Tuesday, March 18, 2014

Keynesian Economics Vs. Laissez Faire Economics

Throughout the 20th and 21st century, American politics and economics has shifted quite often.  This shift in economic and political policy can be broken down into two categories:  Keynesian economics and Laissez Faire Economics.  Keynesian economics, in a nutshell,  is the idea that government spending or in 21st century terminology, capital injections, help grow the American economy and maintain overall stability of the market place.  Laissez-Faire, or "hands off," approach to economics is the economic and political policy that states that business and economics will regulate itself.  In the words of the former Chairman of the Fed, Alan Greenspan, "Let business do as business does."  In the end, both economic and political philosophies have their pro's and con's respectively, but I personally believe that the right combination of both will lead to prosperous times for the United States leading into the future.  Although many people would not agree with what Ben Bernanke, Janet Yellen, and Obama are doing or have done with regards to American economic policy, the U.S. has seen overall market growth over the last 2 years although the job market is still lacking.

During economic depressions, the American government and banking systems alike have taken the route of Keynesian Economics.  During the largest economic depressions in the last century, the government and our national banking system, The Federal Reserve, have used what are called capital injections which is money loaned from the world banking system to help temporarily boost economic activity and the flow of money in the system of finance and the overall business world.  Because of the lack of "flow," as i would call it, the overall market is stagnant because during a time of crisis businesses and/or financial institutions hoard cash in an effort to save themselves from further damage.  Although from a consumer perspective, this may seem selfish or irresponsible, from a business perspective, they have to do it in order to keep the company afloat during rough seas.  As a result, the national banking system, the President, and Congress, use its banking power to help alleviate such chaos by injecting funds into the marketplace in order to stop a further decline, or to help boost the overall economy out of a hole, but who created the hole is story for another time.  At the same time, this capital injection or Keynesian approach to economic activities is put onto the taxpayer to pay back in the future, and sometimes the money injected into the economy is not trickled down from top to bottom which in hindsight is a sound fiscal policy for any economic system as a whole.

From the beginning of American History, businessmen or women have taken a key stance in supporting laissez-faire economics.  In a perfect economic system, the idea of a hands off approach to government in business is something that can really work.  With less regulations, businesses can put more money into the overall growth and development of the company as a whole.  With the implementation of more taxes, regulations, and penalties, businesses cannot hire more workers or really see major economic growth, but whether they really would really hire more workers is a matter of debate/opinion.  As a result, too much government interference can really hinder on the overall growth and development on the markets that be.  At the same time, if business is left to fend for itself, one will start to see businessmen and women take advantage of the lack of oversight as we have seen in 1929 and again in 2007-08.  Without government oversight, the market tends to lean towards price fixation and overall abuse of power and money, but too much regulation will inevitably lead towards the stifling of overall growth.

In the end, both economic systems have both their ups and downs.  During times of economic crisis, government and national banking stimuli is needed to help against the overall collapse and stability of the markets that be.  At the same time, if government plays too much of a role in trying to control the growth and development of the economic system, then the overall business environment can be negativity affected.  People and business alike will be too afraid to invest their money into companies that the government tries to regulate too much, but at the same time, the government is an intermediary between business and the people, so public outcry must be heard and equally represented in a democratic republic.  In conclusion, I personally think that Obama is doing the best he can at making sure he doesn't stifle growth, but at the same time, making sure the people are being fairly represented.  Unfortunately, in a capitalist system, the balance between the people and business can be difficult to maintain sometimes and industries definitely become way too powerful, but hasn't Obama used tariffs to bring jobs back home, if you don't believe me check out Apple's growth in Arizona and Texas where they've created thousands of jobs which they don't tell you on the news?

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