July 10, 2008
A friend of mine in the construction business recently heard a politician make reference to a “supply-sider.” My buddy said he hates it when politicians blurt out economic terms that he doesn’t think people understand. After all, he says he doesn’t randomly toss around construction terms like “hoist drum,” “snatch block,” or “swing brakes.”
That made me think others might not fully understand the term “supply-sider.” Simply put, it’s someone who endorses supply-side economics. Marginal tax rates and the Laffer curve are enormously important to supply-siders. They argue that if the marginal tax rate (the tax paid on the last dollar earned) was 100%, obviously no one would have an incentive to continue working because they would be donating all of their future earnings to the government. In fact, people might lose their incentive to work when the marginal tax rates is 60% or 50% or maybe even 40%.
Supply-siders argue giving people incentives to work and produce creates economic growth. They say the way to do this is to reduce the marginal tax rate. But remember, because of the time needed to allow supply-side economics to work, it should be considered a long-run output strategy and not a (business cycle) stabilization tool like monetary policy. Therefore, some economists are proponents of supply-side economics and active monetary policy. Contrary to popular belief, these two are not conflicting viewpoints.
Well, enough for today, but let me leave you with a question: Are you a supply-sider?
By: Wade Rousse
Posted by Wade at July 10, 2008 9:53 PM
TrackBack URL for this entry:
I always thought a Laffer curve was a Zambrano pitch hit out of Wrigley by Pujols. Thanks for allowing me to enjoy economics without having to further my academic career.
Posted by: Mikie at July 11, 2008 4:07 PM
Mikie...you are very welcome. Don't sweat it, many people don't know what the Laffer curve is...and some know what it is, but dispute it.
Posted by: Wade at July 13, 2008 1:58 PM
Post a comment
All comments and links posted to FRBC blogs are reviewed. The Federal Reserve reserves the right to protect against spam, off-topic and profane comments and links; any such comments or links will be deleted and the domain address of the poster blocked.