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Modern supply-side economics, also known as securonomics, supply-side social democracy or productivism, is an economic theory and philosophy developed in the early 2020s by economists Janet Yellen, Rachel Reeves and Dani Rodrik. Presented as a modernised alternative to "traditional" supply-side economics, modern supply-side economics is founded on the belief that economic problems are caused by an over-reliance on the free market, and that globalisation and the Washington Consensus of neoliberalism have failed to deliver economic growth. Like supply-side economics, it agrees that increasing supply is a key driver of economic growth, however it rejects the traditional supply-side argument that growth is best achieved by decreasing regulation, lowering taxes for the wealthy and leaving economic direction to the free market, otherwise known as trickle-down economics, and instead argues that growth is best achieved by boosting labour supply, increasing production and reducing inequality and environmental damage by rejecting deregulation and tax cuts to instead prioritise investment in infrastructure, education and green energy. It calls for a more protectionist and interventionist active state which partners with businesses and takes a more active role in managing the free-market economy, boosting production and drawing up industrial policy, as well as an aim towards stronger supply chains and stronger trade unions. In some countries like Canada and the United Kingdom, there has also been a focus on fiscal discipline to avoid overspending, with spending increases toned down or accompanied by tax rises and cuts to other services.
The theory was first conceptualised by Yellen in 2022 to describe the economic strategy of the Biden administration during her tenure as the United States secretary of the Treasury. It was further developed by Yellen in 2022 and 2023 alongside Rodrik and Reeves, who introduced the concept of the active state and coined the terms "productivism" and "securonomics" for the theory. An early example of a modern supply-side approach in economic policy can be seen in Canada under Justin Trudeau and the Liberal Party of Canada, which has governed with a modern supply-side economic strategy since 2015, before it was developed as a coherent concept. From the early 2020s, the theory has been increasingly adopted by centre-left political parties and governments throughout the Western world, including the United States under the Democratic Party since 2021, Australia under the Australian Labor Party since 2022 and the United Kingdom under the Labour Party since 2024. It has been described by its proponents and media commentators as an emerging economic consensus, replacing the previous Washington Consensus of neoliberalism. In this context, it has been called the New Washington Consensus.
Theory
editConceptualisation
editModern supply-side economics, also known as productivism, securonomics or supply-side social democracy, is an economic theory[1] developed by American economist and Democratic Party politician Janet Yellen, British economist and Labour Party politician Rachel Reeves and Turkish economist Dani Rodrik.[2][3][4] It was first conceptualised in a speech by Yellen to the World Economic Forum in January 2022 to describe the economic strategy of the Biden administration during her tenure as the United States secretary of the treasury. In her speech, Yellen described the theory as a modernised form of supply-side economics, which she said had failed as a strategy to increase growth.[5] Like the "old" or "traditional" supply-side economics as espoused by US president Ronald Reagan and British prime minister Margaret Thatcher in the 1980s, modern supply-side economics agrees that increasing supply is a key driver of economic growth.[6] However, whereas supply-side economics posits that growth is best achieved by lowering taxes for the wealthy, decreasing regulation and leaving economic management to the free market, a strategy otherwise known as trickle-down economics, modern supply-side economics is based on the belief that economic problems are caused by an over-reliance on the market, and aims to increase economic growth by boosting labour supply, increasing production and reducing inequality and environmental damage by rejecting deregulation and tax cuts to instead prioritise investment in infrastructure, education and green energy, with a more interventionist "active state" which exerts more control on the economy.[7][3][6][8][9] Modern supply-side economics also aims to make the economy more resistant and adaptive to economic and global crises such as the COVID-19 pandemic and Russian invasion of Ukraine.[6][8]
The theory was further developed by Rodrik, a leading critic of hyper-globalisation, and Reeves during her tenure as the United Kingdom's shadow chancellor of the Exchequer, who coined the terms "productivism" and "securonomics" to refer to the theory respectively.[3][10][2]
The active state
edit
The theory of modern supply-side economics was further developed by Turkish economist Dani Rodrik and British economist and Labour Party politician Rachel Reeves, who coined the terms "productivism" and "securonomics" respectively as alternative names for the theory.
