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(Supply-Side vs. Demand-Side) vs. Austrian

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ViennaSausage Posted: Tue, Nov 11 2008 1:31 PM

We typically hear arguements of Supply-Side vs. Demand-Side Economics.  But aren't those two virtually the same?   Don't they both rely on government intervention? 

Also, if you were to have a specific name for Austrian Economics, what would it be called? It's not supply side, and not demand side either.

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good one.

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What is the government's role under Supply-Side economics?  All I hear about is Keynesian, which is basically demand-side.

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From my understanding, both deal with government intervention, however the type of intervention is specific for supply siders (Keynesian) and demand siders:

Demand Side:

  • invests in production
    • reduce interest rates
    • government investment in infrastructure
      • hence taxes okay

Supply Side:

  • utilizes incentives
    • income tax breaks
    • capital gains tax breaks

 

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Cesar replied on Wed, Nov 12 2008 8:51 AM

Either way these are government interventionist policies. Therefore, unacceptable.

However, I would favor government investment (from its own funds) in social infraestructure. Highways, parks, schools, hospitals, historical centers and many others.

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ViennaSausage:

Supply Side:

  • utilizes incentives
    • income tax breaks
    • capital gains tax breaks

I wouldn't consider tax breaks as governement intervention.  I consider it more like pure happyness.

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maxpot46 replied on Thu, Nov 13 2008 1:33 AM

I was introduced to Austrian economics via Supply-Side economics, which has a great respect for the Austrians.  The Supply-Siders I learned from (mostly the Wanniski branch as opposed to the Mundell or Laffer branches, though I did study with Mundell at Columbia) were constantly quoting Mises and Hayek (but not Rothbard).

The difference between Supply-Side and Demand-Side economics is that Supply-Siders think that production drives the economy and Demand-Siders think consumption drives the economy.  Thus, Supply-Side policies tend to focus on things like tax cuts, decreased government spending and a stable currency (i.e. one tied to gold, though not necessarily convertible to gold) to stimulate the economy, and they oppose Demand-Side policies which tend to promote tax increases, increased government spending, and credit expansion to stimulate the economy.

The difference between Supply-Side economics and Austrian economics is that Supply-Side economics is a utilitarian, ends-based framework, while Austrian economics is a morally consistent, means-based framework.  For example, Supply-Siders think high taxation is inefficient (using the Laffer Curve as their theoretical basis); Austrians think any taxation is evil robbery.  Supply-Siders think the state can work fine, if only producer-friendly policies were pursued;  Austrians obviously are enemies of the state.

When I attended Mises U. in 2005, I was still half Supply-Sider, but I'm a full on Austrian now Smile

"He that struggles with us strengthens our nerves, and sharpens our skill. Our antagonist is our helper." Edmund Burke

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Cesar:

Either way these are government interventionist policies. Therefore, unacceptable.

However, I would favor government investment (from its own funds) in social infraestructure. Highways, parks, schools, hospitals, historical centers and many others.

 

How can a government invest with its own funds? The government is not a wealth generator, so  funds used to invest in social infrastructure are taken from the public through taxes. Besides, private enterprise can produce  highways, parks, schools,ext, at a lower cost and whose quality  exceeds  that which the government can provide.

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Rubén replied on Thu, Nov 13 2008 10:17 AM

The problem with demand-side is that it always forces a choice between inflation and unemployment. It provides no good options for the current state of stagflation.

Art transcends ideology.

http://mises.org/Community/blogs/ruben

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Perhaps the trouble with Supply-Side tax breaks, is that they are selected tax breaks, rather than across the board.

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Ends-Means is a great way to put it.

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banned replied on Thu, Nov 13 2008 1:45 PM

Rubén:
It provides no good options for the current state of stagflation.

The current US market looks to be going into a depression, not stagflation.

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