Supply and demand why demand is better than supply side
Supplyand demand: why demand is better than supply side
Demandtheory has a close connection to the work of Keynes. Keynes arguedthat if government gave money to consumers, then the consumers woulddemand more products hence, forcing suppliers to produce or buildmore products. Government can achieve this by reducing taxes to theworking or consumer class or print more money (Mulligan & Chinn1). However, it is not yet clear on the best method of distributingthe printed money to the right class or people. One of the recentattempts by the government in distributing the printed money wasthrough feeding banks with more money with hope that they woulddistribute the money to the right persons. On the other hand, supplyside theory is commonly associated with Reagan. Reagan argued thatencouraging manufacturers to build more products would attract moreconsumers and customers to buying such products.
Demandtheory is better than supply one since it target all people includingthe less fortunate in the society while the supply one mostly benefitthe rich since they are mostly on the supply side. Indeed, supplyside leads to an enormous disparity between the rich and the poorsince it supports lowering income taxes and capital-gain axes(Mulligan et al. 1). Again, demand theory calls for the government togive more money to consumers hence, resulting in more productionthat would reduce costs and prices of products in an extremelymanner.
Additionally,demand side lead to improved infrastructure since. Any improvementson infrastructure help the nation expand its highways, repair road,and update bridges. Improved infrastructure further paves way forexpansion of existing businesses as well as for the construction ofnew one for the anticipated economic rebound. Demand is also betterthan supply side since it leads to lowered nominal interest rates.Keynesian argued that any effort geared towards lowering the nominalinterest rate would automatically spur investment (Mulligan et al.1). Most commercial banks pay the nominal interest rates when theyborrow from the central bank. Commercial banks borrow more money tolend to investors when nominal interest rates are lowered. Similarly,when the cost of investment represented by the interest rate islowered, investors have a higher likelihood of borrowing more moneyfrom commercial bank. The borrowed money, in turn, helps investorsfinance personal spending, expand existing businesses, or start newbusinesses. Indeed, resulting spending by borrowers lead to a renewedgrowth of the economy in a direct manner.
Demandside further lead to job creation and new employments. Job creationplays a key role in lowering interest rates and spending money onpublic works. Earnings and spending of paychecks also play asignificant role in fuel economic growth. In fact, restaurants, foodproducers, clothiers, and landlords benefit from the spent paychecksin an enormous way.
Onthe other hand, supply side leads to deregulation to create growth.There are always some hidden costs of deregulation even if lowerregulation lead to higher gross domestic product as well as higherprofits. For instance, coal plants have a higher likelihood of makingmore money if the government reduces emissions regulations on coalpower plants. However, such benefits pay little or no attention tothe medical costs of individuals who get lung cancer or asthma fromthe increased coal burning. In connection to this, deregulation couldlead to the reduction of standard living and health of human being.
Mulligan,Casey & Chinn, Menzie. Thegreat debate: stimulus-supply side or demand side?Retrieved from http://econintersect.com/wordpress/?p=3925,2010. Web.