Interventionist Supply-Side Policies | A Level Economics
Summary
TLDRThe video script delves into interventionist supply-side policies (SSP), contrasting them with market-based approaches. It highlights government interventions aimed at overcoming market failures that negatively impact aggregate supply. Key interventionist strategies include fiscal policies to alleviate poverty, such as universal basic income, and active regional policies to boost underperforming regions. The script also discusses the provision of public goods, investment in social housing, and labor market interventions to improve human capital. It touches on the potential for nationalization and progressive taxation to fund public goods. The video addresses the economic downturn caused by the COVID-19 pandemic and the introduction of policies to prevent 'economic scarring,' such as employment subsidies, furlough schemes, and loan guarantee schemes. It concludes by emphasizing the importance of evaluating the effectiveness of interventionist policies in comparison to free-market approaches, particularly in the context of promoting economic supply-side growth.
Takeaways
- 💼 **Government Intervention in Market Failures**: An interventionist supply-side policy (SSP) involves government action to correct perceived market failures that negatively impact aggregate supply.
- 📈 **Fiscal Policy to Reduce Poverty**: Fiscal SSPs may focus on reducing poverty and supporting the incomes of the poorest, with growing interest in universal basic income.
- 🏗️ **Public Goods Provision**: Governments may intervene to provide essential public goods like environmental defenses which the free market might not adequately supply.
- 🌐 **Regional Policy for Supply-Side Capacity**: Active regional policies can be used to address disparities in employment, productivity, and income, and to boost underperforming regions.
- 🏠 **Social Housing Investment**: The government might increase investment in social housing to enhance supply-side capacity in the housing sector.
- 🎓 **Labour Market Interventions**: Interventions may include addressing training and vocational education deficiencies to improve the labor force's skills and human capital.
- 🔄 **Nationalization of Businesses**: As an alternative to the free market, the government may nationalize certain businesses to better control key sectors.
- 💰 **Higher Public Spending**: Interventionist policies are typically associated with increased government spending on public services, education, health, housing, and infrastructure.
- 📊 **Progressive Taxation**: To fund public goods, the government may opt for a more progressive tax system.
- 🛃 **Selective Import Controls**: Moving away from full-scale trade liberalization, interventionists might implement tariffs and quotas to protect domestic industries.
- 🌱 **Preventing Economic Scarring**: Policies to prevent long-term economic damage post-pandemic include employment subsidies, furlough schemes, and loan guarantee schemes.
- 🔍 **Project Birch**: An initiative being considered where the state may fund equity stakes in key businesses facing financial difficulty, indicating a more interventionist approach post-pandemic.
Q & A
What is an interventionist supply side policy?
-An interventionist supply side policy (SSP) is a government strategy that involves direct intervention to overcome perceived market failures that negatively impact aggregate supply. This can include measures such as fiscal policies, public goods provision, regional policies, and labor market interventions.
Why might a government advocate for a universal basic income as part of a supply side policy?
-A government might advocate for a universal basic income to underpin and support the incomes of the poorest parts of the population, thereby addressing supply-side weaknesses related to poverty and potentially stimulating aggregate supply.
How can government intervention in the provision of public goods affect the economy?
-Government intervention in the provision of public goods, such as flood defenses and environmental protection, can lead to a more efficient working of the economy by providing essential services that the free market might not adequately supply.
What is meant by active regional policy in the context of supply side policies?
-An active regional policy refers to government strategies aimed at addressing regional disparities in employment, productivity, and income. This may involve bolstering supply side capacity and investment in underperforming regions to enhance overall economic performance.
How does increasing spending on social housing fit into an interventionist supply side policy?
-Increasing spending on social housing is a way for the government to boost supply-side capacity in the housing sector, particularly if the market mechanism is under-providing housing, thus addressing a potential market failure.
What role does vocational education play in an interventionist approach to supply side policies?
-Vocational education is seen as a means to lift human capital and upskill the labor force. Policies that invest in vocational education and training in areas like STEM subjects are part of an interventionist approach to improve the productivity and competitiveness of the economy.
Why might a government decide to nationalize some businesses as part of an interventionist policy?
-A government may decide to nationalize businesses to correct perceived market failures, ensure the provision of essential services, or to protect domestic industries from foreign competition. This can also be a way to prevent economic scarring and maintain control over key sectors of the economy.
What are some key features of an interventionist policy approach?
-Key features of an interventionist policy approach include higher government spending on public services, education, health, housing, and critical infrastructure. It may also involve commitment to minimum or living wages, progressive taxation, active regional policies, selective import controls, and tougher regulations of key industries.
