a cure to economic distress

Jamie Bell January 2011

A Cure to Economic Distress

Economics, it may be argued, can be reduced to the study of how individuals in

societies meet their needs and wants. The source makes reference to the author’s opinion

about the appropriateness during times of depression. Liberalism, as an economic ideology,

offers many options for citizens and governments in terms of dealing with periods of

economic distress. On one hand individuals who ideology favours the right side of the

political spectrum, like Adam Smith, believe the government does not have a role to play in

the economy even during times of distress. Classical liberals believe if producers focus on

making individual profit they will unintentionally benefit the consumers. On the other hand

individuals whose ideology reflects the left side of the political spectrum believe the

government needs to have a direct role in the economy because they have the power to

create more social programs to generate more jobs to decrease unemployment and cut

taxes in order to relieve some of the pressure on the individuals. When faced with the

question concerning to what degree the perspective of the source should be embraced one

might argue that we should partially embrace the source because individuals need to be a

part of fixing the economy by spending money and producing and consuming goods.

However there still needs to be some government involvement to regulate and help control

what the individuals cannot.

Some may argue that complete government interventions is the only option to deal

with the periods of economic distress. They feel government needs to have a direct role in

the market because the government has the power to develop more social programs or


laws to form employment opportunities, and cut or increase taxes which they believe is

essential in giving the people hope for recovery of a depression. Although the government

has the power to change a lot in the economy, giving them a direct role does not improve

the market. The government do not have the right to take from one to give to another for

instance; increasing taxes to redistribute wealth takes away an individual’s right and

freedom to private property. If the government is given the responsibility of recovering the

economy many argue that they forget about preserving the essential freedoms that

individuals are promised in the market such as private property and freedom of choice. It

has been questioned that excessive government control of the economic aspects of life

could certainly lead to government interfering in the part of citizens socials lives, and that

could become a danger to the liberty of the individual. It is argued that many feel legislative

action will cause unrest within the people because any law created will be to improve the

economy and not focus on improving the lives of the individuals. For example Keynes

economics believed in decreasing taxes and interest rates and increasing government

spending in times of recession but then to also increase taxes and interest rates during

times of inflation. Some democratic governments accepted Keynes advice to spend money

during hard times but did not implement his ideas to cut spending and increase taxes and

interest rates during prosperous times because they felt they would become disliked by the

voters. This resulted in large government debts which did not help the economy with the

depression. Although the action the government portrayed seemed convincing at the

beginning because individuals were paying fewer taxes, it ended up hurting the

government and the people. If the government does not follow the entire plan it can create

more distress towards the government and the people which will not improve the


economy. Another example would be Ronald Reagan’s philosophy of trickle-down

economics. This philosophy consisted of reducing income and business taxes, reducing

regulation on businesses and increase government spending on the military. Reagan’s

policies favoured the industry, assuming that if the industry is succeeding then everyone

will benefit as the money will “trickle down”. As statistics show that between 1972 and

1977 the richest ten percent of the United States was earning thirty three percent of the

income. When Reagan introduced trickle-down economics the wealthiest ten percent were

earning an increasing forty one percent of the country’s total income. It was then proved

that Reagan’s trickle-down economics did not help distribute the wealth to all classes of

people; it only benefitted the already wealthy individuals.

The source is stating that economic wounds must be healed by the action of the

individuals without the help of government. Many argue that this is the key to the success

of recovering the economy during a depression because producers and consumers

indirectly control the supply and demand of goods. These people state if producers focus

on making individual profit they will unintentionally benefit the consumers because they

have quality goods to purchase. Embracing the source completely will not improve the

distress of the economy because in times of suffering an individual’s reaction is to hoard

their money because it is scarce in a time of depression. The government then cannot rely

on consumers to spend money on products to boost the market because the people do not

feel comfortable spending their money in an unstable market if it is not necessary. In a very

individualistic society because of self interest and self reliance the individuals will not be


focussing on situations to benefit the majority, they will be determined to do what is best

from them and their family. If you leave the responsibility of reducing unemployment

numbers to the individuals more jobs will not be established and wages will not increase

because everyone is desperate for jobs. The wages remain low because everyone will work

for less than everyone else. This means there is no determined minimum wage to create a

safety net for the working class. An example of a situation that embraced the source and

was unsuccessful was....

We should partially embrace the ideological perspective presented in the source

because the producers and consumers are an important part in healing the wounds of an

economic depression but at the same time limited government intervention is equally

important to regulate and control the aspects of an economy that the individuals cannot. A

mixed economy is the best way to repress the wounds caused by a depression because it

allows the government to create social programs that may help drive the economy and it

allows the individuals to have the freedoms to choose to buy into the programs depending

on personal choice if it benefits them or not. Having a mixed economy allows the

government to change the taxes and interest rates to benefit the individual, but it also

leaves money in the pockets of the people who will then feel more comfortable spending

money which the government believes is important in recovering the market. During rough

times in the economy the government and the individual need to work together because

the government can control the supply of products but they never know enough

information about the demand which the individuals know much about. An example of a


mixed economy creating a successful journey out of depression is the Polder Model created

in the Netherlands. The Polder Model is a exceptional system that plays a huge role in the

recovering of an economy. It was created in the 1980’s after a long period of refusal in the

Dutch economy. The Polder Model included employers, unions, and the government

working as one to make decisions that would help avoid strikes which would directly help

stabilize the economy. Allowing the government and the people to have equal roles in times

of hardship in the economy allows decisions to be made that create a peace between the

two groups. In the end everyone is satisfied because each group gets to do their own job

and contribute. When the government and the people work together there could be

arguably better solutions to the recovery of the depression because each group understand

the opposite side and can create a plan that benefits everyone.

We should partially embrace the ideological perspective stated in the source

because individuals and the government need to work closely because each cannot control

the entire aspects to recover a depressed economy. The individuals can control the supply

and demand of products but the government needs to create programs to increase

employment and cut taxes and interest rates so the people have more money to

comfortably spend in the economy.

a cure to economic distress

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