The main arguments and policy propositions of the supply school

(1) Resurrection of Say’s Law that “supply creates its own demand”

The supply school

< p> The supply school believes that in the relationship between supply and demand, supply occupies the primary and decisive position.

The purchasing power of a society depends on the production capacity of the society, and the production capacity of the society is the supply capacity of the society. People will naturally create various demands in the process of providing goods to the society.

The stronger the supply capacity of society, the greater the demand. Under the credit currency system, there will be no problem of excess of goods due to insufficient purchasing power.

The supply school not only regards Say's Law as the basis of its theory and policy, but also uses it as a weapon to deny the Keynesian demand-determined supply theory and demand management policy. They believe that stagflation in the economy is entirely due to Demand management policies are the inevitable result of excessive demand and declining supply. The root cause is Keynes' theory that demand determines supply, so it must be resolutely abandoned.

They also believe that the sign of economic development is the level and capacity of supply. The primary task of economics should be to study how to promote production and increase supply. It is not enough to just focus on demand and distribution.

(2) Support the market economy and oppose *** intervention

The supply school starts from Say's law and believes that supply and demand are always balanced in a market economy with free competition.

They preach that entrepreneurs’ entrepreneurial spirit and free business activities are key factors in promoting production and increasing supply, and that the market economy with free competition is the best economic system for entrepreneurs to display their talents. Under the influence, various economic variables can automatically tend to equilibrium, ensuring long-term stable economic development.

State intervention not only destroys the automatic adjustment mechanism of the market economy, but also often damages the supply force in the economy due to improper intervention. For example, the Keynesian state adjustment policy takes full employment as the primary goal and focuses on the demand side. The short-term effect does not pay attention to the long-term benefits on the supply side; it focuses on the adjustment of income redistribution, turning excessive social resources collected from enterprises and individuals in the form of taxes and public bonds into huge consumption and losses through fiscal transfer payments. This has reduced capital accumulation, hindered production development, and weakened supply capacity.

In particular, ***’s intervention and regulation of the economy are often subordinated to struggles between political parties. This short-term behavior has a lasting destructive effect on supply.

Therefore, *** excessive intervention in the economy is harmful to the national economy but not beneficial.

(3) Increase supply through tax cuts*** investment

They believe that supply can automatically create demand, but the size of supply depends on the amount of output, which is various The direct result of the input of production factors, which depends on various factors.

These policies should aim to increase the savings rate and investment rate, and be satisfied with encouraging entrepreneurs to take risks and start businesses.

Therefore, production can be increased through various methods to achieve the purpose of increasing supply.

The supply-side school of thought believes that among all policies, changes in tax rates are the most important and effective factor.

Changes in tax rates affect the supply and structure of labor, as well as savings, investment and various tangible economic activities.

Although the ultimate goal of people's economic activities is to make profits, what they care about is not the total income, but the net disposable income after paying taxes. Therefore, the tax rate, especially the marginal tax rate, is a key factor.

Raise the tax rate, and people's net income decreases; reduce the tax rate, and people's net income increases.

When an economic entity considers whether to increase activities, it mainly depends on whether the resulting increase in net income is cost-effective.

High tax rates dampen people's enthusiasm for work and reduce savings by reducing people's net income, leading to rising interest rates, shrinking investment, slow production growth, and insufficient supply of goods.

Tax cuts have the opposite effect.

The supply-side school of thought believes that tax cuts will not only accumulate more national income in the hands of enterprises and individuals to expand savings and investment, and increase supply, but will also not affect the government's tax revenue.

Because the factor that determines the total tax amount is not only the level of the tax rate, but more importantly, the size of the tax base.

High tax rates do not necessarily increase the amount of tax revenue, but they often reduce the tax base by suppressing the activities of economic entities, which in turn reduces the amount of tax revenue.

The supply-side school of thought often uses the famous "Laffer Curve" to illustrate the functional relationship between taxes and tax rates.

(4) Pay attention to intellectual capital and oppose excessive social welfare

The supply school believes that “the growth of a country’s real income depends on the accumulation of its physical capital and intellectual capital, and also Depends on the quality and effort of its labor force. "In particular, the scientific and technological revolution formed by contemporary intellectual capital is rapidly changing the appearance of material production and people's lives, bringing great benefits to mankind.

Therefore, capital, especially intellectual capital, is the source of human welfare, and people should be encouraged to invest intellectually.

Only when physical capital and intellectual capital are maximized can human welfare be maximized. If capital is insufficient, excessive welfare will only have adverse effects and weaken people's savings, investment and enthusiasm. In particular, it suppresses the motivation to accumulate intellectual capital, fosters the dependence mentality of the poor, and greatly reduces the cost of unemployment. People can survive without saving, working, studying, or improving. This is not conducive to increasing investment and expanding employment. , is not conducive to encouraging progress, is not conducive to the supply of funds, and cannot achieve a truly maximum welfare society.

At the same time, excessive welfare expands the social expenditure of the government and crowds out private productive expenditure, which is not conducive to the elimination of deficits and production growth.

Excessive social benefits must therefore be cut.

(5) Advocate to control currency and oppose inflation

Since the supply school aims to increase production and expand supply, their monetary and financial theory particularly emphasizes the role of monetary finance in supply factors. influence; and because they use tax cuts as their main weapon, they pay great attention to the relationship and interaction between monetary, financial and fiscal policies.

From the perspective of improving supply capacity, they advocate stabilizing the currency and opposing inflation.