11.1: Economic Theory - Readings and Media
- Page ID
- 231691
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)1. School of Life: Neoliberalism
The School of Life. (2016, June xx). Political Theory – Friedrich Hayek [Video]. YouTube. https://www.youtube.com/watch?v=SHsCkinrCPE
This video introduces the main tenets of Friedrich Hayek's thought that was associated with liberal economics (aka classical liberalism or capitalism), and with neoliberalism. Hayek (1899-1992) argued that free markets (or laissez-faire) are essential for economic prosperity and individual liberty. In his book, The Road to Serfdom (1944), he critiqued socialist central planning, instead advocating for individual freedom and limited government intervention.
He theorized that economics is much too complex to be guided by a government and if done so, it would lead to loss of individual freedom and efficiency. Hayek revived the idea of the 'invisible hand' (Adam Smith), and that economies or markets ought to regulate themselves.
Hayek criticized socialism as leading to authoritarianism by placing too much power in the hands of government, even if its intent was the opposite. Instead, he vigorously supported limited government, the rule of law, and individual liberty, while opposing state interventions that undermine market processes. Hayek’s ideas continue to shape neoliberal and libertarian thought, and his warnings about state overreach remain influential in debates over regulation and government control today.
In sum, Hayek championed a vision of freedom rooted in economic decentralization, arguing that individual liberty and prosperity flourish best in societies that trust in the self-organizing nature of free markets. Do you agree with him?
1. School of Life: Keynesianism
The School of Life. (2016, June). Political Theory – John Maynard Keynes [Video]. YouTube. https://www.youtube.com/watch?v=qtAeINU3FKM
Compare Hayek's ideas to Keynes's now with this video. He questioned laissez-faire doctrine (Hayek) and argued that economies high unemployment because of insufficient aggregate demand not insufficient supply. With this thought, John Maynard Keynes (1883–1946) transformed economics in the 20th century.
The central tenet of Keynes's theory is that private demand declines during recessions. He promoted aggressive government intervention through deficit spending on public works projects, for example, in order to increase demand, employment, and eventually business investment. This was opposed to Hayek's solution of letting markets gradually self-correct.
Keynes's well-known tenet, "In the long run, we're all dead," sums this up: action must be taken immediately rather than waiting for external market forces to take over.
Keynes’s impact was profound: his ideas shaped post-WWII economic policies worldwide, leading to institutions like the IMF and World Bank. Though challenged in the 1970s by stagflation and critics like Hayek, Keynesian policies resurged during the 2008 financial crisis, proving the enduring relevance of his approach. What do you think of Keynes's way of economic problem solving?
3. Syndey Business Insights
Shields, J., (2020). From neo‑liberalism to neo‑Keynesianism. Sydney Business Insights. Retrieved June 25, 2025, from https://sbi.sydney.edu.au/from-neo-liberalism-to-neo-keynesianism/
After learning about neoliberalism, turn to this article which outlines the challenges neoliberalism faced especially during the 2008 recession and the COVID-19 crisis that forced government to embrace Keynesian rescue policies such a stimulus checks, and deficit spending. While these policies helped the broad public, Shields argues that their long-term effect benefited elites by concentrating finances and political power in their hands. Has public policy be
come a tool for private gain rather than social welfare?
4. MROnline
Patnaik, U. (2024, May 25). Neo‑liberalism has increased mass poverty. MR Online. Posted on May 25, 2024. Retrieved June 26, 2025, from https://mronline.org/2024/05/25/neo-liberalism-has-increased-mass-poverty/
Let us now look at how neoliberalism has impacted poverty via this case study set in India. Patnaik examines the World Bank claim that neoliberal policies have lifted millions of people out of poverty. She investigates this by comparing it to food intake statistics and finds that, in fact, the opposite holds true, that neoliberal policies such as deregulation and austerity have led to a decrease in living standards. Read this article carefully and think about our society and its problems. This helps you with our class activity and homework assignment.