Monday, October 7, 2013

Self-equilibrating vs. assisted driving

            In a wondrous free market, it is nice to think that supply and demand will naturally check the other and maintain a sort of balance in the economy. However, Keynesian thought, to the best of my understanding, does not support this idea of a self-equilibrating model and instead recommends a mixed system where the government has a definite role in stabilizing the economy. As a result, Keynes suggested that the Great Depression was spawned by investors’ loss of courage. On the contrary, thinkers in Hayek’s court believed that too many seemingly profitable projects undertaken in response to policy-imposed low interest rates were to blame for the crisis. Hayekian theories focus on analyzing boom periods and claim that government intervention only hurts the economy as it prevents it from running its course. They therefore point the finger at the government for distorting the efficacy of a free market. Keynesians, on the other hand, examine the bust periods and assert that government intervention acts as a stimulus to help steer the market in the right direction. It all comes down to whether the government should be proactive in times of growth or simply supportive in times of recession. I believe that there should be enough faith placed a free market and that the government should only act like a spotter when the market starts to fall towards intense danger such as the case was during—not before—the Great Depression.

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