11: Economic Theory
- Page ID
- 231689
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)In this learning module, discover two of the main theories that address:
how healthy economies should be organized
how much of a role governments should play in regulating economies
whom economies ought to serve, and
how markets should best function to benefit everyone.
In particular, we examine Keynesianism, and Neoliberalism by defining them, placing them in their historical context in our country, and shining a light on their social justice effects and underpinnings.
For much of the past 200 years or so, economic theory in the western world and beyond was characterized by a "battle of ideas" between versions of capitalism and socialism, from which the more modern versions of Neoliberalism and Keynesianism emerged. Read about this battle in the Shields article in the next section, after having been introduced to the two key thinkers we study here, John Maynard Keynes, and Friedrich von Hayek.
According to Keynesianism, developed by British economist John Maynard Keynes (1883-1946), a healthy economy needs active government intervention. Governments ought to focus on increasing consumer demand and lowering unemployment, if necessary with fiscal stimulus payments and job creation; this is especially crucial during economic downturns. Historically, Keynesianism was applied during the
Great Depression (1929-1940) by President Franklin Delano Roosevelt
Great Recession (2008-2010) by President Barack Obama, and the
COVID-19 Pandemic (2020-2023), by Presidents Donald Trump and Joseph Biden.*
Neoliberalism, on the other hand, advocates deregulation, privatization, and lower government spending. It has grown out of the theories of economists such as Friedrich von Hayek (1899-1992). Neoliberals contend that the most effective way to distribute resources is through free markets rather than government intervention. Under the leadership of Margaret Thatcher and Ronald Reagan, this philosophy rose to prominence in the 1980s, bringing with it welfare reform, trade liberalization, and tax cuts.
Knowing these conflicting frameworks is more crucial than ever as the United States struggles with issues like inequality, climate change, and economic uncertainty. In order to ascertain how both theories continue to influence policy discussions and lived realities, this module asks you to examine their tenets, applications, and social ramifications.
After you have familiarized yourself with the foundations of their thought, we will critique them via readings, our classroom activity, and the homework assignment.
Student Learning Outcomes
- Define the core principles of Neoliberalism and Keynesianism and identify their historical origins.
- Compare and contrast the role of government and markets in each framework.
- Analyze real-world U.S. economic policies through the lens of both ideologies.
- Evaluate the social and economic outcomes of Neoliberal and Keynesian policies on different populations.
- Forumulate vidence-based arguments supporting or challenging these frameworks in contemporary contexts.
*Please note that these time frames are debatable.