Supply Economics. Proponents of supply-side economics The supply-side economics theory suggests

Supply theory, unlike monetarism, but similar to the theory of rational expectations, was formed in the 1970s in the wake of sharp criticism of Keynesianism. Because of this, it was not so clearly expressed theoretical in nature, but immediately declared itself as a practical program of macrotherapy. In contrast to monetarism, supply-side economics focused on the problems of the process of capital accumulation and the state of public finances from the point of view of tax policy.

Supporters of the supply theory share and partly supplement the monetarist estimates of inflation and unemployment, based on the updated monetarist interpretation of the Phillips curve. However, they see the nature of inflation in high tax rates, which also applies to the nature of unemployment.

What is new in modern market theory by the supply theorists refers mainly to the problem of economic growth, which is, of course, closely related to the problem of inflation and unemployment. In contrast to the monetarist concept, the central place in supply theory is occupied by the problem of savings, which is considered in close connection with tax policy states. The theory declares the deficit, the lack of savings, to be the reason for the slowdown in economic growth, which is fundamentally at odds with the opinion of the Keynesians, who prove the opposite.

The reason for the shortage of savings is an incorrect tax policy (policy of high tax rates), which leads to a decrease in the marginal efficiency of capital expenditure, which in turn causes a decrease in the level of savings and negatively affects the investment process, and is reflected in the overall slowdown in economic growth. Therefore, the state should reduce tax rates to the optimal level, which allows the desired growth of savings, investment and, ultimately, economic growth as such.

The theoretical substantiation of the positive consequences of lowering the level of tax rates (reducing the budget deficit, stabilizing the inflationary process and, as a result, economic recovery) was the so-called Laffer curve, or the Henri Laffer effect. The graph shows the relationship between income state budget and dynamics of tax rates.

However, practice shows that a reduction in tax rates on personal income and corporate profits in the short term leads to a reduction in budget revenues and entails an increase in its deficit, and in turn can contribute to the development of the inflationary process. Therefore, the concept under consideration quite logically suggests neutralizing these short-term, negative results by reducing public spending. In the long term, according to theorists of supply-side economics, the temporary negative effect of lowering the level of taxation should be offset by the positive dynamics of savings, strengthening the investment process, reducing unemployment, increasing the volume of tax revenue, lower inflation rates, etc.

Hence, an equally important link in the theory of supply-side economics growth has become a serious criticism of social policy state, which not only does not contribute to the growth of savings, the reduction of unemployment, but also initiates the growth of the unemployed population. In this part of the criticism of Keynesianism, the supply theorists went a little further than the monetarists, proposing to significantly reduce the budget deficit by curtailing social programs, which in turn was one of the conditions for lowering the level of taxation. It is this point of the neo-conservative reform program, which is often associated with monetarism, that was a serious stumbling block and caused strong resistance.

Among other reasons for the slowdown in growth, supply theory considered inflation intertwined with high taxation, low rates of depreciation of fixed capital, which is also a consequence of unreasonably high taxes.

It is obvious that supporters of the supply theory defend liberal principles, arguing the need for the maximum weakening of the system state regulation economy. Like the monetarists, they argue for a reorientation public policy for long-term goals, to stimulate active investment activity private sector.

Theoretical underpinnings of liberalization supply theory economic policy, the need for a significant reduction in the level of taxation, primarily in relation to the leading economic entities, was embodied in "Reaganomics" and to a certain extent in "Thatcherism". There is no doubt about the positive shifts in the US and UK economies in the mid-1980s, which resulted in a sharp decline in inflation, a reduction in unemployment, and an increase in economic growth rates. However, a number of reasons do not give grounds to assert that the neoconservative economic doctrine, built in accordance with the theory of supply, was the only reason for these shifts. For example, the dynamics of the savings rate did not turn out to be as positive as it was envisaged by the theorists of the supply concept. However, the biggest discrepancy between theory and practice was the further growth of the budget deficit (especially in the United States), which forced the post-Reagan administrations to gradually increase the level of taxation in order to reduce it. Nevertheless, it should be stated that the supply theory played a generally positive role, drawing attention to the unconditionally existing macroeconomic dependencies, offered very clear recipes for the treatment of a number of ailments, which not only contributed to the further development of the theory, but also enriched economic practice.

In the late 1970s - early 1980s. main opposing economic schools were neo-Keynesianism and monetarism. Along with them, in the early 1980s, another group of economists, who are called oronn And ka mi t eop ai econo mi To And suggested And I.

Representatives of this school are the American economists A. Laffer, M. Feldstay, N. Boskin, P. K. Roberts and others. Some of them held high positions in the administration of US President R. Reagan and used the theoretical developments of this school in economic policy; in particular, in accordance with its recommendations in the 1980s. In the United States, a reform was carried out to reduce the tax burden.

The main ideas of supporters of the theory of supply-side economics is the shift of attention to the study aggregate supply, search for effective economic incentives and tax cuts. Economic incentives, such as remuneration for work, savings, investment, and entrepreneurship, affect those economic variables that, according to the supporters of the theory under consideration, are the basis of economic growth. The effect of these incentives is inversely related to tax rates. High taxes reduce the supply of labor and capital and hinder entrepreneurial activity. Therefore, tax cuts will help increase the supply of labor, capital, increase entrepreneurial initiative and accelerate economic growth.

Tax system, according to supporters of the theory of supply-side economics, should be a tool for managing aggregate supply, and not aggregate demand.

§ 2. Evaluation of the role of money in the neoclassical

and Keynesian models

The neoclassical theory in its monetarist version uses in the analysis of the GER already known to us from Ch. 20 the formula for the quantitative equation of exchange:

MV=PY(1)

Left side of the equation MV there is nothing more than the cost to consumers to buy goods and services. Right hand side of the equation PY is the sales revenue. This equation shows that the supply of money determines the volume of production in nominal terms, and the latter depends on the price level and the quantity of output produced.

The quantitative equation of exchange can be represented in terms of money supply and demand in real terms. Based on the Cambridge equation, we can write:

M=kPY(2)

MIP= (MIP)D= kY(3),

where /s = MV

This equation shows that the supply of real money MIP equal to demand (MIP) D and that demand is proportional to the quantity produced. It can be seen from this that the growth R reduces MIP and, therefore, reduces Y, so the aggregate demand curve has a negative slope. At a given velocity of money circulation, aggregate demand is determined by the amount of money supply. Therefore, with an increase in prices and a constant velocity of circulation (V) more money is required to realize nominal GDP, and the total quantity of goods and services purchased, i.e., aggregate demand, is reduced.

The basic Keynesian equation for general economic equilibrium is as follows:

C + I + G + NX=Y(4),

where C - consumer spending,

/ - investment costs,

G - government spending,

NX- net export spending.

The left side of equation (4) shows the total costs, or aggregate demand, and the right - the volume of production, or aggregate supply. An increase in total spending, at a given price level, shifts the curve AD to the right and increases the equilibrium volume of GDP (Y). Non-price factors of aggregate demand were considered in Sec. 18. Here we note that the Keynesian approach to macroeconomic equilibrium focuses on aggregate demand as a factor that determines changes in the value of equilibrium GDP.

In addition, the Keynesian equation (4) can be transformed into a quantitative exchange equation (3). The total costs are the supply of money multiplied by the velocity of their circulation, i.e. C + / + G + NX=MV. Nominal GDP is the product of real income and the price level, or deflator, i.e. GDP (Y) = py.

Chapter 26

Thus, the equation "total expenditure - national income" and the quantitative equation of exchange represent two different analytical approaches to the same problem - the general economic equilibrium.

Money is an integral part of property in neoclassical and Keynesian theories, so changes in monetary policy affect the economic environment through vector and m at sch e st va. However, the property sector in the neoclassical and Keynesian models is interpreted differently, which is due to different ideas. O m mechanics m e monetary transmission, or front T full-time mm ehan And snake. In other words, we are talking about a different assessment of the impact of the money supply on the volume of nominal GDP.

In the Keynesian model, in addition to money, property includes securities(bonds), and therefore one of the transmission links of the monetary impulse is the interest rate.

