A Very Fast Tour of Two Influential Economic Theories

And how an aging debate between supply-side and demand-side policies still shapes partisan politics

Photo by Mathew Schwartz on Unsplash

“Supply-side” and “demand-side” are shorthand terms for two approaches to governmental policy in a market-based economy. Each view has a long history in both theory and practice — and it’s open to debate whether either is really applicable to 21st-century economies.

In fact, the study and practice of macroeconomics has expanded well beyond simplified divisions like supply vs. demand. But those terms continue to represent opposing belief systems, with demand-side policies embraced primarily by those on the “liberal” end of the ideological spectrum, and supply-side by those on the “conservative” end.

So in the current climate of debate, it’s helpful to know what people are talking about when they use those terms — or at least what they might be assuming.

Let’s start with a little history, then double back to theoretical contrasts.

The Great Depression changes everything

Well into the twentieth century, so-called “classical” economics maintained two key assumptions:

1. If there is no interference with a free market…