Keynesian (Liberal/Democrats) vs. Supply Side (Conservative/Republicans)
•The New Deal was influenced by British economist John Maynard Keynes.
•Keynes suggested that government could manipulate the economic health of the economy through its level of spending. •In hard times, government should increase spending (even if it means running large deficits) to stimulate economic health. •In inflationary “boom” times, govt. should decrease spending to “cool down” the economy. •Difficulty posed by Keynesian Economics: Once govt. spending rises, it is politically difficult to cut it (consider the fights in recent years over entitlement reform). This helps explain why we have such high budget deficits. |
•Definition: Cuts in taxes will produce business investment that will compensate for the loss of money due to the lower tax rates. Tax rates will be lower, but business will boom, unemployment will go down, incomes will go up, and more money will come into the Treasury.
•Most associated w/the Reagan Administration (81-9). •Unfortunately, the Reagan tax cuts were not accompanied by spending cuts, so the national debt tripled from $1 trillion to $3 trillion. |