In the neoclassical model, in addition to money and bonds, property also includes real capital, so changes in the money supply affect aggregate demand and nominal GDP through effect T behind m e sch en And I And effect t property.

Thus, an increase in the money supply reduces the interest rate and causes an increase in real money reserves. In this case, the substitution effect will work, since a decrease in bond yields will lead to an increase in demand for real capital and investment. In addition, an increase in real money reserves will stimulate demand both for financial and real assets, and for consumer goods and services, in which the property effect will manifest itself. It is easy to see that both effects cause an increase in aggregate demand.

In the Keynesian model, a change in the money supply affects the interest rate, and through the latter, the level of investment and nominal GNP. At the same time, Keynesian theory notes that the change in the money supply does not always achieve its goals. So, for example, the policy of cheap money, carried out in conditions of economic and socio-political instability, may turn out to be ineffective, since commercial banks they will not want to take risks, and will not issue loans for investment, and entrepreneurs in such conditions will reduce investment demand.

In addition, in the face of technological breakthroughs and optimistic forecasts for future profits, a dear money policy can only marginally affect investment demand. Thus, monetary policy, under certain conditions, will be ineffective and unpredictable.

On the contrary, monetarists believe that monetary policy

has a predictable impact on the economy. First, a change in the money supply directly affects aggregate demand through a change in the demand for financial and real assets. Second, with underemployment, changes in the money supply can affect real GDP, output, and employment in the short run. In the long run, changes in the money supply affect only nominal GDP.

Such an interpretation of the role of money determines the division of the economy into two sectors: nominal, or monetary And real, each of which is characterized by independent variables.

TO real variables include such quantitative indicators as the real volume of GDP - the amount of goods and services produced in a particular year, accumulated capital - the amount of physical capital accumulated at a certain point in time. In addition to quantitative variables, real sector characterize relative prices - real wages and real interest rates.

The monetary sector is characterized nominal variables, such as the price level, inflation rate, nominal wages.

The division of macroeconomic indicators into nominal and real variables is called cla ssi Che With coy d And ho T O missions . Such a distinction allows us to study nominal indicators, abstracting from real ones. Neoclassical macroeconomic theory is based on the concept of neutral sti money, according to which a change in the amount of money does not affect real variables: the volume and structure of output, employment, and relative prices.

The neoclassical claim that money only affects nominal GDP is based on the implicit premise of stability with koro sti O b ra sch en And i money. 1 In fact, if in the quantitative exchange equation MV = PY, V constant, then change M will have a proportional effect on py, i.e. nominal GDP. The expansion of the money supply increases aggregate demand and nominal GDP by an amount proportional to the increase in the money supply. As a result, the ratio pyim, that determines the velocity of circulation of money, does not change.

For example, if we accept the value Y as unchanged, then, for example, in a certain initial period M= 200

billion dollars, a PY=400 billion dollars. Then

V = 2 a MIP(real money stock

sy) are equal to 1/2. If the monetary authorities

double the money supply

That M = 400. With the invariance of Y, begins

downward pressure on prices

42*

Chapter 26

their increase, as the population seeks to maintain a constant value of real money reserves. Value PY will amount to 800 billion dollars. Thus, V will still be 800/400 = 2. The proof of the stability of the velocity of money for monetarists is based on the concept of the transmission mechanism of monetary policy outlined above.

Keynesians, on the other hand, consider the velocity of money to be unstable, and as a result, monetary policy is unpredictable. The proof of the instability of the velocity of money is based on the Keynesian concept of the demand for money. Transactional demand for money and precautionary demand induce money into the economy, which circulates in the income-expenditure flow and has a positive velocity of circulation. Demand for money on the part of assets (speculative demand) does not include money in the flow of "income - expenses", this money does not circulate, i.e., the velocity of their circulation is zero. 1 Therefore, the velocity of circulation of the entire cash flow will depend on the proportion in which the money supply is divided between money for transactions and money as assets. A relative increase in the speculative demand for money reduces the velocity of money, and vice versa, a relative increase in the transactional demand for money and precautionary demand increases the velocity of money.

§ 3. Active and passive economic

politics in alternative ERM models

Opposite positions of neoclassical and Keynesian on the problem of stability of the general economic equilibrium predetermine the choice of different types of economic policy.

Neoclassicists, who adhere to the position on the stability of the OER, believe that the state should not carry out countercyclical measures, since during cyclical fluctuations the economy is able to come into balance with the help of market mechanisms.

The task of the state, according to neo-classics, is to maintain

a constant growth rate of the money supply

provisions in accordance with the monetary

rule and ensuring stability
prices. This type of economic policy and

called pa ssi clearly th .

economic policy that

responds to both current and forecast

Macroeconomic policy in general: alternative approaches

current state of the economy is called ak ti out. Keynesians, who deny the stability of the OER, adhere to an active economic policy.

There are two types of active economic policy. The first includes a set of fiscal and monetary responses to major shocks and distortions in the economy. Thus, an active economic policy has a counter-cyclical orientation. This type of economic policy has been applied many times by governments different countries during periods of deep economic downturns and high unemployment.

The second type of active economic policy is called t onkoy on st swarm, in which fiscal and monetary instruments are used to adjustments nominal and real variables in response to minor deviations in the economy. In fine-tuning mode, automatic (built-in) stabilizers work, such as progressive taxes and unemployment benefits (see Chapter 22). For example, as incomes of individuals and corporations decrease during an economic downturn, the tax burden is reduced without any changes in tax laws, which prevents a sharp contraction in aggregate demand. The increase in unemployment benefits during an economic downturn works similarly. The use of other tax instruments budget policy as elements of fine tuning, due to long regulation lags (decision lag, impact lag), it is difficult.

More efficient in this regard are monetary instruments, which have short lags and respond more quickly to the current economic situation.

§ 4. Keynesians and neoclassicals

on priorities and performance

fiscal

And monetary policy

Instruments of monetary and fiscal policy were discussed in Sec. 20 and 22. Here we will analyze only the differences in interpretations consequences of monetary and fiscal stabilization policy within the framework of Keynesian and neoclassical theory.

Keynesian and neoclassical theory assess the effectiveness of fiscal and monetary policy differently. ef-

Chapter 26

Macroeconomic policy in general: alternative approaches

G

G

d, d 2

Oh Y, Y 2^

Rice. 26.5. Monetary expansion:

Keynesian model "IS-LM"

The effectiveness of economic policy can be assessed by the degree of impact of certain instruments on changes in the total volume of output (income).

The effectiveness of fiscal and monetary policy largely depends on the magnitude of the relevant multipliers: the government spending multiplier, the tax multiplier, and the money multiplier, as well as the sensitivity of investment to the interest rate and the sensitivity of money demand to the interest rate.

Keynesian theory considers fiscal policy to be more efficient. The Keynesians' preference for fiscal policy is based on the assumption that investment is insensitive to interest rates and that the demand for money is highly sensitive to interest. Graphically, this can be interpreted as a steep curve / and a gentle curve M D , or a steep curve IS and a gentle curve LM(See Figure 26.5 and Appendix 2 to Chapter 22). With such a premise, the action of monetary policy is not very effective. So, with an increase in the nominal money supply, the curve LM 1 move right-down to the position of the curve LM2 and the economy will move to a new state of equilibrium at point E 2 , which corresponds to a lower interest rate g 2 and slightly increased output of U 2 (see Fig. 26.5).

Neoclassicists, on the contrary, give priority to monetary policy. According to neoclassics, an increase in the nominal money supply shifts the curve in the short run. LM, right down to position LM2(see Fig. 26.6) and a short-term equilibrium is established at the point £ 2, which corresponds to an increased output Y 2 and a lower interest rate g 2 .

However, rising prices will lead to a decrease in the real stock of money.

O Y* Y 2 r y

Rice. 26.6. Monetary expansion:

neoclassical interpretation

funds and a shift in the W 2 curve in the long run to its original position LMr

In addition, the extreme case of neoclassical theory suggests a vertical curve LM. In this case, the demand for money is completely insensitive to the rate of interest. It is easy to see that with this position of the curve LM any shift in this curve will have the maximum effect on the level of nominal income. vertical curve LM emphasizes the greater effectiveness of monetary policy.

