by Dr. Roy Cordato
Senior Economist, Emeritas
As the late Dr. Norman Ture’, one of the founding fathers of modern supply side economics explains, what most people, even many economists, don’t understand is that supply side economics is a methodological approach to answering certain kinds of questions in economics. These are primarily questions related to the analysis of changes in fiscal policy, i.e., taxing and spending. It is not a set of tax policy prescriptions or empirical results. This is something that Ture’ never stopped emphasizing in his many decades of developing the most sophisticated version of what we call supply side economics (a term he didn’t particularly like but did submit to using). To equate supply side economics with the Laffer curve (the idea that at some levels of taxation, tax rate cuts will bring forth increased government revenues) or worse still, to refer to it as “trickle down economics” is to expose oneself as being profoundly ignorant of the subject. As Ture’ put it in a 1980 comment on a paper by prominent Keynesian, later to become a top economic adviser to President Bill Clinton’s, Lawrence Summers:
…The term “supply-side economics” is a misnomer. The analytical system going under this name really consists of nothing new or fancy but merely the application of price theory to public policies concerned with major economic aggregates. This analytical approach and the public policies developed therewith do not focus particularly on supply conditions to the exclusion of effects of policy on aggregate demand. The distinguishing attribute of “supply-side” economics, and the principal issue it casts up, rather, is that it identifies the initial impact of public policies and actions in terms of alterations in (implicit or explicit) relative prices instead of changes in income.
In other words, at its base, supply side economics is not about policy but about analysis. That analysis will, if one is interested, have certain policy implications. But one need not ever discuss a positive set of policy proposals in order to pursue supply side analysis.