This theory holds that control of a country’s money supply is the best means to encourage economic growth and limit unemployment and inflation. Essentially, it reflected a return to the principles of liberalism through the application of classical liberal laissez-faire policies. Premiers Ralph Klein (Alberta), Mike Harris (Ontario), and Prime Minister Stephen Harper attempted to undo interventionist policies of previous governments.

Freidman and Monetarism Milton Friedman is a key economic thinker associated with neo- Conservatism which is also known as classical economics. His ideas are more closely linked with classical liberalism; thus his ideas are opposed to modern liberalism He is against the welfare state (social safety nets via government intervention) as it requires large government and excessive spending which leads to debt He is for fiscal responsibility and balanced budgets His economic theory/practice is called MONETARISM which is also known as SUPPLY-SIDE ECONOMICS Belief Regarding Inflation: Inflation is the result of an excess of money produced by the central banks.

Fredrick Hayek was critical of collectivist thinking since before the Second World War, but the prevalence of Keyneisan Economic thought made Hayek’s ideas unpopular. His ideas gained popularity in the 1960s and 1970s. He believed that in order for a collectivist society to function, the government must have a high level of control over society. Eventually, this would threaten the liberty of the individual as the government gained control over all aspects of a citizen’s life. It is impossible for central planners to have sufficient information to make wise and ration decisions – cannot predict demand for products/service. Therefore, like Freidman, Hayek believed that the price system (free market) was the only way to balance supply and demand in the economy while maintaining individual liberty. Hayek and Monetarism

Decrease government intervention and spending in the economy Downsize the public sector by privatizing and deregulating government owned business and services/programs Decrease taxes and lower interest rates to get businesses to increase supply Control the amount of money in supply Keep some unemployment to keep wages low – as this helps business to grow (can reinvest profits) Keep government small (costs less money then to run a government)

Reaganomics Ronald Regan became president of the USA in 1981; during this time the US was still dealing with an economic crisis. While Nixon’s administration had tried to combat stagflation by setting wage and price controls, Reagan wanted less government involvement and a more individualist approach to economics. This known as supply-side economics or the “trickle down theory” – lowering taxes, especially among the wealthy will result in greater investment in the economy, thus resulting in greater growth. Increased investment and government defense spending will “trickle down” through the economy to the working class.

In Times Of Recession… Reduce corporate taxes – Creates more profit – Acts as incentive to enter business Reduce public income tax – Increases public’s incentive to work – Provides more money to spend – Increased production creates demand Supply-siders insist that increased demand for goods and services must come from the private sector, not from government spending. The unrestricted market will eventually bring inflation under control In Times of Inflation…

Reaganomics in Action Reaganomics Following 1981 the Reagan administration put in action the following policies… Tax cuts primarily for corporations and the wealthy Cut income tax 25% Government spending cuts in social services Welfare subsidies, Medicaid, food stamps A stable money supply Deregulation of the economy Reduced environmental, health, & safety regulations Aim to balance the budget. See the chart of government spending on pg 221

Thatcherism in Action Thatcherism Following 1979 the Thatcher government in Britain put in action the following policies… – Wide scale privatization – Emphasis on individual initiative – Reduced the power of labor unions (pg 221) – Reduced income and corporate taxes British prime minister Margaret Thatcher: Influenced by monetarism and tried to reduce the government’s role in the economy through the application of classical economic principles.

Reaganomics/Thatcherism: A Balance Sheet Arguments in Favor A reduction in unemployment A reduction in inflation An increase in production A world wide move towards private enterprise Arguments Against Growing national debt Growing inequalities in income levels A boom and bust cycle The decline of the middle class.

Blair’s Third Way Tony Blair ran for office in 1997 on a platform called the “Third Way” It was the adoption of some Thatcherite and free- market policies, while maintaining some social programs It was a compromise between Keynesian economics and monetarism - an attempt at balancing individualistic values of monetarism with collectivist values of social justice. In practice, resulted in increased public spending on health care and education and introduced a minimum wage. At the same time, introduced tuition fees for post- secondary education.