Supply-side policies: interventionist Flashcards
What are interventionist SSPs?
interventionists believe the government can directly
intervene to improve the long-term supply-side of the economy.
What are types of interventionist SSPs?
- Investment in infrastructure
- Interventions to reduce poverty
- Provision of key public and positive externality goods
- Investment in ideas
- State ownership of key businesses
- Policies to tackle labour market failure
Explain investment in infrastructure as a type of interventionist SSP
government investment in capital such as the
transport, energy & communication networks in the economy, building more social
housing, which can also help private sector businesses.
Explain interventions to reduce poverty as a type of interventionist SSP
enables those on very low incomes to find work
and contribute to the economy more fully; opportunities for more
entrepreneurship and improved labour productivity if skills are built up.
Explain provision of key public and positive externality goods as a type of interventionist SSP
government can invest in
human capital by providing healthcare and education/training; spending on public
goods such as defence and internet provision can improve security and
communication encouraging more investment and FDI.
Explain Investment in ideas as a type of interventionist SSP
the government can help fund R&D projects that lead to more innovation, dynamic efficiency and competitiveness at home and abroad.
Explain state ownership of key businesses as a type of interventionist SSP
nationalisation of, for example, water, energy
& transport industries can help an economy develop and, if provided
effectively, can encourage private sector businesses to invest and grow
Explain policies to tackle labour market failure as a type of interventionist SSP
the government can provide more
education/training to increase occupational mobility, use regional policy to
improve geographical mobility & set up an immigration system that ensures skills
gaps and labour shortages are not a problem.
What do market based and interventionist SSPs depend on?
Time lags: there is often a significant short-term cost (opportunity cost) while the
benefits come through in the long term, especially for interventionist SSPs.
Income distribution: interventionist SSPs often reduce inequality, while market-based
SSPs may increase it; there may be winners and losers depending on which economic
agents’ perspectives are being considered.
Potential for government failure: unintended consequences as government lacks
perfect information.
What are problems with interventionist SSPs?
- Bureaucracy and inefficiency
- Crowding out private sector
- Reduced incentives
- Ineffective redistribution
- Costly and inefficient state enterprises
How is bureaucracy and inefficiency a problem with interventionist SSPs?
government intervention can lead to
bureaucratic inefficiencies, which may slow down economic processes and
result in the misallocation of resources.
How is crowding out private sector a problem with interventionist SSPs?
interventions, e.g. those involving public
ownership/control of industries, may crowd out private investment and entrepreneurship.
How is reduced incentives a problem with interventionist SSPs?
high taxation and extensive regulation can reduce
individuals’ and businesses’ incentives to work, invest, and innovate.
How is ineffective redistribution a problem with interventionist SSPs?
high levels of taxation can lead to capital flight and
tax evasion, undermining the intended redistribution
How is costly and inefficient state enterprises a problem with interventionist SSPs?
state-owned enterprises can become
inefficient and financially burdensome, as they may not operate with the
same degree of cost-efficiency and innovation as private companies
