The tortuous times of the past two years, with nations embroiled in economic crisis, have revived an old battle between macroeconomic theories.Huge differences have evolved between political leaders and economists on matters of public policy and how to deal with the challenges.
The root of these philosophical differences lies in the macroeconomic theory of the last century. It is the dilemma of whether free markets create a more prosperous economy or whether government management of an economy is best.
In the 1930s the idea of government managed or planned economies emerged in the classic “General Theory of Employment, Interest and Money” by John Maynard Keynes.
This dominated economic theory until the concept of market economics gained favor, championed by the Austrian economist Friedrich Hayek. His book “The Road to Serfdom” challenged the merits of socialism and underlined the negatives of government intervention in the private sector. It argued the merits of free market capitalism and individual liberty ..
Without the Keynesian public policy initiatives, the economy would not have become supercharged from 2002 until 2007, the credit crisis would not have occurred and the nation’s growth during the next decade would be higher and more stable ..