The Keynesian and Neoliberal View of Unemployment Essay

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Both the Keynesian and Neoliberal era came into existence as an aftermath of both an economic crisis and a war. Keynesianism came after the Second World War when the then neoclassical economy was in crisis. This crisis brought forth Keynesianism with the underlying disbelief in the self-regulating nature of capitalism. The Keynesian ideology believed in increased state intervention to produce economic stability. This policy rested on four policy prescription; full employment; a social safety net; increased labor rights; and investment policies were to be left to private enterprises. Keynesianism’s subsequent inability to deal with the unexpected inflation caused by two international oil crises and during the period of the…show more content…
Evidence of this period can be seen from the dramatic increase in GDP from 15.7 percent to 26.4 percent between 1920 and 1950 then reaching 46.5 percent in 1984 (Course-reader 26: Banting 1986b:2; Bakker 1990:429, Table 2.1 ). There was a general fear that if the economy would land in another economic crisis if reforms were not made. Even capitalist supporters believed that market could simply not survive without some degree of state intervention and regulation (Course-reader 24:Savage and Robins 1982: ix). The fall of the Keynesian (the Keynesian crisis) era was instigated by the inflation caused by the 1973 Arab oil embargo and the subsequent increase in oil prices by the Organization of Petroleum Exporting Countries (OPEC). This fall in the Keynesian era was accompanied with capital flight, decline in profits and De-industrialization in the economy. The neoliberal era on the other hand, made its debut in 1984 after the defeat of the Trudeau administration and is the era we are in today. Comparable to the Keynesian era, the neoliberal era was a response to the crisis of the Keynesian era in the 1970s and 1980s. The Neoliberal era emerged as a result of the failure of the Keynesian era to deal with the stagflation that arose in the economy as well as the inability of Keynesianism to adapt
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