Economics And Classical Liberal Economics

1900 Words8 Pages
After World War II, Keynesian policies had dominated the economic system in most countries around the world. However, this soon changed after the oil crisis in the 1970’s and after government intervention was blamed for stagflation, paving the way for the rise in neoliberal economics dominated by Thatcherism and Reaganomics. The difference between neoliberal economics and classical liberal economics is the rejection of Adam Smith’s theory of the invisible hand of supply and demand and believe it will worsen the economy. However, even though neoliberal economics thrived during the 1980s and 1990’s, the 2008 financial crisis has questioned whether limiting government interventionism in the economy was one of the reasons why banks were allowed to act recklessly (Economist, 2013), leading to the return of Keynesian economics in countries such as the UK with the Labour Party electing Jeremy Corbyn as the leader. Critics such as Friedman argue otherwise and point out the issues created by monetary and fiscal policy and an economy can only thrive with freedom. This essay will evaluate whether the neoliberal theory against interventionism helps the economy or does it lead to the downfall of the economy. Neoliberal economics was highly influenced by the works of Milton Friedman. He believed that economic freedom is when consumers have the freedom to buy and sell whatever they think best meets their needs (Gintis, n.d.) and this is a “component of freedom properly understood”
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