Interventionist Supply-Side Policies | A Level Economics

Summary

The 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.