6.2.2 Neoconservative responses

6.2.2  Neoconservative Responses

The Free Market and the Common Good

The trickle down theory is the capitalist notion that when successful individuals accumulate a great deal of wealth, it trickles down to those with less money. For example, an extremely wealthy person like Bill Gates will invest his money in business operations that hire others. He may pay his employees more because he has more to spend. He will buy clothing and houses and cars and eat in restaurants and the money he pays for these goods and services will go to others. According to this view, those with great wealth should not be taxed heavily because it would punish not only those who generate wealth but also the people they employ.


Supply-side economics is another term used to describe an economic system that focuses on the supply of goods and services to consumers in the belief that economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, including lower income tax and capital gains tax and reducing regulations. In turn this will benefit consumers by providing a greater supply of goods and services at a lower price.


There are many perspectives on what role the government should take in an economic system. In Unit Three you learned about Keynesian economics. Keynes suggested that a government should intervene in the economy in times of crisis to help alleviate the effects of the boom and bust cycle and the success of the New Deal was the result.

Economists such as Milton Friedman and F A Hayek have suggested that there should be few rules governing economic systems. Political leaders such as Ronald Reagan in the United States, and Margaret Thatcher in Great Britain followed their advice, cutting government spending, decreasing taxes, and turning publicly managed enterprises over to the private sector.




For biographical information about each of these influential economists and politicians, see the links.



Supporters of the free market believe that economic freedom means the freedom to succeed and the freedom to fail. Yet in 2008 the government of the United States-the nation that most strongly reflects the principles of economic liberalism- bailed out failing corporations with over 700 billion dollars of taxpayer money. Governments also provided subsidies and tax incentives to large corporations to keep them in operation. This is sometimes referred to as "corporate welfare," a way to keep corporations on their feet in troubled times.

Globalization has shown that on a worldwide scale, a free market economy may lead to economic success for some and disaster for others. As huge corporations outsource the manufacture of their goods to countries where labour is the cheapest, they provide economic opportunities to people in the developing world while leaving workers in the developed world with skills they cannot sell. The globalization of wealth means that people can speculate on the value not only of stocks but of international currencies, with the potential to devastate entire nations.

Computer programmes that trigger the buying and selling of stocks based on an automated response can cause huge fluctuations on the international finance, with the potential to bankrupt individual and corporations at a moment's notice. Freedom in the banking sector has allowed banks to loan money to whoever they want, driving people and nations into debt.Today, even though there are conflicting perspectives on government ownership of property and government intervention in the economy, almost every nation regulates its economy to some extent for the common good.