How Does Hayek Affect The Economy

Social inequality can either be considered natural and necessary as inequalities creates incentives for individuals to work harder, or it can be considered systematic, an integral feature of social order that creates winners and losers. The former view would not consider inequality a public matter, therefore does not require governing. The latter however, would consider inequality a public issue that can only be reduced by government implementing policies to so. This essay will compare and contrast Hayek’s view of governing inequality with that of Stiglitz.

The free marketplace represents a superlative model of capitalism, since it denotes the most proficient and profitable way of production. In a free market, economic actors are capable of conducting business devoid of political interferences, such as the burden of a minimum wage, or trade in tariffs. Without these limits, economic actors are abridged to a state of clean competition, driving costs downstairs and resulting in senior quality and lower price products.

Hayek states in the book that opportunities open to the poor in a competitive society are much more restricted than those open to the rich. He makes the point that competition is based on the price of the product and not on who can afford it. He also states that the people who can actually afford it will buy it. He makes references to planning and those people making the decisions. He points out if government has control on the production that they in turn have control of the income that is distributed to the people.

Hayek believed the economy should remain untouched and in times of trouble, with enough time, the markets would regain equilibrium. He also surfaced the ideas that increasing taxes led to discouragement of consumer spending. These ideas are viewed as flawed because during times of depression unemployment remains constant and there is so guaranteed time issues will resolve while the economy is trying to rebalance itself. No government regulation results in unfair monopolies of industries or businesses in the free market. This restricts modern liberal principles such as the equality of outcome. No government intervention is an ineffective way to structure the economy. It allows for numerous issues such as cheap labor, overpriced goods, non-equal wages. All issues could be resolved through government action and regulation. Hayek’s ideas can be closely ties with those of the Untied States president in 1981, Ronald Reagan. Reagan upheld a huge economic practice know as “Trickle-Down Economics”. This practice involved an attempt to redistribute wealth among different social classes. The government would cute taxes on wealthier citizens with hopes the wealth would trickle down in the economy through mass spending of the elite. This effect was never successful in practice, by cutting taxes for the rich it left them with a high concentration on wealth. This practice aimed at the wrong target and did not prevent relative poverty; it just increased the economic gap between the rich and poor. Both theory’s are evidently flawed and validate the need for a government to obtain economic responsibilities. Regulations ensure an equal ground for the mixed market, which is a key aspect in a stable economy. Modern liberal principles require government involvement to achieve economic

more growth and flourishing in a free market system. As mentioned in the article Conservative Vs Liberals, “In their view, the free market system produces more economic growth, greater welfare and higher standards of living”( Squadrin 6). This quote shows that it is for the people to decide what to produce rather

In conclusion, the topic of free trade is difficult to debate and often controversial as it has advantages but also disadvantages. Nonetheless, the drawbacks outweigh the benefits as it one, contravenes basic moral ideologies, two, makes the rich, richer, and the poor, poorer, and three, jeopardizes our declining environment. All in all, free trade will neither support nor sustain our country to be ethical, prosperous or

The two economist have very different theories in how the government should interact with the economy. Keynes believes that the government needs to spend money to fill the gap in aggregate demand from the private section. He believes the flow of money through spending generates a healthy economy. While on the other hand Hayek believes for capitalism to flourish the state must remove itself from all economic activity, but the military and transportation. Additionally, he believes that will less regulations there will be better management of money and investments in a free market. The two views both have valid points to create and sustain a productive economy. I believe there should be less regulations and wasteful spending by our government, however I also believe there is a place for government spending to prevent unjust pricing and regulations against the people.

First let us define Hayek’s theory of economics, he believed less government intervention meant more economic freedom (free markets) and when people are free to choose, (using knowledge as a tool), the economy runs more effectively. Hayek also believed that an unintentional consequence of human actions causes a spontaneous reaction, negative or positive.

Countries that impose obstacles to exchange by domestic or international does not reduce their citizen’s ability to have a prosperous life. Specialization and free trade allows countries to be more competitive as well as innovated. While we are losing manufacturing jobs to other 3rd world nations, doing this forces the younger generation to seek higher education and will produce better technology to help our nation prosper. This will cause a higher standards of living and higher wage payments.

A number of criteria ought to be present for free trade (FT) and economic globalization (EG) to occur. These being the open rules, enforcer, freedom of navigation, and international money. Firstly, there should be rules and regulations that participants should commonly abide. Secondly, there should be actor(s) or dominant power(s) who would police and ensure that the rules of FT and EG are enforced. Thirdly, these also necessitates free and safe navigation. Parties involved need to be assured that their products will arrive to their destination, else, no one would join free trade. Fourthly, international money (e.g. currency) which everyone recognizes for its notable value.

Free Trade is the concept we use when referring to selling of products between countries without tariffs, fees, or trade barriers. Free Trade simply is the absence of government interference or numerous restrictions, which has been labeled as laissez fair economics. Free Trade grants easier access to goods and services, promote faster growth for the economy, and also allows for the outsourcing of production of goods, which hurts the economy. Many believe that the free trade hurts developed countries and nations, due to the loss of jobs by international competition and can reduce the country’s GDP. Overall, free trade agreement with other countries can save time and money and increase participating countries economy.

Free trade is exchange of goods and commodities between parties without the enforcement of tariffs or duties. The trading of goods between people, communities, and nations is not an innovative economic practice. Nations are however the main element within a free trade agreement. By examining free trade through three different political ideologies: Liberal, Nationalistic, and Marxist approaches, the advantages and disadvantages will become apparent. Theses three ideologies offer the best evaluation of free trade from three different perspectives.

Through cooperation, liberalists point out, actors greatly benefit. The positive-sum perspective in the global economy can be observed through trade. Whether a state has a comparative advantage in one good, or absolute advantages in multiple goods, trade is beneficial. There is not a finite amount of wealth in the world. Rather, if states trade between themselves, they will both help and benefit each other. The diffusion of technology and innovation between states also contributes to the well-being of the global economy and global population in general.

Expand real national income. According to their endowments, every country can develop a department with comparative advantages. The elements will be allocated and applied rationally and effectively, and trade can be exchanged for more items with less fee, so as to increase national wealth. Free trade, as a result of the import of cheap goods, the reduction of national expenditure. Free trade can strengthen competition. Reduce monopoly. Improve economic efficiency. Under the conditions of free trade, enterprises should compete with foreign counterparts. This will eliminate or weaken the monopoly power, and in the long run, it can promote the economic growth of a country.

Good living standard and reduction of poverty: when countries trade, it reduces poverty and raises quality living standard because it enables different countries to supply surplus products to other countries and earn foreign exchange (Riley, 2012).