4.9 Ideology and Economic Policy

Liberal economic policies, also known as progressive economics, favor more government regulation of the marketplace. Proponents of this ideology believe that the market is not always fair and that government intervention is necessary to promote economic equality and protect the rights of workers and consumers. They believe that the market can lead to concentrated economic power and that the government should use its regulatory powers to ensure that the benefits of economic growth are shared widely.

For example, liberal economic policies support increasing the minimum wage, strengthening labor protections for workers, and implementing regulations to protect the environment. They also support policies that increase government spending on social programs such as education, healthcare, and infrastructure, which they believe will promote economic growth and reduce income inequality.

Another key aspect of liberal economic policies is the belief in the role of government as a redistributive force. Proponents believe that the government is responsible for ensuring that the benefits of economic growth are shared widely and that the tax system should be used to redistribute wealth and reduce income inequality.

For example, liberal economic policies support progressive taxation, where those with higher incomes pay a higher proportion of their income in taxes, and the use of government programs to provide social services to those in need. They also support expanding access to affordable healthcare and higher education, which they believe will increase economic opportunities for all citizens.

Conservative economic policies favor little or no government regulation of the marketplace. Proponents of this ideology believe that the market is the best mechanism for allocating resources and that government intervention can lead to inefficiency and market distortion. They believe that the government should not interfere with the workings of the market and that individuals and businesses should be free to make their own economic decisions.

For example, conservative economic policies support reducing taxes and regulations on businesses, which they believe will promote economic growth and create jobs. They also support policies that protect property rights, such as protecting intellectual property through patents and copyrights. They believe that this will encourage innovation and investment in new technologies.

Another key aspect of conservative economic policies is the belief in individual responsibility and self-reliance. Proponents believe that people should be responsible for their own economic well-being and that the government should not provide a safety net for those who are unable to care for themselves.

For example, conservative economic policies support reducing welfare programs and cutting government spending. They believe that this will encourage people to take personal responsibility for their own economic well-being and will promote economic efficiency by reducing the burden on businesses and individuals. They also support policies that promote individual initiative and entrepreneurship, such as tax incentives for small business owners.

Socialism is a political ideology that supports a more active role for the government in regulating the marketplace. Socialists believe that the government should intervene in the economy in order to ensure that it operates in a fair and equitable manner. They argue that the government should provide a safety net for those who are in need and that it should also regulate the economy in order to prevent monopolies and other forms of market failure.

Progressivism is a political ideology that also supports a more active role for the government in regulating the marketplace. Progressives believe that the government should use its powers to promote fairness and equality and to protect the rights of workers and consumers. They support government intervention in the economy to promote economic stability and to prevent the concentration of wealth and power.

Finally, there is the ideology of Centrism, which supports a balanced approach to government intervention in the marketplace. Centrists believe that the government should intervene in the economy to promote stability and fairness, but that it should do so in a limited and measured way. They believe that the government should not interfere with the operation of the market, but that it should also take steps to prevent market failures and to promote the public good.

Before we analyze the differences between economic theories, you should be comfortable with the terms fiscal and monetary policies. Generally, they are two of the main tools governments use to regulate and stabilize the economy.

Fiscal policy refers to using government spending and taxation to influence the economy. This includes decisions on how much the government spends on various programs, how much it collects in taxes, and how it manages its budget. Fiscal policy can be used to stimulate economic growth during recessions, by increasing government spending and reducing taxes, or to cool down an overheating economy, by reducing government spending and increasing taxes.

On the other hand, monetary policy refers to the use of the money supply and interest rates by the central bank (such as the Federal Reserve in the United States) to influence the economy. The central bank can increase the money supply, by printing more money or by making it easier for banks to lend money, stimulating economic growth. It can also raise interest rates, which makes it more expensive for businesses and individuals to borrow money, reducing spending and slowing down economic growth. Monetary policy can be used to control inflation and stabilize the economy. Now that you know their meanings and applications, we can move on to exploring ideological differences in marketplace regulation in the United States based on different theoretical support, with two of the main opposing ideologies being Keynesian economics and supply-side economics. Keynesian economics, named after economist John Maynard Keynes, supports an active role of the government in regulating the marketplace. According to Keynesian theory, the government can use monetary and fiscal policies to stabilize the economy and prevent recessions. Keynesians believe that the government should increase spending during recessions to stimulate demand and boost economic growth. They also support using monetary policy, such as lowering interest rates, to encourage borrowing and spending.

For example, during the Great Recession of 2008, President Barack Obama, with the support of Congress, implemented a Keynesian approach to stabilize the economy. The government increased infrastructure spending, supported struggling industries, and used monetary policy to lower interest rates. The Federal Reserve also took a Keynesian approach, implementing unconventional monetary policy measures, such as quantitative easing, to boost economic growth.

On the other hand, supply-side economics supports a limited role for the government in regulating the marketplace. According to supply-side theory, the government should create a favorable business environment by cutting taxes and regulations to encourage investment and economic growth. Supply-siders believe that lowering taxes on businesses and individuals will increase the incentive to work, save, and invest, leading to economic growth. They also believe that reducing government regulations will allow businesses to operate more efficiently, leading to increased productivity and economic growth.

For example, during the 1980s, President Ronald Reagan, with the support of Congress, implemented a supply-side approach to stimulate the economy. The government reduced taxes, particularly on businesses and high-income individuals, and cut regulations. The Federal Reserve also took a supply-side approach, focusing on reducing inflation and maintaining price stability. This approach was credited with boosting economic growth in the 1980s and 1990s.