How does the COVID-19 pandemic impact aggregate supply?
-The COVID-19 pandemic has led to a deep downturn in the economy, negatively impacting aggregate supply through increased unemployment, business failures, and reduced net investment. This is referred to as economic scarring, which can have long-term detrimental effects on the economy.
What policy responses can prevent the scarring effects of an economic downturn?
-Policy responses to prevent economic scarring include employment subsidies, furlough schemes, relaxation of immigration controls to address skills shortages, loan guarantee schemes to improve corporate finances, and potentially state-funded acquisitions of businesses facing financial difficulties.
What is 'Project Birch' and how does it relate to interventionist policies?
-Project Birch is a concept considered by the treasury where the state funds acquisitions or equity stakes in key businesses facing acute financial difficulties. This represents a more interventionist approach by the government to prevent labor and economic scarring effects caused by the pandemic.
How does an interventionist approach differ from a free market approach in terms of promoting the supply side of the economy?
-While both approaches aim to promote the supply side of the economy, an interventionist approach involves direct government involvement and policy-making to address market failures and stimulate aggregate supply. In contrast, a free market approach relies more on market mechanisms with minimal government intervention.
Outlines
📈 Introduction to Interventionist Supply Side Policies
This paragraph introduces interventionist supply side policies (SSP), which involve government intervention to correct perceived market failures that negatively impact aggregate supply. Key areas of intervention include poverty reduction, public goods provision, regional policy to address disparities, housing supply, labor market improvements, and potential nationalization of businesses. The paragraph also touches on the government's role in ensuring minimum wages, progressive taxation, active regional policies, import controls, and regulations of key industries. It concludes with the impact of the COVID-19 pandemic on aggregate supply and the introduction of policies to prevent economic scarring.
🛠️ Policy Responses to Prevent Economic Scarring
The second paragraph delves into the concept of economic scarring, which refers to long-term damage to aggregate supply caused by a deep economic downturn. It outlines the negative effects of such scarring, including increased economic inactivity, business failures, and a decline in net investment. To counter these effects, the paragraph discusses potential policy interventions such as employment subsidies, furlough schemes, relaxation of immigration controls, loan guarantee schemes, and the possibility of state-funded acquisitions of businesses facing financial difficulties, referred to as 'Project Birch'. The paragraph emphasizes the government's shift towards a more interventionist approach to mitigate the labor and economic scarring effects of the pandemic.
Mindmap
Keywords
💡Supply Side Policies
💡Government Intervention
💡Market Failures
💡Fiscal Supply Side Policy
💡Universal Basic Income
💡Public Goods
💡Regional Policy
💡Social Housing
💡Human Capital
💡Nationalization
💡Economic Scarring
💡Project Birch
Highlights
Interventionist supply side policies involve government intervention to overcome perceived market failures and their detrimental impact on aggregate supply.
Fiscal supply side policies may focus on reducing poverty and supporting incomes of the poorest through measures like universal basic income.
Governments might intervene to provide public goods such as environmental protections, like flood defense, which the free market may fail to supply adequately.
Regional policy aimed at boosting supply side capacity and investment in underperforming regions can be a part of interventionist approaches.
Government investment in social housing can increase supply-side capacity in the housing sector where the market may under-supply.
Intervention in the labor market might include addressing training and vocational education to upskill the workforce, particularly in STEM subjects.
Nationalization is an alternative where the government transfers businesses from the private to the state sector, as seen with some train operating companies.
Higher government spending on public services, education, health, housing, and critical infrastructure like energy is typical of interventionist policies.
Commitment to minimum wages or a living wage is often part of interventionist policies to underpin work incentives and productivity.
A progressive tax system may be implemented to increase revenue for funding public goods and services.
Selective import controls like tariffs and quotas might be used to protect domestic industries instead of full-scale trade liberalization.
Intervention in foreign currency markets to improve competitiveness can be a feature of interventionist economic policies.
Nationalization and tougher regulations of key industries are associated with interventionist approaches.
The negative impact of the COVID-19 pandemic on aggregate supply has led to the introduction of policies to prevent economic scarring.
Economic scarring can occur due to long-term unemployment, business failures, and a decline in net investment during a deep downturn.
Policy responses to prevent a fall in aggregate supply include employment subsidies, furlough schemes, and relaxation of immigration controls to address skills shortages.
Loan guarantee schemes have been introduced to improve corporate finances and reduce the risk of corporate failures.
Project Birch, considered by the treasury, involves state funding for equity stakes in key businesses facing financial difficulty, indicating a more interventionist approach post-pandemic.
