It was not so long ago that Congress crafted a piece of legislation designed to “stimulate” the American economy. In a few short weeks from now we will begin to receive those stimulus checks aimed at boosting the nation’s economic growth, but will it actually work? As in all discussions of economics there are always two very different opinions that are offered as solutions to stimulate the economy.
On the one hand, the demand-side view of the economics believes it is the government’s job to create demand for products by redistributing the people’s wealth. On the flip side of the coin, supply-side economics believes the government’s role is to keep tax rates on income, business and investing low. This allows for the free flow of capital in a nation’s economy.
One of the strongest proponents of the demand side of economics was a man named John Maynard Keynes. Keynes was a British economist and socialist that greatly influenced the economic policies of the twentieth century. His policies have come to be called Keynesian economics.
The man most recognized as the proponent for supply-side economics in the twentieth century was Milton Friedman. Friedman won the Nobel Prize in the 1970’s for his economic ideals, which were so revolutionary they transformed the nation of Chile from a dictatorship to a more open and free nation. This is where the rubber meets the road. Friedman showed the power of supply-side economics by using it to completely transform a dictatorship and prevent a war in that nation.
If supply-side economics can transform dictatorships, just imagine what it can do in our nation’s economy. In fact, there are four examples in American history where supply-side economics transformed our nation’s economy.
In the 1920’s, President Calvin Coolidge cut tax rates by such a large degree, the economy soared and the standard of living improved for Americans by and large. This period was called the “roaring twenties.” Ironically, it was demand-side economic policies advocated by Keynes that brought a halt to the roaring twenties.
Many people today believe that the New Deal policies of FDR and the Democrats of the 1930’s ended the Great Depression. Actually, the Great Depression was made to be even more severe by the Keynesian policies of our government in the 1930’s. During that time federal spending tripled in order to pay for new programs and expand existing ones. The result was a 27% drop in the nation’s Gross Domestic Product. This means the business community was producing a lot less product and subsequently hiring fewer personnel.
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