supply-side economics

School of economic thought advocating government policies that allow market forces to operate freely, such as privatization, cuts in public spending and income tax, reductions in trade-union power, and cuts in the ratio of unemployment benefits to wages. Supply-side economics developed as part of the monetarist (see monetarism) critique of Keynesian economics.

Supply-siders argue that increases in government expenditure to stimulate demand and reduce unemployment, advocated by Keynesians, are ineffective in the long term because intervention distorts market forces and creates inefficiencies that prevent the ‘supply side’ of the economy from responding to increases in demand. Critics, however, argue that failure of supply to respond to increases in demand may result from the failure of market forces to take account of social costs and benefits. This may require increased public spending on infrastructure, training, and research and development. Supply-side policies also create a more uneven distribution of income and wealth, as happened in the USA and the UK in the 1980s.