Modern Economic Theories


     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.                                                                 