Thus, the result of stimulating monetary policy in neoclassical theory is the rise in prices and a constant level of real variables in the long run (money neutrality principle).

Fiscal policy, according to neoclassicists, is less effective than monetary policy. Consider the neoclassical interpretation of the consequences of fiscal policy in the model "IS-LM"(see fig. 26.7).

On fig. 26.7 the vertical line represents the output level Y* corresponding to full employment. An increase in government spending or a cut in taxes shifts the /S curve, upward to the right, to the position of the curve IS2. If firms could expand their aggregate supply and meet the increased demand, then the equilibrium would move to the point £*. However, in conditions of full employment, increased aggregate demand intensifies competition between firms, increases the demand for labor, which leads to an increase in wages, production costs and price levels. An increase in the price level with a constant supply of money will mean a decrease in the real stock Money, which will lead to an increase in the equilibrium interest rate r for each equilibrium income Y and, consequently, to a shift in the curve LM: left-up to curve position LM2.

Chapter 26

Macroeconomic policy in general: alternative approaches

Rice. 26.7. Fiscal expansion:

neoclassical interpretation

As a result, a new equilibrium will be reached at the point £ 2 . At this point, the crowding-out effect kicks in, as the increased interest rate reduces consumer and investment spending by an amount equal to the increase in government spending.

§ 5. Keynesians and neoclassicals about problems

discretionary and automatic economic policy

Above, we examined the differences in the views of neoclassicists and Keynesians regarding fiscal and monetary policy. These theories assess not only the content and effectiveness of the two types of economic policy differently, but also the ways in which they are implemented. Recall that a distinction is made between discretionary and automatic fiscal and monetary policies. Discretionary and automatic policy tools were discussed in Chap. 20 and 22.

Discretionary economic policy is clearly anti-cyclical. Keynesian theory prefers this method of influencing the economic situation, as it considers instability to be a characteristic property of a market economy. Since the economy regularly experiences shocks to aggregate demand and aggregate supply, countercyclical fiscal and monetary policies aimed at smoothing the amplitude of cyclical fluctuations are a necessary condition for overcoming protracted economic downturns or “overheating” of the economy.

However, in the implementation of discretionary economic policy, a number of problems arise that can negate its effectiveness. One of these problems, as emphasized by the neoclassicists, is the delay in the impact of policy on the economic situation due to lags: recognition lags, decision-making and action lags (see Chapter 17). The essence of the problem lies in the difficulty of correctly determining the time parameters of the deviation.

If the deviation is of a short-term nature, then the application of fiscal instruments, which require a long period of time, may be belated and can further destabilize the economic situation. Monetary policy has shorter lags, so is more suitable for short term regulation economy. Moreover, in the Keynesian concept, monetary policy is more effective as a deterrent to overheating of the “economy” during an economic boom. However, it is very difficult to accurately predict the duration of cyclic deviations and lags. Under these conditions, it is impossible to determine when an expansionary or contractionary economic policy should be pursued.

However, Keynesian theory favors discretionary economic policy and believes that, without appropriate action, cyclical deviations can lead to very large fluctuations in output, employment and prices, which they can overcome on their own. market economy unable.

Neoclassicists emphasize that the uncertainty of the duration of deviations and lags predetermines the inefficiency and even the destabilizing nature of discretionary economic policy. Therefore, neoclassical theory believes that automatic politics is more preferable. Since the decisive factor in economic activity and the price level, according to the neoclassicists, is the money supply, they prefer automatic monetary policy, the essence of which is to implement a monetary targeting policy (determination of target indicators of monetary aggregates M1 or M2) based on the monetary rule.

§ 6. Neoclassical synthesis

In the post-war period, a number of economists attempted to combine neoclassical and Keynesian theories and develop a eop And yu neocla ss iche With whom si n T eza. The supporters of this theory include P. Samuelson, J. Hicks, V. Leontiev, E. Hansen, L. Klein and others.

Chapter 26

The theory of neoclassical synthesis is characterized by a dualistic approach, an attempt to combine neoclassical microanalysis with the principles of Keynesian macroanalysis.

Supporters of the neoclassical synthesis believe that there is a tendency in the economy to restore disturbed equilibrium, which corresponds to the neoclassical approach. However, they note that for a number of reasons, such as wage inflexibility, the liquidity trap, and interest rate inelasticity of investment demand, government regulation is necessary, which is in line with Keynesian theory.

In microanalysis, the neoclassical synthesis allows for a competitive market where the decisive role belongs to the consumer. At the same time, price inflexibility is allowed in macroanalysis. Or, for example, in microanalysis, the neoclassical position is shared about the complete awareness of economic agents, the coincidence of expected and actual values, and the perfect rationality of behavior. At the same time, macroanalysis admits the imperfection of information, the fallacy of expectations and the impossibility of a completely rational behavior.

From the neoclassical point of view, an informed entrepreneur knows future costs and prices, wage rates, and allocates resources optimally, maximizing profits. However, under this assumption, the implementation of the Keynesian monetary policy becomes impossible. According to the neoclassical synthesis, the cause of underemployment is the inflexibility of wages. To achieve full employment, it is necessary to lower the wage rate to a level at which entrepreneurs can hire everyone. This can be achieved by raising prices, raising nominal wages and lowering nominal wages. However, the implementation of such a scenario is possible only in the case when economic agents do not distinguish between nominal and real values, which contradicts the principle of rationality and awareness.

Thus, the main idea of ​​the neoclassical synthesis - not to reject or oppose, but to combine neoclassical approaches in the field of microeconomics with Keynesian principles in the field of macroeconomics - is logically contradictory, based on incompatible ideas about the same economic system.

It should be noted that the neoclassical synthesis flourished in the 1950s and 1960s. It was a period of relative economic stability Western countries, which was perceived by the supporters of the neoclassical synthesis as confirmation of the effectiveness of the Keynesian model of state regulation, and, on the other hand, as evidence of the neoclassical principle of stability and sustainability of macroeconomic equilibrium.

Macroeconomic policy in general: alternative approaches

§ 7. The theory of rational expectations.

New classical macroeconomics (new classics)

The theory of rational expectations (RTO) is a relatively young branch of economic theory.

The first works in this direction American economists R. Lucas, R. Barro and T. Sargent appeared in 1976. For the first time, the idea of ​​rational expectations, as noted in Ch. 23, put forward in 1961 by J. Muth, who tried to answer the question why forecasts of price movements in financial markets based on the most modern methods rarely coincide with actual price movements. In answer to this question, one of the central ideas of the theory of rational expectations was formulated. J. Muth emphasized that theoretical forecasts are based on the extrapolation of past trends into the future, i.e. on adaptive expectations, while subjects financial market make decisions and act based not only on past trends, but also on the basis of ideas about future business conditions.

Thus, we see that there are different ways of forming expectations. Recall that economic theory distinguishes between static, adaptive and rational expectations.

The disadvantage of adaptive expectations is that these expectations take into account only information from the past period and do not take into account future business conditions. In contrast to the concept of adaptive expectations, in the theory of rational expectations, individuals make decisions not only on the basis of past information, but also on the basis of forecasts about future conditions of economic activity.

So, the first assumption of GRW is the proposition that individuals act taking into account all the information available to them, both of the past period and on the basis of ideas about future economic policy, taking into account its impact on the state of the economy. Moreover, economic agents can make mistakes in their forecasts, but they cannot be systematic. Such predictions are called "Not cm yet mi » , i.e. not subject to systematic errors.

The second assumption of TPO is based on the classical school's position on the flexibility of prices and wages. Under this premise, prices and wages adjust to balance supply and demand. Therefore, rational expectations theory is called new class ssi Che With coy m acroecono mi coy, and its supporters new m and cla ssi ka mi . It should be emphasized that Rational Expectations Theory does not simply proceed from the flexibility of prices and wages and the competitive nature of markets, but also considers that new information quickly and sometimes

Chapter 26

Macroeconomic Policy in Chains: Alternative Approaches

is instantly taken into account by business entities that quickly adapt to the new situation, changes in state economic policy and contribute to the establishment of equilibrium prices, wages and production volumes.

