We live in a country where the top 1 percent holds 40 pecent of the world's entire wealth.
This should be a good enough reason to support demand side economics over supply side economics. However, there are more reasons.
Its usually done by increasing government spending and decrease interest rate to motivate investments.
There are benefits with this policy other than directly helping the 90% of Americans.
1. Higher demand for consumption will eventually increase the products' supply.
2. More disposible income for 90% of Americans mean most of them will meet their basic needs, and they will put more effort on educating themselves. More educational achievements = better work force = increased productivity = higher GDP.
Some people point out few problems with demand side economics
1. National Debt.
Yes, we have to increase government spending for this policy, but there is something that government gets from the people - Taxes! I see few of you wincing at the idea of increasing Taxes, but it is not likely you who will experience increase in taxation. I am talking about the top 10 percent of Americans. If the government manages to pass a income tax law that reflects the actual wealth inequality in the United States, it will allow more government spending without increasing national debt. (it will also increase the GDP because only 2/3 of disposible income is added to the GDP, but government spending is 100% added on to the GDP.)
Although it is true that higher demand would cause increased inflation, it is true that the rich will decrease in spending - alleviating higher demand of the middle/lower class.
Although too high of inflation is bad for the economy, inflation under 5% is ok. In fact, higher inflation will actually help the businesses because workers' wages are increased slower than the inflation. This moderate increase in inflation will decrease unemployment and increase investments by the businesses because they have more profit.
I am not here for complete socialism. I do want to live in a place where hard work is honored by the society. Although I believe hard work = more pay, I do not think the one percent worked 30,000 times harder than average American workers. May be they worked a hundred times more or even a thousand times more that they may get 1000 times more wealth. But its for sure they did not deserve 40 percent of our wealth.
This is a clip showing the wealth inequality in Ameria
A lot of Republicans still believe in supply-side economics, or "trickle down" economics. However, it has been proven over and over that that system does not work. GWB used this economic policy during his presidency (cut taxes in many areas) still thinking that jobs would be created. Actually the exact opposite happened: very few jobs were created, jobs were shipped overseas, and the deficit skyrocketed. (We went from having a budget surplus to a trillion dollar deficit because Bush cut taxes but increased spending-the biggest with the wars in the middle east). You can't cut taxes and then increase government spending. That causes deficits. Also, it was the wealthiest Americans who benefited the most from these tax cuts...The middle and lower classes, not so much...Many sources will debunk the "trickle down" theory. It looks great on paper, but when put into practice, it just doesn't work (primarily because of corporate greed). Our economy does best when we have a strong middle class. Consumer spending (which makes up about 70% of our economy), also plays a vital role. Some economists will say that when middle class families get tax cuts, they have more pocket money to spend, which then pours money (and jobs) into the economy. Also, consumer demand creates more jobs, not tax cuts for the rich.
Inadequate demand is the major economic problem at this time.We are currently facing what Larry Summers calls secular stagnation, an excess of savings or investment, also known as a saving glut. Supply side tax cuts are useful to promote saving; that is not the problem we face today.
Disclaimer: The right answer is dependent on the question being about today's situation. In the 1970s supply side would have been preferable to demand, so the answer to this question depends somewhat on the time period.
Demand side economics is fine for stimluating growth through the use of fical and monetary policy and is very effective. However, this economic growth will be undermined and hindered by inflation. If the economy overheats and demand vastly outstrips supply causing an increase in prices then demand will fall and therefore growth slow down. Therefore, to ensure demand doesn't exceed supply then supply side policies must be introduced to increase the supply side of the economy. Another benefit could be through fiscal or monetary supply side policies, which would improve supply but also stimulate growth of the economy even further by increasing demand through increased spending by both consumers and government expenditure.
First of all, there is not overly much wrong with demand side economics. Increasing aggregate demand is one great way to help an economy. Reps and dems with any amount of econ training would agree with this statement. However, increasing supply can simoultaneously increase demand. This is Say's Law: aggregate supply creates its own aggregate demand. By producing more stuff, more people are hired, more people have jobs, more people have more buying power, demand increases.
Furthermore, if tax cuts are done wisely, they can stimulate the supply side and demand side of the economy without having to worry about increasing the debt. This is part of the Laffer Effect.
Demandside economics means that the Gov. picks winners and lossers. If the Gov picks a loser the people pay for the mistake....Demandsde economic is also a way for the Gov. to limit your choices. The markets do not respond to the wants and needs of the individual....Instead the market is populated by the choices of crony-capitalism and your choices are limited by which lobbyist is most convincing and whch politicians palms are best "greased".
Up front I will admit that i support supply side more than demand side, that's why I pressed the no button. However, that is not to say that demand side does not have its place. The best and most obvious example of demand side economics in action is the great depression. At a time when the average American had no faith in the economic system, some government intervention was needed in order to stimulate the economy. The New Deal was just what the doctor ordered in order for Americans to feel comfortable spending their money and investing it rather than hiding it in their mattresses. Likewise, Reaganomics was an excellent way to combat the stagnation and inflation that plagued the United States at the time. By lowering the corporate tax rate and economic regulation, Reagan ensured that goods could be produced cheaper, which caused their prices to go down. This is evident from the dramatic dive in inflation during the Reagan presidency. By reducing the inflation and making the American dollar worth more, Reagan also ensured that the average consumer had more purchasing power and could spend money more often. This was the undoing of the stagnation that plagued American. Both economic systems have their place, it is just a matter of knowing which system will work best for the current situation.