Comparing Keynesian Economics and Supply Side Economic Theories

Comparing Keynesian Economics and Supply Side Economic Theories

Two controversial economic policies are Keynesian economics

and Supply Side economics. They represent opposite sides of the

economic policy spectrum and were introduced at opposite ends of the

20th century, yet still are the most famous for their effects on

the economy of the United States when they were used.

The founder of Keynesian economic theory was John Maynard

Keynes. He made many great accomplishments during his time and

probably his greatest was what he did for America in its hour of need.

During the 1920's, the U.S. experienced a stock market crash of

enormous proportions which crippled the economy for years. Keynes

knew that to recover as soon as possible, the government had to

intervene and put a decrease on taxes along with an increase in

spending. By putting more money into the economy and allowing

more Americans to keep what they earned, the economy soon

recovered and once again became prosperous. Keynes ideas were

very radical at the time, and Keynes was called a socialist in

disguise. Keynes was not a socialist, he just wanted to make sure

that the people had enough money to invest and help the economy

along.

As far as stressing extremes, Keynesian economics pushed for a

“happy medium” where output and prices are constant, and there is no

surplus in supply, but also no deficit. Supply Side economics

emphasized the supply of goods and services. Supply Side economics

supports higher taxes and less government spending to help economy.

Unfortunately, the Supply Side theory was applied in excess during

a period in which it was not completely necessary.

The Supply Side theory, also known as Reganomics, was

initiated during the Regan administration.