The Keynesian And Neoliberal View Of Unemployment

2588 words - 10 pages

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 Vietnam War led to the rise of the Neoliberal ideology of balanced budgets, absence of trade barriers, decreased government spending and increased international trade. Keynesianism was a failure due to the fact its focus to provide welfare to the public consequently led to lowered labor productivity and the incentive to work while the neoliberal focus is to unleash the power of the markets to drive productivity and innovation. This can be found in the current state policies.
The Keynesian era made its debut during the Kings administration after the world war and closed its curtains with the defeat of the Trudeau administration in 1984 (Course-reader 53: Lewis 2003). The adoption of Keynesianism by most western countries was a response to the deep interwar economic crisis (Course-reader 23: McBride and Shields 23). Keynesianism emerged as a result of the failure of the then neoclassical economy as seen from the great depression of 1929. This neoclassical-Keynesian paradigm shift entailed increased government spending (intervention) and increased social protection. The era included the highest period of economic boom in the twentieth century (1940s to 1970s) thus it is this period that deserves the label “the golden age of the welfare state” (Course-reader 26: Gough 1981:1). 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...

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