You may not know it but there is an ideological battle waging in America surrounding our very economy. This is a battle between two economic schools of thought: Adam Smith’s Laissez-Faire economic theories and John Maynard Keynes managed economy theories.
Adam Smith was a British economist who gained fame around the time of the American Revolution by writing his famous nine-hundred page treatise known as The Wealth of Nations. In his treatise, Smith advocates a free and open market without government interference, except as to regulation. Smith put forth the notion that the economy works best when left to its own devices and falters when governments intervene or interfere with market forces. Ronald Reagan subscribed to Smith’s theories and from 1982 through 2000 the U.S. economy experienced eighteen years of unfettered growth and created significant wealth and opportunity for many.
John Maynard Keynes, was a British economist preceding and during The Great Depression. Keynes advocated a managed economy. In his managed economy, Keynes considered it necessary for governments to intervene or interfere with market forces in recessionary times. Government needed to “prime the pump” in order to jump start the economy. FDR aggressively subscribed to Keynes’ theories and for the first ten years of his administration he embarked on the single greatest effort to manage the U.S.economy, not seen until the current Obama administration. Most economists and financial experts agree that FDR’s managed growth policies failed. In fact, during those first ten years, preceding WW II, unemployment never dipped below 10.5%. Many economists contend that The Great Depression would have ended much sooner had government just gotten out of the way.
So here we have two economic schools of thought. One proven to work, Smith’s, and one proven not to work, Keynes. History is repeating itself right before our very eyes with the current Obama administration. Why do they think they can repeat history and expect different results? Why don’t we just duplicate what the Reagan administration did by reducing taxes and getting government out of the way of commerce? If history does repeat itself we are looking at a recession that could extend well into the forseeable future.
Tom is a Certified Public Accountant, a Certified Financial Planner, CLTC (Certified Long-Term Care) and President of Cerefice & Company, the largest CPA firm in Rahway, New Jersey. Tom works with clients helping them manage their money, retirement planning, college savings, life insurance needs, IRAs and qualified plan rollovers with an eye towards maximizing tax benefits and minimizing taxes. Tom is founder of the Rich Habits Institute and author of “Rich Habits”.
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