Keynesian Economics
Two controversial economic policies are Keynesian economics and Supply
Side
economics. They represent opposite sides of the economic policy spectrum
and
were introduced at opposite ends of the 20th century, yet still are the
most
famous for their effects on the economy of the United States when they
were
used. The founder of Keynesian economic theory was John Maynard Keynes.
He made
many great accomplishments during his time and probably his greatest
was what he
did for America in its hour of need. During the 1920’s, the U.S.
experienced a
stock market crash of enormous proportions which crippled the
economy for years.
Keynes knew that to recover as soon as possible, the
government had to intervene
and put a decrease on taxes along with an
increase in spending. By putting more
money into the economy and allowing
more Americans to keep what they earned, the
economy soon recovered and once
again became prosperous. Keynes ideas were very
radical at the time, and
Keynes was called a socialist in disguise. Keynes was
not a socialist, he
just wanted to make sure that the people had enough money to
invest and help
the economy along. As far as stressing extremes, Keynesian
economics pushed
for a "happy medium" where output and prices are constant,
and there is no
surplus in supply, but also no deficit. Supply Side economics
emphasized the
supply of goods and services. Supply Side economics supports
higher taxes and
less government spending to help economy. Unfortunately, the
Supply Side
theory was applied in excess during a period in which it was not
completely
necessary. The Supply Side theory, also known as Reganomics, was
initiated
during the Regan administration. During the 1970’s, the state and
local
governments increased sales and excise taxes. These taxes were passed
from
business to business and finally to the customer, resulting in higher
prices.
Along with raised taxes for the middle and lower classes, this
effect was
compounded because there was little incentive to work if even more
was going to
be taxed. People were also reluctant to put money into savings
accounts or
stocks because the interest dividends were highly taxed. There
was also too much
protection of business by the government which was
inefficient and this also ran
up costs, and one thing the Supply Side theory
was quite good at was reinforcing
inflation. The two opposites of the Supply
Side and Keynes’ theories are well
matched theories, but it was the time of
use that made them good and bad.
Keynes’ theory was used during that
aftermath of the Great Depression, a
catastrophe America will never forget
and will never be able to repay Keynes for
the economic assistance in
recovering from it. The Supply Side theory was used
after a long period of
prosperity, and although seeming to continue the
practices of the past
administration, was the cause of a fearful recession. The
success of those or
any economic theory is based on the time at which it is
implemented.