Explain Thatcherism and reaganomics

Hi ohemati


Margaret Thatcher's Thatcherism tried to limit social welfare and broke the power of the unions.
 
According to the theories of Reaganomics, by cutting taxes, the country's economy would expand and produce more revenue for the federal government. In addition, Reagan wanted reduced income and business taxes, reduced regulation (controls on business), and increased government spending on the military.


Keynes thought it essential for the government to play a significant role in curbing unemployment. For him, deficit spending was the only way to bring the economy out of a depression and to a point of higher employment.

Hayek saw it differently. He criticized Keynes’ belief in monetary policy that drives down interest rates through increased money supply. Hayek contended that this strategy would increase inflation and ultimately lead to “mal-investment” as interest rates would be artificially low.


From your textbook they mention:

Keynes argued that, during recessions, governments should increase the money supply to alleviate the economic downturn and avoid a lasting depression. However, Keynes also maintained that during times of economic prosperity and inflation, governments should cut back on program spending, raise taxes, and raise interest rates, in order to cool off the inflationary economy and offset the government’s debt. Monetarists argue that Keynesian economics were unsustainable in the long term, Keynes’ defenders assert that his theories are workable when properly put into practice.


Also from your textbook:

Monetarist theory holds that control of a country’s money supply is the best means to encourage economic growth and limit unemployment and inflation. The money supply is controlled through the regulation of interest rates (in the states, we have the Federal reserved). The economist most closely associated with monetarism is Milton Friedman.

Friedman believed that inflation was primarily the result of an excess supply of money produced by central banks. He argued that when the money supply was increased, consumer spending would also increase, causing demand to rise, and thus inflation to increase (as happened in Germany in the early 1920s). Friedman felt that the amount of money issued by the central bank should be linked to economic indicators such as the rate of inflation.