The ability of individuals to adapt to new economic conditions depends on the very nature of the changes. If they wear expected nature, then individuals will take into account changes in the parameters of their activities when making decisions; as a result, the consequences of these changes will be reflected only in nominal indicators and will not have any effect on the real indicators of the economy (a good example of a classical dichotomy).

Suppose the government, on the eve of parliamentary elections, announces an increase in public spending on social needs in order to obtain additional votes, which will lead to an increase in the state budget deficit. Under these conditions, rationally thinking economic agents have the right to expect an increase in inflation and a reduction in real wages. In order to prevent adverse consequences, workers will take action to raise nominal wages and maintain the same level of real wages. Or, for example, the government announces in advance its intention to devalue national currency in terms of its fixed exchange rate. In order to maintain a real supply of cash, economic agents will try to exchange their cash reserves for hard foreign currency before devaluation and thus neutralize the negative consequences of the expected government policy.

Consider a graphical interpretation of the macroeconomic consequences of expected and unexpected government decisions.

At the initial expected price level Р 0, the aggregate supply curve is in the position AS, and the aggregate demand curve at position AD(see figure 26.8). Let us assume that the money supply increases, and the increase in the money supply was expected. In this case, the aggregate demand curve AD move right-up to the position of the curve AD". Simultaneously proportional to growth money supply the curve will shift to the left AS to the position of the curve AS".

As a result of these changes, the new equilibrium in the economy will be at the point £, which corresponds to a new higher price level R, equal to P e 1 at a constant output. Adjustments in the price level and nominal wages underlie the adjustment of firms and households to the expected growth in the money supply. In other words, firms will raise their prices in advance, and employees will contract higher nominal wages. As a result of these actions, only

Rice. 26.8. Rational expectations:

expected growth in the money supply

nominal rather than real indicators of the economy (compare with Figure 23.76 of Chapter 23).

From the position of TPO, the adaptation of economic entities to the expected growth in the money supply will not cause any changes in real indicators, even in the short term. In this, the position of the new classics differs from the views of the monetarists, who stand on the position of the neutrality of money and allow the influence of money on real indicators in short term period. The assumption that expected changes in the money supply do not affect the real performance of the economy, either in the long run or in the short run, is called su perney T rally st wow money.

A different situation develops in the economy in the event of an unexpected growth in the money supply (see Fig. 26.9). With an unexpected increase in the money supply, the aggregate demand curve AD shifts right-up to the position of the curve AD". In the short run, because workers did not expect the price level to rise, the aggregate supply curve will not shift. This situation will correspond to a new equilibrium at the point E", which corresponds to higher actual prices R e 1 against the expected Р e 0 , i.e. P e 1 > P e 0 and a higher level of output Y r However, in the long run, expectations will be revised upwards, along with prices, nominal wages will also increase, and the aggregate supply curve AS will shift to the left-up to the position of the AS curve and a new equilibrium will arise at the point E", which will correspond to a constant level of output Y*(compare with figure 23.7a from chapter 23).

Like the monetarists, the new classics do not deny that prices and wages can be tight in the short run. At the same time, the rigidity of prices and wages is explained by the new classics and nfor m ats And -

P=Pi P=Po

Chapter 26

Oh Y* Yi ^

Rice. 26.9. Rational expectations:

unexpected growth in the money supply

onny problem m A mi . Basically, these economic indicators can be flexible in the short term as long as firms and workers have complete information about the situation on the market. However, if firms and households have partial, incomplete information about the market, then it takes some time for them to correctly assess the market situation and adjust prices and wages. The situation of incomplete information occurs, as a rule, in the case of unexpected changes business conditions. If households and firms have complete information, then real wages and prices will tend to the level of full employment in both the short and long run.

Thus, unexpected changes in the money supply affect real indicators only in the short run; in the long run, only nominal indicators change.

The emphasis on the equilibrium state of markets, which is achieved automatically if the economy does not experience information problems and unexpected shocks, is the most important methodological principle of the theory of rational expectations. Moreover, to build their theory of general economic equilibrium, the new classics use the principles of microeconomics, including the position that individuals maximize utility, firms maximize profits, and markets are in equilibrium.

Based on the above assumptions and principles, the new classics conclude that the expected monetary and fiscal policies are ineffective and emphasize that the discretionary economic policy of the state does not achieve its goals and does not affect the real performance of the economy. Moreover, the new classics believe that discretionary economic policy is not only ineffective, but can increase economic instability.

Macroeconomic policy in general: alternative approaches

In accordance with the principles of discretionary policy, in a situation of economic downturn, the state, in order to stabilize the economy, pursues a stimulating economic policy, including exempting from tax part of the profits used for investments, stimulating investment spending and aggregate demand, which increases the equilibrium volume of national income and provides economic growth.

However, if the stabilization actions of the government become systematic, this will lead to a change in the behavior of economic agents. So, in the event of an economic downturn, the firm, in anticipation of tax breaks, reduce investment, which will exacerbate the recession. After the introduction of tax incentives for investments, firms will sharply increase investment spending, which will contribute to rapid economic growth. Thus, discretionary economic policy increases the instability of investments and strengthens both the recession and the recovery phase, i.e., does not smooth out, but strengthens cyclical fluctuations.

One of the serious problems of macroeconomic policy, from the point of view of TPO, is the presence credit And ta dover And I government from economic agents, because in the absence of trust, the government will not be able to achieve its goals.

Suppose the government announced its intention to pursue a policy of financial stabilization, inflation suppression and maintaining a stable ruble exchange rate. According to the TRO, the success of this policy will largely depend on the credibility of firms and households in a given government. The credit of trust depends on a number of circumstances.

First, in their assessments of the government's ability to successfully implement certain measures, economic agents take into account the past experience of this government. If this government has made any promises in the past and failed to fulfill them, then it will not have credibility. For example, on the eve of economic reforms in 1992, the Russian government, headed by B. Yeltsin and E. Gaidar, assured that as a result of price liberalization, their level would increase by 2-3 times in the first six months, the end of the year will begin their gradual decline. As is known, in 1992 alone, the consumer and wholesale price index increased by 2200% and 3400%, respectively, and prices continued to rise in subsequent years. Naturally, such a government cannot get a credit of confidence from economic agents.

Secondly, the credit of trust depends on the political stability in society and the stability of the government. Thus, in Russia from March 1998 to August 1999, four governments were replaced. Moreover, President B. Yeltsin promised each of them a term of office until 2000. In conditions of frequent and unpredictable turnover, the government may simply not have enough time to fulfill its promises.

Thirdly, the government can announce certain policies, and

Chapter 26

Macroeconomic policy in general: alternative approaches

after a certain time, take actions contrary to previously declared intentions and thus deceive economic agents. Moreover, deception may be unintentional and associated with an incorrect assessment of the future conditions for the implementation of current intentions, or with the so-called Not With ov m e steam O st yu in time m en And .

The point is that in moment of proclamation government strategy may be optimal and feasible. However, some time later, due to changed circumstances, such a strategy may not be feasible, or its social cost is too high, and therefore the government is forced to resort to another strategy that is more appropriate for the prevailing conditions. So, for example, during January-August 1998, the government of V. Chernomyrdin, and then S. Kiriyenko, announced their firm intention to keep the ruble exchange rate within the announced currency corridor and prevent the devaluation of the ruble. B. Yeltsin stated the same thing more than once, including on August 15, 1998. However, already on August 17, the government announced measures that meant the actual devaluation of the ruble.

Without going into an analysis of the specific reasons for incentives to deceive, we note that such actions undermine confidence not only in this government, but also in the future, since economic agents develop a stereotype of distrust in the government as an institution of power. Thus, the government of Yevgeny Primakov announced its intention to keep the annual rate of inflation within 30%, and the exchange rate of the ruble against the dollar - about 22 rubles per dollar. However, economic agents, having learned from the bitter experience of the past, do not believe in the ability of this government to fulfill its promises and seek to protect their monetary assets from depreciation by increasing the demand for goods and foreign currency, which makes it difficult for the government to achieve the target parameters for the inflation rate and the ruble exchange rate.

Thus, TPO emphasizes that the inefficiency of discretionary macroeconomic policy is not associated with a set of certain instruments, but is due to the reaction of economic agents to the expected results of this policy.

