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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 



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