Interventionist Supply-Side Policies | A Level Economics

tutor2u

30 May 202006:53

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

00:00

📈 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.

05:01

🛠️ 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

Supply side policies are economic strategies aimed at increasing the productive capacity of an economy. In the video, they are contrasted with market-based approaches and are associated with government intervention to stimulate aggregate supply, which is a central theme of the discussion.

💡Government Intervention

This refers to the active role of the government in influencing the economy, which in the context of the video, is done to overcome perceived market failures and stimulate aggregate supply. Examples from the script include fiscal policy, regional policy, and nationalization.

💡Market Failures

Market failures occur when the allocation of goods and services by the free market is not efficient, leading to a misallocation of resources. The video discusses how interventionist policies aim to correct these failures, which negatively impact aggregate supply.

💡Fiscal Supply Side Policy

A fiscal supply side policy is a government strategy that uses tax and spending measures to influence the economy's productive capacity. The video mentions reducing poverty and increasing public goods as examples of such policies.

💡Universal Basic Income

Universal Basic Income (UBI) is a form of social security where all citizens receive a set amount of money from the government, regardless of their income. The video suggests UBI as a potential interventionist policy to support the incomes of the poorest parts of the population.

💡Public Goods

Public goods are non-excludable and non-rivalrous goods or services which are underprovided by the market. The video discusses how the government may intervene to provide essential public goods like environmental protection and flood defense, which are crucial for the economy's efficient operation.

💡Regional Policy

Regional policy refers to government strategies aimed at reducing disparities between different regions within a country, particularly regarding employment, productivity, and income. The video mentions active regional policy as a means to bolster supply-side capacity in underperforming regions.

💡Social Housing

Social housing is government-provided housing aimed at making affordable housing accessible. The video discusses increasing investment in social housing as a way for the government to boost supply-side capacity in the housing sector.

💡Human Capital

Human capital refers to the education, skills, and health of a workforce, which contribute to an economy's productivity. The video talks about policies to upskill the labor force and improve training in STEM subjects as part of an interventionist approach.

💡Nationalization

Nationalization is the process where the government takes ownership of industries or services that were previously privately owned. The video cites nationalization as a method of government intervention, with examples of train operating companies being moved into state ownership.

💡Economic Scarring

Economic scarring refers to long-term damage to an economy resulting from a severe downturn, such as high unemployment or reduced business investment. The video discusses the negative impact of the COVID-19 pandemic on aggregate supply and outlines policy responses to prevent scarring.

💡Project Birch

Project Birch, as mentioned in the video, is a potential state-funded initiative where the government acquires equity stakes in key businesses facing financial difficulties. This is an example of a more interventionist approach to prevent economic scarring from the COVID-19 pandemic.

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.