So, according to the theory of rational expectations, if the state does not pursue an active stabilization policy, as well as with an expected stabilization policy, the value of national income (NI) fluctuates around the value of NI at full employment and deviates from it only for two reasons:

first, as a result of exogenous shocks;

secondly, due to unexpected stabilization measures of the government, or the so-called floor iti ki With surprises, due to which information problems arise for economic agents.

However, some of the initial premises of TRO look far from indisputable.

First, it concerns the flexibility and high elasticity of prices. In markets dominated by structures of imperfect competition, prices are not highly elastic.

Secondly, when making decisions, business entities are not always guided by rational expectations.

Third, even assuming the proposition of unbiased forecasts, it cannot be denied that firms and workers can still, at least sometimes, misjudge the situation and make wrong decisions, and because of this, fourthly, markets will not always be in equilibrium. condition.

The peculiarity of supply-side economics is that it is not a holistic concept, not a complete and interconnected system of views, positions, methods of theoretical analysis, but, mainly, a set of practical proposals and recommendations. Supply-side economics covers a range of practical issues aimed at stimulating production, investment and employment. Among them are recommendations in the field of tax policy; the policy of privatization of state enterprises; improvement of the budget; reduction in social spending.

The economic theory of supply was developed mainly by American economists: A. Laffer, M. Feldstein, R. Regan.

According to the representatives of this theory, the market is the only normal way of organizing the economy. They oppose the regulation of the economy by the state, believing that regulation is evil, leading to a decrease in efficiency, initiatives, and energy of economic activity participants.

The main idea of ​​supply-side economics is to move away from Keynesian methods of stimulating demand, shifting efforts to support the factors that determine supply. The causes of inflation are seen in high tax rates, in the financial policy of the state, which provokes an increase in costs. Raising prices is the reaction of producers to the undesirable consequences of economic policy.

1. Tax cuts to encourage investment. Tax cuts for entrepreneurs will increase their income and savings; As a result, savings will grow and interest rates will fall. Reducing payroll taxes will increase the attractiveness of additional work, additional earnings. As a result, the supply of labor will increase, incentives to participate in production activities will increase. Hence the name of the concept under consideration - the theory of supply.

2. Privatization of state enterprises. It will make it possible to obtain additional financial resources and reduce the size of the public debt.

3. Budget recovery. Supply-side theorists oppose budget deficits. They believe that the budget should not be considered as an instrument of monetary policy.

4. "Freezing" of social programs. The existing system of social security in the West has two negative points: 1) it causes an unjustified increase in state revenues and exacerbates the budget deficit; 2) restrains the labor activity of the population.

Tax policy should be based on the Laffer effect. This effect was named after the American economist who substantiated this phenomenon and built a curve illustrating the essence of the proposal (Fig. 2).

The curve shows that when the tax rate increases, government revenues from tax revenues will initially increase, but if the tax rate exceeds a certain limit (point A), tax revenues will begin to decrease. The reason is that taxes that are too high make people less willing to work in the legal economy. The higher this limit is the tax rate, the less they will work legally and, consequently, the less will be the income of the state treasury. If the tax rate is constantly raised, sooner or later it will reach a level at which no one wants to work and, therefore, tax revenues will stop.

The supply-side economy became the basis of the policy of R. Reagan, M. Thatcher and their current successors.

Assessing the role of free enterprise theories, we note the following. They recorded a number of real weaknesses and miscalculations in state regulation of the economy. However, there are a number of contradictions that are striking. First, the authors of this trend constantly emphasize the advantages of self-regulation of the capitalist economy. But the current economy is far from free competition, it is sufficiently monopolized. Consequently, the result of such a mechanism cannot in any way be an optimal state.

Secondly, the entire argument of free enterprise theorists is aimed at proving that government regulation only reduces the efficiency of the economy. But for all the enormous importance of efficiency, it is not the only goal. After all, there are social goals that cannot be realized without state intervention. It is hardly possible to agree, say, with ignoring the problem of unemployment, helping the poor, etc.

Thirdly, if self-regulation is the best solution, then the question arises of the advisability of any economic policy at all, other than providing complete freedom to participants in economic relations.

. A conservative challenge to Keynes
. Supply Economics. Theoretical foundations of the concept
. Laffer curve and its justification
. Empirical estimates of the most important dependencies.
From theory to practice

1. Conservative challenge to Keynes

The end of the 70s was marked by the beginning of the so-called conservative wave in Western society, which affected the spheres of politics, economics, ideology, morality, and culture. In the field of practical politics, the conservative wave turned out to be closely associated with the names of D. Reagan and M. Thatcher; it is no coincidence that the course they pursued was called "Reaganomics" and "Thatcherism" respectively.
The most characteristic features of this course were the widely declared orientation towards the rejection of excessive state intervention in the economy and a return to the principles of laissez-faire; in the ideological field, traditionalist moral values ​​were put forward in the first place: family, personal responsibility, diligence, frugality, law-abidingness, etc.
Conservatism in the field of economic theory and practice was characterized by a sharp critical orientation. The objects of criticism were Keynesianism and politics associated with it.
Of course, a critical attitude towards Keynes, his theory and its practical implementation was not something characteristic only of the late 70s. Since its inception, the logical structure of Keynes's theory, its basic hypotheses and causal relationships have been extensively criticized, and the course of economic and social policy that has been associated with the name of Keynes has been seen by many as undermining the fundamental values ​​of capitalist society. But while the economic situation in the countries that pursued Keynesian policies remained fairly satisfactory - and this is the 50s-60s and the very beginning of the 70s - the disputes around Keynesianism remained within the academic framework; government programs of the time generally maintained a Keynesian orientation.
In the late 70s, disputes between representatives of various theoretical trends in economics gained public outcry. The main reason was the phenomenon of so-called stagflation - the simultaneous existence of inflation and unemployment, the elimination of which was not amenable to methods of demand regulation. Another reason was the obvious drop in the effectiveness of state intervention in the economy with the growth of its scale.
The general background and, at the same time, the breeding ground for anti-Keynesian sentiments was the shift in value orientations in society that occurred in the early 1980s. Where people used to talk about equality of results, they began to proclaim equality of chances, where they talked about freedom as a positive opportunity, they began to talk about freedom as the absence of the constraining framework of the state, and so on.
The inefficiency of the economic policy of the state turned out to be a good target for those who defended the idea of ​​a free market, and problems with crime - an occasion to recall the moral principles on which the well-being of society was built and which were forgotten.
And economic theory responded to these changes with a whole bunch of conservative concepts, which were not always new, but which were finally able to break through the dense atmosphere of pro-Keynesian sentiments. Economic theories, united under the sign of conservatism, are quite different, but they have in common: at the level of economic philosophy - belief in the efficiency of the market in the allocation of resources and the price mechanism as the basis market system; at the level of pure theory - the principle of rationality economic entities and optimization as the basis of behavior; Finally, at the level of methodology, there is the principle of reduction, i.e. assume that macroeconomic dependencies are made up of a simple aggregation of microdependencies.
Within the framework of macrotheory, the following Keynesian provisions became the main areas of criticism: on aggregate demand as a decisive factor in economic growth and the related thesis about the passive role of savings; about price stability, i.e. their invariance with respect to the ongoing monetary and budgetary policies.
The conservatism of the 1980s is represented by three concepts: supply-side economics, monetarism, and new classics. Representatives of these concepts, of course, share the above provisions, but they focus on different problems, analyze different aspects of the economy, use different tools. Thus, the process of capital accumulation and the state of public finances are at the center of supply-side economics; representatives of this direction are primarily interested in tax policy, the impact of which on the economy is studied within the framework of the neoclassical price model.
Monetarists and representatives of the new classics are busy studying the issue of the influence of expectations on the behavior of economic entities in connection with the problem of the impact of money on the economy, and in a more general formulation, in connection with the problem of the stability of the market system to external influences. At the same time, monetarists are trying to combine the quantity theory of money with new developments in the field of the theory of individual behavior and to some extent retain the macroeconomic orientation of the quantitative theory and its focus on analysis from the standpoint of demand, while the new classics focus on the problem of the rational behavior of the individual and refuse to recognize any macroeconomic specificity at all.

