Reaganomics v Keynesian Modern U.S. Economics

Today’s Objective Analyze opposing opinions on the role that government plays in the life of the people through economic policy.

The Role of Government National Security Public Education Public Safety Economic Stability?

National Security The Government should maintain a military that can protect and defend us against threats, “foreign and domestic.”

Public Education There is much debate these days over whether or not the Government should have such a heavy hand in public education as they do now. If the Government pulled out of the business of providing public education, what would happen to Wingfield?

Public Safety The Government should make laws that discourage crime and maintain a police force to enforce those laws and keep order.

Economic Stability How much of this is the role of the Government? In different situations the government plays a role in maintaining the stability of the American economy. How much of this is the role of the People? The people should be proactive in making economic progress for themselves and their communities.

Two Differing Opinions on the Role of Government in the economy. ReaganomicsKeynesian Ronald Reagan U.S. President( ) Believed that government should get out of the way of business so that it can thrive on its own. John Maynard Keynes Economist ( ) Believed that private business decision has a negative impact on the economy that requires Government intervention.

Reaganomics Reaganomics takes a Laissez Faire stance on the economy. The idea is that Government should get out of the way of business and allow them to grow and produce. The Government lowers income tax so that people have more money to spend. Deregulation of businesses is a major pillar of Reaganomics. Trickle Down Theory

Potential Problem with Trickle Down Economics -Corporations may maximize profits at the cost of jobs and wages.

George H.W. Bush and his son George W. Bush tried to emulate Reaganomics in their own administrations. George H.W. BushGeorge W. Bush Continued Reaganomics George H.W. Bush was President when the economic boom of the 1990s began. This boom continued as Bill Clinton bridged the gap between Democrats and Republicans in Government. George W. Bush was President when that economic boom crashed. The same deregulation of businesses that led to the economic boom of the 1990s led to the steady decline during the 2000s. oMajor corporations used questionable business practices that led to a breakdown in U.S. economic structure.

Keynesian John Maynard Keynes Economist ( ) Believed that private business decision has a negative impact on the economy that requires Government intervention.

Keynesian Economics Keynesian Assumes that private sector businesses will make decisions(take risks) that lead to inefficient outcomes in the overall economy. These outcomes will require a government response in policy to guide the economy. That response comes in the form of stimulus and regulation of business to ensure fair practices.

The Keynesian Model CONSUMERS(People) do work and make money  They spend that money in the ECONOMY and are taxed  The GOVERNMENT then spends tax dollars to fulfill its role in maintaining the welfare and stability of the country.

Examples of Keynesian FDR and the New DealBarack Obama FDR’s response to the Great Depression was the New Deal Roosevelt developed new policies and government initiatives to supplement the economy in a time of great need. Obama entered office during a period of economic recession in America. He has also used the Keynesian model to provide relief to the economy.

Obama’s use of Keynesian The American Recovery and Reinvestment Act of 2009 distributes funds in three ways. Since its enactment in February 2009, $750B has been paid out. Tax Benefits= $299.8 Billion Contracts, Grants and Loans= $228.0 Billion Entitlements(S.S., Medicare, Medicaid)= $222.2 Billion

Potential Pitfalls of Both Reaganomics Keynesian Big businesses may take advantage of deregulation and tax cuts. This can cause instability in the market if huge companies fail. What happens to the unemployment rate and wages if the money saved on taxes does not “Trickle Down”? Huge government spending can result in massive national debt. If economic growth does not match government spending then we become more of a debtor nation than a leader. Also, more power for the government can result in less power for the people.