FREE ESSAY ON KEYNESIAN ECONOMICS

KEYNESIAN ECONOMICS

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.