2. Supply-side economics. Theoretical foundations of the concept

Supply-side economics is the most practically oriented and ideological concept proposed by the economic conservatism of the 1980s. According to the MIT Dictionary, supply-side economies are a set of propositions, of which central is the assertion that the allocation and efficient use of resources is critical to the growth of national output in both the short and long run. Accordingly, supply-side economics focuses on barriers to expansion of supply and efficient use of factors of production. In fact, this means an increased interest in the form and position of the aggregate supply function of factors, and therefore in the parameters that determine the natural rate of unemployment, and not in the level of aggregate demand in the short run, as is the case in ordinary Keynesian macroeconomics. Chief among these obstacles is the negative impact of the level and structure of taxes on incentives to work and investment, as well as institutions and habits, such as restrictions on union activity, on the efficient allocation of resources.
Proponents of this concept argued that the tax (as well as social) system that existed at that time in the United States was counterproductive in relation to the process of capital accumulation and production growth and adversely affected the state budget. High taxes were also seen as one of the main causes of inflation. It can be said that supporters of supply-side economics stood on the position of the non-monetary nature of inflation. They believed that high taxes, on the one hand, provoke cost-push inflation, and, on the other hand, allow the government to artificially raise the demand price of certain goods and services and thus lead to inefficient use of resources.
The essence of the concept determined the main political and economic conclusions and recommendations, the most important of which was that not only there is no contradiction between the goals of fighting inflation and stimulating economic growth, but the achievement of these goals is possible with the help of the same tool - tax cuts. .
It is no coincidence that practical figures with moderately conservative views, and not representatives of science, stood at the origins of this concept. For the first time, the ideas that later became the core of the concept were expressed in 1977-1978. some congressmen and senators when discussing budgetary policy. The concept was popularized by journalists J. Wanniski and J. Gilder, and university science was represented by a little-known professor from South Carolina A. Laffer, the author of the curve of the same name. Many representatives of the R. Reagan administration were adherents of the concept.
But the clear practical orientation of the concept does not mean the absence of a theoretical basis. In theoretical terms, the concept of supply-side economics is based on the standard neoclassical price model.
Like neoclassicism in general, supply-side economics reproduces the principles of functioning of subjects at the macro level. It follows from this that, just as for an individual firm and a consumer there is no realization problem - at equilibrium prices they can always buy and sell any amount of a good, at the level of the economy as a whole there can be no unemployed resources and the level of production depends, first of all, on from the supply of capital and labor. Under this interpretation, the supply of capital is primarily a problem of savings, the solution of which depends on people's choice between consumption today and in the future; labor supply is the problem of people choosing between work and leisure. And the question of how this choice is influenced by the policy of the state is the subject of consideration. Essentially, the point is that taxes distort the relative attractiveness of labor versus leisure and the relative attractiveness of saving versus consumption. The economists who defended the concept of supply-side economics, in this case, reproduced the standard arguments that explain the usual form of supply functions. Indeed, an increase in taxes on wages means an actual decrease in wages and, therefore, since the substitution effect is greater than the income effect, it leads to a reduction in the supply of labor. The system of various benefits, including unemployment benefits, leads to a similar result - it reduces the attractiveness of work.
Similarly, the picture of the impact of taxes on savings income (interest and dividends) on the amount of savings was presented: people's choice between present and future consumption occurs in a situation where the relative prices of present and future goods are distorted by taxes. It is no coincidence that proponents of this concept have compared taxes to a "wedge" that is "driven" between factor income, which affects supply, and net factor costs, which determine the demand for factors. In other words, the distorting nature of income taxes was emphasized.
Quantifying the final consequences of certain changes in taxes on the economy and on the state budget is a very difficult task. But the logic of reasoning among supporters of supply-side economics is very simple: a decrease in tax rates on property income (interest and dividends) leads to an increase in the propensity to save through current consumption, increases the supply of loan capital and reduces the interest rate, which, as is known, contributes to the revival of investment process. Reduction of taxes on corporate profits (as well as the introduction of tax and depreciation incentives) stimulates the investment process in two ways: the level of dividends paid and, consequently, the market value of assets increases, which facilitates the attraction of external funds; an additional source of internal accumulation resources is created.
Reducing the marginal rates of taxes on labor income contributes to the expansion of the supply of labor force already working, attracting additional contingents (for which the marginal utility of the benefits received as a result began to exceed the marginal utility of leisure). Thus, the process of capital accumulation is ensured by the necessary increase in labor resources.

As a result, an increase in the rate of accumulation and acceleration of economic growth are achieved. At the same time, as follows from the theory of marginal productivity, there is an increase in the share of labor income in the national income. The latter is very important from a social point of view, since tax cuts create a danger, at least in the short term, of cutting government spending, including on social programs. Although here, as the supporters of the concept believed, a positive effect can be expected.

3. Laffer curve and its justification

The expected impact of tax rates on tax revenue is reflected in the so-called Laffer curve.

Fig.1
t- tax rate X— tax revenue
The general considerations underlying this curve are that if the amount of tax revenue is a "good" function whose values ​​are zero at the ends of some segment - namely, at a tax rate of zero, and at a rate of 1, the volume receipts is also equal to zero, then inside the segment (with t = f) function X(f) reaches a maximum (point A). In other words, in a certain range of values ​​of tax rates (in the range from 0 to<*) их увеличение ведет к росту объема налоговых поступлений (X) and this area of ​​tax rates is called normal; with further growth<происходит уменьшение налоговых поступлений, и эта область (от f* to 1) is called prohibitive.
When substantiating such a relationship, supply-side theorists put forward at least three arguments: the statements of economists of the past, an analysis of the results of previous tax reforms, empirical estimates of the actual relationship between tax rates and the volume of tax revenues, as well as those relationships that determine this and reflect those relationships that express the essence of the concept.
With regard to references to past authorities, the discussion about the correct system of taxation has been going on for more than a century and a half since the introduction of the (repeated, but already permanent) income tax in 1842 in England. And although tax rates at that time were negligible from a modern point of view (in the middle of the century - about 3%), numerous concerns were already expressed about the justification of the tax burden. Moreover, the latter was evaluated primarily from the point of view of fairness, although not without connection with ideas about economic expediency. In the history of economic thought there is no lack of sayings containing warnings against excessive taxation, against excessive progression of tax rates, and so on. So, J.St. Mill wrote: “To tax a larger percentage on large incomes and a smaller percentage on smaller ones is to tax industry and thrift; means to impose a fine on a person because he worked harder and saved more carefully than his neighbor. J. Du Puy seemed to speak the language of supply-side economics theorists:
“Constantly increasing, taxes reach a level at which the income from them is maximum ... At a different level of taxes, the income from them is less. Finally, the tax (which is prohibitive) does nothing.
However, not only economists of the "classical orientation", but also Keynes fully agreed with this idea. As early as 1933, observing a rapid increase in taxes unusual for peacetime, he wrote in The Road to Prosperity: “It should not seem strange that taxation can become so significant that if you wait a certain time, tax cuts can to balance the budget than to increase them.
References to authorities were reinforced by reminders of the successes of past reforms. W. Gladstone's reforms in England in the 19th century figured especially often. and E. Mellon in the 20s XX V. in the United States, as well as the tax reform of 1962-1964. in USA . The content of the last reform was reduced mainly to the establishment of various tax incentives for income from functioning capital, the reduction of depreciation periods, and the reduction of tax rates on income of individuals and corporations. This reform was designed in accordance with the Keynesian vision of the economy: personal tax cuts were supposed to stimulate consumer demand, and corporate tax cuts were supposed to stimulate investment, and all together to provide an upturn. But representatives of supply-side economics, while not disputing the positive impact of the Kennedy-Johnson reform, viewed this success as the result of the action of "supply forces", namely, the increased production activity of entrepreneurs, investors, and wage workers. As for the dependence of tax revenues on tax rates, there is convincing evidence that the reduction in tax rates in 1962 and 1964 had a positive and any significant effect on the volume of tax revenues, was not received. This fact was recognized by A. Laffer himself.

