7) Free Market Supply Side Policies - MMT Flashcards
Why should privatisation shift LRAS to the right?
By selling off the state owned assets to the private sector the government hopes and expects these assets to be used more productively. This is because private ownership of LAND, CAPITAL or other resources is perceived as being more productively efficient, due to the fact that they are driven by the profit notice, tend to operate at lower average costs and are less likely to tolerate waste or low standards
Why should deregulation shift LRAS to the right?
By reducing the amount of regulations that businesses need to observe the government hope and expect businesses to face lower average costs. This is because there is often significant financial and time costs to businesses ensuring they follow the regulations.
What is deregulation key for?
Is a key SSP at promoting more and better ENTERPRISE in the economy
Why should reforming the tax system shift LRAS to the right?
Reducing businesses taxes (eg corporation tax) may make existing businesses more willing to invest/expand, due to the possible increased profits that they can retain and use. This should mean more investment in LAND, LABOUR and CAPITAL (also higher FDI). Reforming the income tax system (eg lowering taxes, making it less progressive) might incentivise LABOUR to work more and longer as it’s more worth their while
Why should reforming the benefits system shift LRAS to the right?
By tightening the rules for claiming benefits, or reducing the payments to those on benefits, the government hopes to incentivise potential benefit claimants to enter or return to the LABOUR MARKET. Also reduced benefit payments increase government funds for other purposes (eg improving education) or else gives them an opportunity to reduce T
What are issues with Privatisation?
Privatisation sometimes threatens the quantity and quality of public services. For example, state owned organisation would run loss-making but essential services to remote areas (trains/buses/mail delivery/post offices) which private owned businesses would prefer to stop. Also sometimes in cutting costs privatised businesses might reduce safety standards. For the reason, Network Rate was renationalised, having spent a short time in the private sector
What are issues with Deregulation?
As with Privatisation, deregulation often brings with it costs about safety standards, businesses sometimes focusing more on cutting costs than maintain previous standards. Also, excessive deregulation may attract the wrong sort of entrepreneur to the sector (eg cowboy builders) and increase in undesirable risk taking by businesses (eg banking)
What are issues with reforming the tax system?
Lower tax rates (or fewer taxes) might reduce the amount of revenue earned by the government (Laffer Curve). This could lead to lower G, (inferior public services etc). Alternatively it could mean that G-T is increased, leading to higher budget deficits and a bigger national debt. It could also be argued that lower taxes is a regressive move, ie it benefits the better if more than the disadvantaged in society
What are issues with reforming the benefits system?
Many of the most vulnerable members of society may be negatively impacted by this move, meaning it can portentously make inequalities worse. In addition, it may mean that workers join the Labour force who are largely unsuited to our negative rate increase in the number of workers is not matched by an increase in output. ( ie productivity suffers)
Why should Competition Policy shift LRAS to the right?
By ensuring fair competition the government can make life very difficult for monopolies and large oligopolies. Both of these types of business structures can earn supernormal prices at the expense of consumers, households and small businesses. Fairer competition reduces barriers to entry making markets more contestable, therefore improving levels and quality of ENTERPRISE
Why should improving the flexibility of the Labour market shift LRAS to the right?
By making it easier for businesses to hire and for the workers they need/wage, business recruitment and HR costs are reduced, perhaps leading to an increase in the employment of LABOUR. Also, limiting the power of trade unions could mean that there are less disruptions in the work-place, increasing productivity
What are issues with Competition policy?
There are fewer arguments against this one! Some businesses are natural monopolies (eg water, railway lines) so attempts to make them more productive may be futile. Large businesses might argue that strict competition rules restrict their ability to achieve economies of scale and may lead to a loss of jobs in the economy and lower levels of I and RDI
What are issues with improving the flexibility of the Labour market?
This is always controversial. Reducing Trade Union influence will reduce average worker wages, lower RDI and C, AD curve shifting left. Alternatively, earnings could be substituted by borrowing, increasing the debt burden facing households. Either way, a more flexible workforce tilts the balance between employers and workers, perhaps enhancing inequalities
What 6 things does the effectiveness of free market SSPs depend on?
- Opportunity Cost
- Overseas comparisons
- Government Failure
- Extent of the changes
- Economic Position
- Unforeseen circumstances
How can the effectiveness of SSPs depend on Opportunity Cost?
Many of these policies may benefit businesses but have negative impact on other economic agents eg consumers, low skilled workers or economically inactive
