Neo-liberalism and Keynesianism
It is often quipped that economists base many of their theories on assumptions. The old joke is that should an economist be stranded on a desert island, he will merely assume that a boat is available and quickly depart from the island. Indeed, whilst analytically comparing Keynesian and neo-liberal economics, it seems that economists assume that every person that peruses their journal articles has an extensive and exhaustive knowledge of macroeconomics. Thus, the danger for an enquiry such as this to degenerate into a fruitless analysis of finer points in economic theory can become apparent. For that reason, these two economic theories will be examined and analysed in the broadest possible terms. The work of the British economist, John Maynard Keynes, provides the basis for the Keynesian system. During the early 1920s and 1930s, there was widespread unemployment in Britain, the causes of which were extensively debated and analysed . Having attended the Paris Conference at the end of World War I as the principal representative of the British Treasury and deputy for the chancellor of the Exchequer on the Supreme Economic Council, Keynes was a prominent figure in this debate . Following the Great Depression in 1929, unemploym
ent levels across the globe rocketed, with US unemployment reaching 26% in 1932 . Consequently, a stabilization program was begun in 1985 which attempted to liberalize all prices, create financial stability and reduce inflation . Policies created with this agenda in mind were religiously implemented across South America throughout 1980s . At this stage, it is necessary to differentiate between theory and practice. This case study clearly illustrates how privatization leads to increased social costs for people living within developing nations. This has been illustrated extensively throughout the developing world. Rather, leaders of the developed world, such as Ronald Reagan and Margaret Thatcher (inspired by economists like Firedrich von Hayek and Milton Friedman) demanded that countries curtail government intervention, privatize state holdings and allow markets to govern economic transactions . The first assumption made by neo-liberalism is that markets are a natural order . This may be quite clearly contrasted with the neo-liberal economic theory. Apart from this increase in tariff, the cost of unemployment resulting from the downsizing of such firms must also be considered. Whilst it must be conceded that this is partly attributable to America's preparation for World War II, many prominent economists partly attribute it to the Keynesian principles applied by FDR If this is contrasted with neo-liberalism however, a different picture emerges. Following the election of Franklin Delano Roosevelt in 1932, America pursued a policy of public spending to stimulate employment , and experienced significant reductions in unemployment . Public healthcare was significantly slashed, and over 45 000 public services jobs were downsized . The question however, is whether or not it is actually possible for governments to implement such programmes, especially in developing countries. Developed countries which are indebted to the IMF and World Bank are also compelled to cut social spending.
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Acceptance Essays