In the United States, income tax on a permanent basis began to be levied only in 1913, and since the non-taxable part was 3 thousand dollars, and the rate was raised from 1 to 7% for incomes exceeding 20 and 500 thousand dollars, respectively. - the amounts for those times are very large, income tax affected less than 1% of the population. After the rise in taxes during the First World War and the increase in the maximum rate to 77% and its subsequent reduction by 1928 to 25%, in 1936 it reached 78%. The record - 94% - fell on the last years of the Second World War, and this rate remained almost unchanged throughout the 50s.

Cit. by: Fullerton D. Can Tax Revenues do up When Tax Rates Go Down? // Supply-side solution. Chatham, 1983. P. 143.

During the reforms of 1962-1964. The top income tax rate for individuals was reduced from 91% to 70%, and for corporations from 52% to 48%.

Canto V., Joines D., Webb R. The Revenue Effect of the Kennedy Tax Cut // Foundation of Supply-Side Economics. N.Y., L., 1983. P. 82.

Laffer A. Government Exaction and Revenue Defficiencies// Supply-Side solution. Chatham, 1983. P. 122.

4. Empirical estimates of the most important dependencies. From theory to practice

In the 1980s, numerous attempts were made to empirically evaluate certain relationships that are of particular importance for this concept as a whole and ultimately determine the shape of the Laffer curve. Obviously, depending on the elasticity of the supply of factors at the rate of taxes on the income received from them, the form of the Laffer function changes: the greater the elasticity, the closer to the origin of the coordinates is the point of maximum tax revenues, and vice versa - the lower the elasticity, the farther the prohibition zone is and the smaller it is.
First of all, studies of the impact of taxes on the supply of labor and on the volume of taxes on labor income should be singled out. As shown by the calculations of M. Evans, M. Boskin and Fullerton, the elasticity of labor supply in terms of net income is very small and averages 0.15. Moreover, this indicator is lower for the so-called primary employed, i.e. for the most active and productive part of the population, and more for secondary workers (here it can range from 0.26 to 4). This means that the positive effect of tax cuts can be expressed in some decrease in labor productivity. There is even less unity in assessing the impact of taxes on the behavior of representatives of different professions and income groups.
Estimates of the impact of the unemployment insurance system on labor supply also turned out to be rather ambiguous. According to supply-side economics, an increase in the size of benefits and the timing of their payment should negatively affect the labor supply function, since this increases the preference for leisure. However, estimates obtained in the 1980s show that the influence of these factors is insignificant. Thus, an increase in benefits by 10% adds to the average period of unemployment from three to six days, and in general, this system adds to the unemployment rate according to some calculations 0.2-0.3, according to others - 0.75 and 0.5-1 percentage points. In general, most experts believe that the American unemployment insurance system does not have a significant impact on the supply of labor.
As noted above, one of the fundamental provisions of the concept is the thesis of savings as a decisive factor in economic growth. This thesis revealed the fundamental difference between the approach underlying the concept of supply and the Keynesian vision of the economy, understanding the problem of unemployment and approaches to its solution.
As you know, Keynes and his followers proceeded from the constancy of the savings rate, at least in a short period, believed that total savings follow changes in income and react weakly to changes in the interest rate, and therefore the measures of fiscal and monetary policy aimed at to stimulate demand do not affect the value of this variable. Numerous calculations of the relationship between interest and savings, which have been carried out since the 50s, have not been able to reach a final verdict on the closeness of the relationship between these variables. Proponents of supply-side economics tried to have their say in the debate that had been going on for more than two decades about the type of savings function. In the early 1980s, one of the supporters of supply-side economics, M. Boskin, obtained a result according to which the elasticity of net private savings to net real interest (that is, interest adjusted for inflation and taxes) is very significant and equal to 0.4. At the same time, attempts to predict the movement of the savings rate on the basis of the performed calculations turned out to be of little success.
Thus, the results of empirical studies, although they confirmed the existence of dependencies that representatives of supply-side economics spoke of, did not provide evidence in favor of a high degree of dependence between the rate of interest and the volume of savings, between taxes on wages and labor supply, etc. Thus, the answer to the question of whether the US economy in the early 1980s was in the prohibition zone of the Laffer curve may be rather negative. But this does not mean that, at the level of economic policy, the recipes of supply-side economics have not been adopted.
The overall focus of Reagan and Thatcher's tax policies was broadly in line with supply-side economics, although in many cases concessions were made to demand-side policies under pressure. It is very difficult to draw a line between stimulating the economy under the supply and demand scenario. Thus, the tax reform that began in the United States in 1981 provided for the adjustment of tax rates to take into account changes in their actual value caused by inflation. It was aimed primarily at easing the tax burden of corporations: it provided for shorter depreciation periods, tax incentives associated with investments, and finally, a reduction in income tax rates, etc. As a result of these measures, by 1983 the share of corporations in the total amount of tax revenues to the budget decreased by more than 4 percentage points. Subsequently (1986), the reduction in tax rates on corporate profits (up to 34%) was accompanied by a decrease in tax incentives, as a result of which corporate taxes increased, and their share in the total amount of taxes also increased.
In the period from 1981 to 1986, measures were taken that provided for a decrease in the degree of differentiation and a decrease in the average level of rates, primarily due to a reduction in their upper values, those. it was about weakening the progressive nature of the tax system, raising the minimum level of non-taxable income, adjusting the tax base to inflation. So, instead of 14 progressively increasing rates from 11 to 50% in 1989, two were established - 15 and 28% (subsequently, their growth was observed, and in 1993 five new rates were introduced from 15 to 39.6%).
There is no doubt that in the mid-1980s there was a positive shift in the US economy: unemployment and inflation began to decline, and economic growth rates became more stable. However, to what extent the economy reacted to the measures taken according to the supply concept scenario, and to what extent - according to the demand scenario, there is still no final answer to this question. If we turn to the analysis of the dynamics of the savings rate, which is one of the strategic variables of the concept, we can see that the rate of private net savings has slightly increased, which, however, can be interpreted as a result of changes in the structure of capital, the savings rate of the population has not practically changed. At the same time, foreign capital began to play an increasingly important role in the investment process. The latter circumstance suggests that, at least within a not very long period, the correspondence between investment and savings can be achieved with the active participation of the international capital market. This circumstance, with all the ensuing consequences, does not fit into the Keynesian schemes of a closed economy; there was no place for it in supply-side economics either.
In connection with the question of the practical implementation of the theory, it is of interest to change the position of supply-side economics theorists regarding the mechanism of inflation and measures to combat it. As already noted, this concept initially considered inflation primarily as a result of rising costs caused by a decrease in the intensity of the accumulation process in the private sector due to high taxes. However, practitioners of supply-side economics did not dare to rely only on tax cuts to fight inflation and recognized that the growth of the money supply gives an impetus to the inflationary process, which turns into a permanent factor due to the system of taxes that distorts relative prices. Hence the recognition that sound tax policy reduces upward pressure on prices at any rate of money supply growth. Gradually, however, monetarist motives began to sound more distinctly in the works of representatives of the "monetary" wing of the supply-side economy. Tax cuts have gradually evolved from a basic measure into a way to "neutralize" the negative effects of monetary restrictions. Proponents of supply-side economics had to make a concession to the monetarists and admit that “long-term inflation can be beaten only by limiting the supply of money beyond the needs of a growing economy ... and the fiscal, tax and regulatory measures envisaged by the Reagan administration program and aimed mainly to stimulate the growth of production ... and output, will only be a very moderate contribution to the weakening of inflation.
Another reason that forced supply-side economists to give up their positions was the budget deficit. By itself, the concept of supply did not attach much importance to the problem of the impact of aggregate spending, including government spending, on the economy. It was believed that the budget deficit, even if it arises as a result of tax cuts, is a by-product and temporary phenomenon that does not require special consideration. The recommendations of supply-side economics to reduce revenues were in no way determined by the goal of achieving a balanced budget. It was about stimulating the activity of economic entities. The situation, when taxes are reduced, and the deficit is growing, did not fit into the scheme of supply-side economics.
During the reign of President R. Reagan, who initially acted as a "fiscal conservative" and accused his predecessors of wasting public resources, the deficit increased several times and turned into one of the most acute problems. The need to fight shortages reduced the ability to follow the principles of supply-side economics. And the reduction in expenditure items, not to mention the increase first in indirect tax rates, and then, after Reagan, income tax rates, was no longer carried out with the aim of stimulating the activity of economic entities, but based on the desire to reduce the budget deficit.
The history of supply-side economics ended with the departure. Reagan from the White House. But it has entered the modern history of economic thought and economic policy. In any economic dictionary or encyclopedia today we will find such concepts as "supply-side economics", "Reaganomics", "Laffer curve". As already noted, in theoretical terms, "supply-side economics" did not give any new ideas. The reason for her unexpected popularity is that she offered a simple diagnosis of existing problems and a simple solution to them, which was easily translated into policy recommendations. But at the same time, it pointed to the real pain points of the economy and, most importantly, responded to the moods of wide sections of society. And it is not so important to what extent the measures taken or the reaction of economic entities really corresponded to this concept, the important thing is that with its help it was possible to influence the economic thinking of people. And from this point of view, she gave a unique example of how an economic concept can become a real force in modern conditions that can influence economic development. Your comment on the book
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Supply-side economics concept

