stagflation.
• Stagflation: Stagnant growth, high unemployment and high inflation.
• Labour is found on the left side of the spectrum. If someone supports labour they are found to the left.
• Neoliberalism: A political and economic ideology that advocates for the free market and minimal government intervention. Believes Society should be shaped by the free market. Economy should be deregulated and privatized. New take on classical liberalism.
• Practicality of supply side economics: Margaret Thatcher became the Prime Minister in 1979 (Conservative party). Follower of Hayek. Neoliberalism. Put into practice supply side economics (Massive tax cuts, Cuts to social program). Protects in the UK. Inflation was under control, Paying off government’s debt, Increased employment 
• Practicality of supply side economics USA: 1980’s Ronald Reagan (Republican) becomes president. Neoliberalism/Neoconservative. Paid off debt. It worked to help the US economy (for a time) and “Reaganomics” was born.
• What are the 4 elements of Reaganomics?

  Sound money (controlling how much money is present), Deregulation, Modest Tax cuts (for the rich), Reduced government spending.
• Milton Friedman: Economist from the Chicago School of Economics. Control of a country's money supply is the best means to encourage economic growth and limit unemployment. Does this bu trickle down economics, cutting social programs, privatization, de-regulation and use of central banks to reduce inflation.
• Milton Friedman: Regulation of interest rates. Supports free market. All political parties make decisions in their own self-interest
• Inflation: the result of an excess supply of money produced by central banks
• Negatives of Supply Side Economics: Bush Elected: put some of the biggest tax cuts ever seen. The money was being invested in other countries. Subprime Mortgages (low interest rates, mortgages were encouraged but people were borrowing more than they could afford)
• Negatives of Supply Side Economics: Derivatives: Many different type of stocks combined and sold as 1 stock. Mortgages + Blue Chip Stocks (guaranteed to make money), Sold at the highest rating. Sold at their highest rating. Short the stock. Result: Mortgage were tied to this 1 stock, people lost their homes and the stock market began to decline. These stocks were worthless. Market Crashes
• 2008 Market Crash: Due to too many people taking on loans they couldn't afford. Lenders relaxed their strict lending standards to extent credit to people who were less qualified. This drove up housing prices.
• The reason deregulation an be a problem in supply side economics: National economic stabilization act of 2008. Government must now get involved in the economy.
• Welfare capitalism: workers get benefits, businesses take care of the workers.
• Welfare state: Government takes care of the people
• Corporate welfare: government gives handouts to companies who are struggling
• In 2008 Many investment banks were on the verge of bankruptcy. Appeared the entire capitalist economic system was about to collapse. Bush announced 700 billion dollar bail out to the banks (stimulus). Policy continued by Obama.
• Corporate Welfare - Banks are too big to fail, if they went bankrupt the economy would collapse. Government intervention with a bailout package.
• Difficulties of Corporate Welfare: Some of the money wen to bonuses of the CEO's of banks. People who lost their homes did not get any help from the government. Thus movement broke out across the world "Occupy Wall Street" Demonstrated the flaws of neoliberalism
• Bear Market: Pessimism. Markets falling. 20% fall from recent highs
• Bull Market: Optimism. Markets rising. 20% rise after two 20% falls.
• Crony Capitalism: Economic system in which businesses thrive not as a result of free enterprise but rather as a return on money amassed through collusion between a business class and the political class.
• Subsides otherwise known as corporate welfare
• The Third way-Middle ground between liberal capitalism and democratic socialism. Favours growth, entrepreneurship, enterprise, and wealth creation. Greater social justice and sees the state playing a major role. Rejects top down socialism and traditional neoliberalism.
• Netherland's Polder Model: Employers, unions government representatives work together to make decisions. avoid strikes which helps stabilize the economy. Consultation from many groups.
• Kenya's Harambee: Mutual assistance, joint effort, mutual social responsibility as well as community self-reliance. traditional Kenyan principle of how a society or tribe would work together. Principles: Product should benefit the public. Projects should maximize the use of local resources that would otherwise be too expensive.
• Chad: Major oil reserves. Created opportunities for local employment and related businesses. World bank agreed to step in and loan the government money to get the oil flowing. In return parliament must spend 80% of oil revenues on health, education and rural infrastructure.
• Reaganomics-stagflation was partly the result of huge national deficits from government spending