Question

Did Supply-Side Economics (Reaganomics) work? Explain why or why not.

Answer 1

Supply Side Economists believe that increasing the supply of goods and services in the economy, by lowering tax rates and through deregulation is the way to create growth in the economy. They believe that increasing the business activity leads to a situation of job creation and the economy does better for itself.

In the United States, this policy was adopted by Ronald Regan who was thought to be the pioneer of the same in 1980's. Accordingly this was then known as Reganomics.

Across the globe, when economists evaluated the strategy of reduced taxes and deregulation by the government, they came to know, how bad it was in developing the economy. The government reserves reduced drastically due to the move and it was planned to reduce it by about 750 Billion dollars in the 5 years of government. As a result, the total currency in the society increased and created inflation in the economy which made it difficult for people to buy goods and services. Corporates on the other hand, did not reinvest the money which they saved through taxation so it did not even increase the demand for goods and services on one hand and on the other had no positive effects on employment on the other.

Thus, the Supply Side economics under Ronald Regan was considered to be a failure which led the economy towards great trouble. The policy primarily does not take into account factors such as Inflation and the lack of demand which also needs to be fulfilled. Supply side increases only benefit the economy if there is a demand for those goods without which the supplier would only make a loss on additional resources which he has available.

Please feel free to ask your doubts in the comments section.