In the late 70s - early 80s of the XX century. Western economic science began to develop the concept of "supply-side economics". This trend is a kind of neoclassicism, and it had a noticeable influence on the economic policy of the US administration during the years of President Ronald Reagan, as well as the governments of Margaret Thatcher in England, the Christian Democrats in Germany. The recommendations of supply-side economics theorists were one of the sources of "Reaganomics" and "Thatcherism".

The authors of the supply theory use the concepts of various schools, including monetarists and neoliberals. The founders of the theory of supply-side economics were American economists A. Laffer, R. Mandel, M. Feldstein, J. Gilder, M. Evans and others. Practicing economists closely associated with the US administration acted as adherents of this concept and its implementation in economic practice.

Fluctuations in economic growth rates, structural and cyclical crises, chronic unemployment and inflation, according to supporters of the supply theory, were provoked primarily by an increase in government spending. They see them as the cause of the budget deficit, high taxes on corporations, and the disorder of the monetary system. Not only M. Friedman, but also supply-side economics theorists believe that the systematic intervention of the state in economic life, its policy of income, employment, and social security have a devastating effect on the economy. Such interference is rejected, and the role of the state is limited to the implementation of policies that promote free economic activity, as well as maintaining the necessary level of money supply, conducting credit measures, and limiting social spending.

Rejecting the Keynesian system of counter-cyclical regulation of the economy with its concern for ensuring effective demand, full employment and opposing supply-side economics to it, supporters of this concept shift the focus from demand formation to the problems of resource supply and their efficient use. In this sense, they disagree with the monetarists, whose concept contains a provision on the need to generate demand by the state at the expense of the budget. Focusing not on the formation of demand, but on the supply of factors of production, the supporters of the concept under consideration propose to simultaneously activate incentives and incentives for entrepreneurial activity of economic agents. Accordingly, the nature and content of recommendations in the field of economic policy and methods of its implementation are changing. Supporters of the supply theory see the main task of their concept in increasing the long-term growth rate of the economy while maintaining its dynamic balance and preventing inflation.

As the American economist L. Turow notes, supporters of the concept of supply-side economics are guided by the common truth "if the economy is not functioning well, then something is interfering with the well-oiled mechanism of the market economy." They see the basis of all the troubles of the economic system of capitalism in the fact that state intervention in the economic process violates its stability, based on the free market, upsetting its normal mechanism. As a result, the main incentive for economic activity is weakened - private initiative, without which economic success is impossible. Hence the low level of use of resources, their proposals. Only the market provides economic agents with a free choice of optimal economic decisions, types of activities, a choice between current and future consumption, etc.

At the same time, it should be noted that the supporters of this concept still do not completely reject state intervention in the economy, giving their own interpretation of this problem. They allow the use of the state, causing the limitation of its regulatory activities within the limits that suit monopolies. The scope of such intervention is sharply narrowed. It is allowed on the basis of the comprehensive revival of the market mechanism, the elimination of all restrictions that hinder the activities of big business. This shows closeness with the position of neo-liberals. According to A. Laffer, "supply theory is, in fact, that branch of economic theory that focuses on the most personal and most private incentives and motives." Unlimited private initiative in conditions of maximum freedom of action of the market mechanism - this is the initial principle that is taken as the basis of supply-side economics.

A large place in the works of the authors of supply-side economics is occupied by the problem of inflation. They largely perceive the monetarist interpretation of this phenomenon: they exaggerate the role of money in the functioning of the economy, proceed from the monetary nature of inflation, which has a great influence on the state of the economy. In accordance with this, the supply theory provides for anti-inflationary measures, including tax cuts, cuts in government spending on social needs, elimination of the budget deficit, and the abolition of administrative restrictions that hinder free business activity.

Proponents of the supply theory are guided by the internal subjective motives of behavior and incentives inherent in the individual. It is believed that in this way the economic activity of both individuals and firms is best stimulated. The main obstacle is called the taxation system, high tax rates. According to L. Laffer, people do not work to pay taxes. Unlike Keynesians, supply-side economists have a different view of savings. They proceed from the fact that the growth of savings has not a negative, but a positive effect on the economic process, being a source of increasing investment and increasing the rate of dynamic equilibrium, as L. Laffer writes, people "save in order to receive income from savings."

A progressively increasing individual and corporate income tax is seen as an obstacle to the growth of savings, and hence new investments of capital. Concerned about those who receive monopoly profits, about recipients of high incomes, proponents of supply-side economics included in their theory tax cuts and a reduction in the degree of progressiveness of income taxation as the most important requirements. Such measures are seen as an effective means of stimulating private initiative, creating favorable conditions for maintaining business activity on the basis of unlimited market self-regulation, expanding investment and optimal long-term economic growth.

Justifying the tax cut course, supply theory relies on the "Laffer effect", based on a mathematical model that projects the ratio and relationship of government revenues and taxes. According to Laffer's construction, the growth of government revenues occurs only up to a certain level of tax rates. Then it slows down, and when it reaches a critical point, it begins to decline. If taxes absorb all entrepreneurial profits, which can be thought of mostly as an abstraction, then there will be a decrease in the rate of growth of production, or even its cessation. This will entail a sharp reduction in tax revenues to the treasury. Illustrating the mechanism of the "Laffer effect", supporters of supply-side economics urged the US administration to carry out tax reform, which took place in the early 1980s.

Supply-side economics has drawn sharp criticism from well-known Western writers. According to J. Galbraith, supply-side economics is more than transitory, being "a temporary aberration in public policy." He is convinced that this theory, together with monetarism, will be "rejected and even now is rejected by experience and common sense." The low practical efficiency of supply-side economics is noted by the American economist B. Bosworth. Although, in his opinion, the issue of supply of resources deserves more attention, the authors failed to develop sound recommendations for its implementation. The only exception is the growth in investment as a result of the 1981 tax reform. In general, the economic policy of the US administration in the 1980s had serious miscalculations. So, for example, despite the measures taken to stimulate savings, their share in GNP has not actually changed. Bosworth believes that these Reaganomics miscalculations are mainly related to the exaggeration of tax incentives for corporations to the detriment of other methods of state regulation of the economy.

On the recommendations of monetarists and supporters of supply-side economics, since the beginning of the 1980s, the American administration hoped to quickly stabilize the economy and ensure the balance of the federal budget. But if the recommendations on removing obstacles to free enterprise and unleashing market forces contributed to the revival of the economic situation after the recession at the turn of the 1980s, then in solving other issues, the forecasts not only did not come true, but also caused negative manifestations in the economy.

Thus, supply-side economics combines the ideas of various schools, mainly monetarists and neoliberals. This concept focuses on stimulating a broad private initiative, private entrepreneurship. Its supporters see this as the key to solving the most pressing economic problems. The most important lever for stimulating private initiative is the reduction of tax rates and the provision of privileges to corporations. Any increase in budget spending for these purposes is rejected, as well as an increase in spending on social needs. All these provisions take place in the concept of monetarists and neoliberals. But, unlike the monetarists, the authors of the "supply theory" focus not on the formation of demand, but rather on the supply of resources; unlike neoliberals, they do not absolutize the concept of private property.