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A cure to economic distress


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A cure to economic distress

  1. 1. Jamie Bell January 2011 A Cure to Economic Distress Economics, it may be argued, can be reduced to the study of how individuals in societies meet their needs and wants. The source makes reference to the author’s opinion about the appropriateness during times of depression. Liberalism, as an economic ideology, offers many options for citizens and governments in terms of dealing with periods of economic distress. On one hand individuals who ideology favours the right side of the political spectrum, like Adam Smith, believe the government does not have a role to play in the economy even during times of distress. Classical liberals believe if producers focus on making individual profit they will unintentionally benefit the consumers. On the other hand individuals whose ideology reflects the left side of the political spectrum believe the government needs to have a direct role in the economy because they have the power to create more social programs to generate more jobs to decrease unemployment and cut taxes in order to relieve some of the pressure on the individuals. When faced with the question concerning to what degree the perspective of the source should be embraced one might argue that we should partially embrace the source because individuals need to be a part of fixing the economy by spending money and producing and consuming goods. However there still needs to be some government involvement to regulate and help control what the individuals cannot. Some may argue that complete government interventions is the only option to deal with the periods of economic distress. They feel government needs to have a direct role in the market because the government has the power to develop more social programs or
  2. 2. Jamie Bell January 2011 laws to form employment opportunities, and cut or increase taxes which they believe is essential in giving the people hope for recovery of a depression. Although the government has the power to change a lot in the economy, giving them a direct role does not improve the market. The government do not have the right to take from one to give to another for instance; increasing taxes to redistribute wealth takes away an individual’s right and freedom to private property. If the government is given the responsibility of recovering the economy many argue that they forget about preserving the essential freedoms that individuals are promised in the market such as private property and freedom of choice. It has been questioned that excessive government control of the economic aspects of life could certainly lead to government interfering in the part of citizens socials lives, and that could become a danger to the liberty of the individual. It is argued that many feel legislative action will cause unrest within the people because any law created will be to improve the economy and not focus on improving the lives of the individuals. For example Keynes economics believed in decreasing taxes and interest rates and increasing government spending in times of recession but then to also increase taxes and interest rates during times of inflation. Some democratic governments accepted Keynes advice to spend money during hard times but did not implement his ideas to cut spending and increase taxes and interest rates during prosperous times because they felt they would become disliked by the voters. This resulted in large government debts which did not help the economy with the depression. Although the action the government portrayed seemed convincing at the beginning because individuals were paying fewer taxes, it ended up hurting the government and the people. If the government does not follow the entire plan it can create more distress towards the government and the people which will not improve the
  3. 3. Jamie Bell January 2011 economy. Another example would be Ronald Reagan’s philosophy of trickle-down economics. This philosophy consisted of reducing income and business taxes, reducing regulation on businesses and increase government spending on the military. Reagan’s policies favoured the industry, assuming that if the industry is succeeding then everyone will benefit as the money will “trickle down”. As statistics show that between 1972 and 1977 the richest ten percent of the United States was earning thirty three percent of the income. When Reagan introduced trickle-down economics the wealthiest ten percent were earning an increasing forty one percent of the country’s total income. It was then proved that Reagan’s trickle-down economics did not help distribute the wealth to all classes of people; it only benefitted the already wealthy individuals. The source is stating that economic wounds must be healed by the action of the individuals without the help of government. Many argue that this is the key to the success of recovering the economy during a depression because producers and consumers indirectly control the supply and demand of goods. These people state if producers focus on making individual profit they will unintentionally benefit the consumers because they have quality goods to purchase. Embracing the source completely will not improve the distress of the economy because in times of suffering an individual’s reaction is to hoard their money because it is scarce in a time of depression. The government then cannot rely on consumers to spend money on products to boost the market because the people do not feel comfortable spending their money in an unstable market if it is not necessary. In a very individualistic society because of self interest and self reliance the individuals will not be
  4. 4. Jamie Bell January 2011 focussing on situations to benefit the majority, they will be determined to do what is best from them and their family. If you leave the responsibility of reducing unemployment numbers to the individuals more jobs will not be established and wages will not increase because everyone is desperate for jobs. The wages remain low because everyone will work for less than everyone else. This means there is no determined minimum wage to create a safety net for the working class. An example of a situation that embraced the source and was unsuccessful was.... We should partially embrace the ideological perspective presented in the source because the producers and consumers are an important part in healing the wounds of an economic depression but at the same time limited government intervention is equally important to regulate and control the aspects of an economy that the individuals cannot. A mixed economy is the best way to repress the wounds caused by a depression because it allows the government to create social programs that may help drive the economy and it allows the individuals to have the freedoms to choose to buy into the programs depending on personal choice if it benefits them or not. Having a mixed economy allows the government to change the taxes and interest rates to benefit the individual, but it also leaves money in the pockets of the people who will then feel more comfortable spending money which the government believes is important in recovering the market. During rough times in the economy the government and the individual need to work together because the government can control the supply of products but they never know enough information about the demand which the individuals know much about. An example of a
  5. 5. Jamie Bell January 2011 mixed economy creating a successful journey out of depression is the Polder Model created in the Netherlands. The Polder Model is a exceptional system that plays a huge role in the recovering of an economy. It was created in the 1980’s after a long period of refusal in the Dutch economy. The Polder Model included employers, unions, and the government working as one to make decisions that would help avoid strikes which would directly help stabilize the economy. Allowing the government and the people to have equal roles in times of hardship in the economy allows decisions to be made that create a peace between the two groups. In the end everyone is satisfied because each group gets to do their own job and contribute. When the government and the people work together there could be arguably better solutions to the recovery of the depression because each group understand the opposite side and can create a plan that benefits everyone. We should partially embrace the ideological perspective stated in the source because individuals and the government need to work closely because each cannot control the entire aspects to recover a depressed economy. The individuals can control the supply and demand of products but the government needs to create programs to increase employment and cut taxes and interest rates so the people have more money to comfortably spend in the economy.