The evaluation of interventionist versus free market approaches involves considering which policies might be most effective at a given time for promoting the supply side of the economy.
Transcripts
okay hi there and welcome to another
video on supply side policies
in a previous video in this playlist we
looked at market-based supply side
approaches and let's take a look at
interventionist policies
here's our opening question what
policies might a supporter of government
intervention advocate to stimulate
aggregate supply
well an interventionist ssp or supply
side policy involves one or more types
of government intervention
to overcome what are perceived to be
market failures which then have an
impact a detrimental impact on aggregate
supply
there are many interventionist policies
that we can look at some governments
think that one of the key ways to
address supply-side weakness
is to use a fiscal supply side policy in
particular
to intervene to reduce the depth and
scale of poverty
in the country there's growing interest
for example in universal basic income as
a type of intervention
to underpin and support the incomes
of some of the poorest parts of the
population
the government may also feel that left
to itself the free market
fails to provide adequate public goods
essential to the efficient working of
the economy
good examples include environmental
public goods such as flood defense
governments may feel that uh the
supply-side potential of the economy is
being under-utilized
uh being held back
by big regional differences in
employment productivity and incomes
so some sort of active regional policy
designed to bolster and lift
supply side capacity and investment in
underperforming regions could be a key
part of their approach
likewise the market mechanism left to
itself may under-provide under-supply
housing
so the government may use
the objective increasing spending
investment in social housing as a way of
boosting the supply-side capacity in the
housing sector
and there are many many ways of examples
many examples of where governments can
intervene in the labour market perhaps
they feel as an under provision of
training
perhaps they feel that
not enough attention and money is going
into vocational
education
so policies to lift human capital to
upskill
the labor force improve uh training in
things like stem subjects
is a part of again an interventionist
approach
and the government may decide an
alternative of course to the free market
approach
to transfer some businesses out of the
private sector
into the state sector through
nationalization
quite a few of the privately run train
operating companies have had their
franchises removed and some franchise
some franchises have now moved back into
state ownership
so here's the slider just a key summary
slide you these sliding only use for
your notes
just giving you a feel and a flavor for
some examples of interventionist
policies
so typically we'd associate with this
approach
higher government spending on public
services
education health housing and state
spending on critical infrastructure
including
energy
the government typically in this
approach would be committed to things
like minimum wages perhaps even a living
wage
designed to underpin
work incentives and productivity in the
labor market
the government may decide to make the
tax system more progressive to increase
revenue to help fund public and merit
goods we've mentioned an active regional
policy another interventionist approach
could be to move away from full-scale
trade liberalization which is a
market-based approach and instead
perhaps bring in some selective import
control such as tariffs and quotas to
protect
domestic industries
interventionism may also involve some
kind of management manipulation
intervention in foreign currency markets
to improve competitiveness and with
associate interventionist approaches
with nationalization and also much
tougher regulations of key
key industries
one of the issues at the moment as we
head through 2020
is the negative impact on aggregate
supply
of the deep downturn in the economy uh
precipitated by the
kovid 19 pandemic
so what we are seeing starting to see
something to be introduced are some
supply side policies to prevent what's
called economic scarring
scarring is damaging
to aggregate supply
and here are three points scarring
effects can can can occur when people
become economically inactive people
perhaps lose their jobs and
become long-term unemployed and they
stop the active search for work because
they have structural barriers to getting
back into a job
businesses fail and the stock of
businesses active and the economy may
decline
and net investment as investment net of
depreciation can become negative in a
deep downturn businesses not spending
enough on investment to replace
obsolete capital and technology
so those are the scarring effects and
here are some policy responses
interventions if you like to prevent
a fallen aggregate supply these include
employment subsidies the government's
furlough scheme for example which is
probably gonna last between six and nine
months
perhaps the government might relax
immigration controls to address
skills shortages in certain industries
and we've also seen introduction to
things like loan guarantee schemes to
try to improve corporate finances
and therefore reduce the risk of
a whole raft or surge in corporate
failures
one project you might want to look out
for in the weeks and months ahead is
something which has been considered in
the treasury which is or has the title
project birch which is essentially where
the state decides to fund some
acquisitions some equity stakes in key
businesses that are facing acute
financial difficulty perhaps in
transport perhaps in power who knows
and there's a hint here that the
government's going to adopt a much more
interventionist approach to prevent the
labour scarring and the economic
scarring effects caused by the pandemic
so hopefully you can see here how an
interventionist approach
differs from a free market approach
both have the aim of promoting the
supply side of the economy
of course the evaluation is to think
about which policies might be most
effective
at a given point in time
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