SUPPLY-SIDE POLICIES

Increasing economic growth by making markets work more efficiently. In the 1980s, Ronald Reagan and Margaret thatcher championed supply-side policies as they attacked keynesian demand management. Pumping up demand without making markets work better would simply lead to higher inflation; economic growth would increase only when markets were able to operate more freely. Thus they pursued policies of deregulation, liberalisation and privatisation and encouraged free trade. To reduce unemployment, they tried to increase the efficiency of the jobs market by cutting the rate of income tax and attacking legal and other impediments to labour market flexibility. The results of these programmers are much debated. In particular, the belief, apparently supported by the laffer curve, that cutting tax rates would increase tax revenue did not always stand up well to real-world testing. Even so, it is now recognized that supply-side reforms are a crucial element in an effective economic policy.