The active state is not however a big state,
Modern supply-side economics, also known as productivism or securonomics, was developed by American economist Janet Yellen and British economist Rachel Reeves in 2022 and 2023.[11] The term "modern supply-side economics" was first used in a speech by Yellen to the World Economic Forum in 2022, when she was United States Secretary of the Treasury, to describe the economic strategy of the Biden administration.[12][13] In her speech, Yellen presented modern supply-side economics as a modernised version of the macroeconomic theory of supply-side economics, which she said had failed as a strategy to increase growth.[5] In contrast to the traditional form of supply-side economics which posits that economic growth is best achieved by lowering taxes for the wealthy and decreasing regulation, otherwise known as trickle-down economics, modern supply-side economics is based on the belief that economic problems are caused by an over-reliance on the market.[3] It aims to encourage growth by rejecting tax cuts and deregulation to instead prioritise investment in infrastructure, education and labour supply, and calls for an "active state" which exerts more influence on the economy.[7][3] Growth is encouraged by the pursuit of policies which boost productivity and reduce economic inequality and harm to the environment.[5][7][9] According to Yellen, the strategy also intends to make the economy more resilient to enable it to better adapt to economic crises.[9]
Implementation
editThe earliest example of the implementation of modern supply-side economics can be traced to Canada, where the governing Liberal Party of Canada has pursued an economic strategy of modern supply-side economics under Prime Minister Justin Trudeau since 2015, even before it was an actual concept. Trudeau's government has pursued an economic strategy of boosting supply and growth by increasing social investment in infrastructure, housing, education and the green transition under the direction of the finance minister Chrystia Freeland, which was later identified by the government as a strategy of modern supply-side economics following Janet Yellen's conceptualisation of the theory in 2022.[6][14][15] In Canada, this has taken the form of significant government spending increases in these areas, alongside a commitment from the government to maintain fiscal discipline with a declining debt-to-GDP ratio, achieved through tax rises and cuts in other services to avoid overspending; Trudeau's government has presided over the reversal of a twenty-year trend of decreasing spending and revenue from the Canadian federal government.[6][14] The Canadian economy has grown over the period of this strategy's implementation, with a shrinking deficit. However, there has also been an increase in inflation.[6][14]
In the United Kingdom, there is a growing consensus around the implementation of modern supply-side economics.
In the United States, modern supply-side economics
Janet Yellen, the first to develop modern supply-side economics as a concept, has adhered to the strategy during her term as
References
edit- ^ Hacker, Jacob S. (2 April 2024). Can the Democrats Win?. Haymarket Books. p. 4. ISBN 978-1-64259-534-5. Retrieved 9 July 2024.
- ^ a b Eaton, George (1 May 2024). "What is Starmerism?". New Statesman. Retrieved 10 July 2024.
- ^ a b c d e Evans, Joseph (9 January 2024). "Modern supply side economics: A new consensus?". Progressive Review. 30 (3). IPPR: 146–149. doi:10.1111/newe.12371. Retrieved 9 July 2024 – via Wiley.
- ^ Murphy, Colm; Dibb, George; Nanda, Shreya (2023). "Roundtable: Modern supply-side economics – Labour's new political economy?". Renewal. 31 (2): 71–94. Retrieved 9 July 2024 – via Lawrence Wishart.
- ^ a b c Lawder, David; Shalal, Andrea (21 January 2022). "Yellen rebrands Biden economic agenda as 'modern supply-side economics'". Reuters. Retrieved 9 July 2024.
- ^ a b c d e f Wherry, Aaron (8 April 2022). "Freeland makes a 'modern supply-side' bet on Canada's future economic growth". CBC News. Retrieved 9 July 2024.
- ^ a b c Wearmouth, Rachel (25 July 2022). "Why Keir Starmer has borrowed the Tories' 'magic money tree' attack line". New Statesman. Retrieved 9 July 2024.
- ^ a b Nelson, Eshe (6 June 2024). "The American Inspiration for Britain's First Female Chancellor". The New York Times. Retrieved 10 July 2024.
- ^ a b c Cummings, Mike (4 April 2023). "At Yale, Treasury Secretary Yellen emphasizes nexus of research and policy". Yale News. Retrieved 9 July 2024.
- ^ Cowley, Jason (7 June 2023). "The Reeves doctrine: Labour's plan for power". New Statesman. Retrieved 10 July 2024.
- ^ Cite error: The named reference
:2was invoked but never defined (see the help page). - ^ Gower, Patrick (5 March 2024). "Game of thrones". Knight Frank. Retrieved 9 July 2024.
- ^ Konczal, Mike (1 March 2023). "To Increase the Supply of Workers, Our Economy Needs Childcare". Roosevelt Institute. Retrieved 9 July 2024.
- ^ a b c Balakrishnan, Anita; Hemmadi, Murad; McIntyre, Catherine; Reevely, David; Snyder, Jesse (7 April 2022). "Federal Budget 2022: What's in it for the innovation economy". The Logic. Retrieved 10 July 2024.
- ^ Hayden, Anders (4 July 2024). "The wellbeing economy in practice: sustainable and inclusive growth? Or a post-growth breakthrough?". Humanities and Social Sciences Communications. 11: 5. doi:10.1057/s41599-024-03385-8. Retrieved 9 July 2024.