In economics, we often see battles between so-called market-based and interventionist camps. In order to understand how each side views an economic concept (i.e. LRAS, economic growth strategies), we must first understand what drives these beliefs.
Any market-based viewpoint or strategy derives from the power of the free market, or allowing the forces of supply and demand to "solve" equilibria imbalances. The role of the government in market-based viewpoints/strategies is limited since it basically interferes with the market clearing mechanism. For example, in real-wage/Classical unemployment, people are out of work because a price floor is set preventing the market from achieving equilibrium. A market-based solution would be to simply lower or remove the minimum price to allow supply of and demand for labor intersect and rid the economy of real-wage unemployment (see relevant post).
Conversely, an interventionist viewpoint/strategy focuses on the word seen in the term: intervention. Here, these economists argue the government must intervene in markets to achieve some goal, usually connected to protecting weaker populations in economies like the elderly or minorities. Obviously, government intervention implies money being spent from tax revenue to help targeted groups, which causes much debate around the concept of opportunity costs to ignite in political fora. Returning to the real-wage unemployment discussion above, interventionists believe removing the minimum wage would be is unacceptable. Certainly, there are firms that would be willing to pay their workers the lower market-clearing wage and workers that would accept this wage (since it's better than no wage). Yet, imagine living in a country where the wage is so low that you're basically fighting to survive even while employed! To address this problem, Keynesians advocate for interventionist strategies like minimum wages plus unemployment benefits as a safety net for the most vulnerable (i.e. lowest paid workers) in society.
MANAGING MACROECONOMY
Market-based Interventionist
- reduce taxes, income - use taxpayer money to fund
and corporate government spending (if needed)
- deregulate and privatize - provide vocational training
to create private firm profit - fund government job database
incentive, make business - subsidize firms to educate and
easier train workers
- reduce or eliminate - subsidize workers willing to move
minimum wage, union to region with jobs
power - encourage R&D to stimulate I
- reduce unemployment through tax breaks to firms or
benefits to force through payments to universities
unemployed to look harder - construct new/better infrastructure
and to take available jobs (see relevant post)
ECONOMIC GROWTH AND DEVELOPMENT
Market-based Interventionist
- export-led growth - import substitution
- floating exchange rate - managed exchange rate regime
regime - protectionism
- free trade - regulation and nationalization
- allow FDI to flow in
- IMF/WB SAPs
What has economic history shown us? How is this topic evaluative?
Any market-based viewpoint or strategy derives from the power of the free market, or allowing the forces of supply and demand to "solve" equilibria imbalances. The role of the government in market-based viewpoints/strategies is limited since it basically interferes with the market clearing mechanism. For example, in real-wage/Classical unemployment, people are out of work because a price floor is set preventing the market from achieving equilibrium. A market-based solution would be to simply lower or remove the minimum price to allow supply of and demand for labor intersect and rid the economy of real-wage unemployment (see relevant post).
Conversely, an interventionist viewpoint/strategy focuses on the word seen in the term: intervention. Here, these economists argue the government must intervene in markets to achieve some goal, usually connected to protecting weaker populations in economies like the elderly or minorities. Obviously, government intervention implies money being spent from tax revenue to help targeted groups, which causes much debate around the concept of opportunity costs to ignite in political fora. Returning to the real-wage unemployment discussion above, interventionists believe removing the minimum wage would be is unacceptable. Certainly, there are firms that would be willing to pay their workers the lower market-clearing wage and workers that would accept this wage (since it's better than no wage). Yet, imagine living in a country where the wage is so low that you're basically fighting to survive even while employed! To address this problem, Keynesians advocate for interventionist strategies like minimum wages plus unemployment benefits as a safety net for the most vulnerable (i.e. lowest paid workers) in society.
MANAGING MACROECONOMY
Market-based Interventionist
- reduce taxes, income - use taxpayer money to fund
and corporate government spending (if needed)
- deregulate and privatize - provide vocational training
to create private firm profit - fund government job database
incentive, make business - subsidize firms to educate and
easier train workers
- reduce or eliminate - subsidize workers willing to move
minimum wage, union to region with jobs
power - encourage R&D to stimulate I
- reduce unemployment through tax breaks to firms or
benefits to force through payments to universities
unemployed to look harder - construct new/better infrastructure
and to take available jobs (see relevant post)
ECONOMIC GROWTH AND DEVELOPMENT
Market-based Interventionist
- export-led growth - import substitution
- floating exchange rate - managed exchange rate regime
regime - protectionism
- free trade - regulation and nationalization
- allow FDI to flow in
- IMF/WB SAPs
What has economic history shown us? How is this topic evaluative?
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