Commanding Heights: Questions Describe the

¶ … Commanding Heights: Questions Describe the two major themes of economic thought referred to in the video series. Does a command economy or capitalism a more stable system of government? Was a Keynesian social welfare state superior to a state managed by the Chicago School's monetarist policies? These were the sorts of debates that divided the economists of the 20th century. The 20th century oversaw the rebuilding of the major economies of Europe, several times.

The central tensions between the two differing economic camps divided those economists who stressed the need for government intervention to cushion the low points of business cycle vs. The economists who believed the market economy could essentially balance itself out. The most extreme example of a planned economy was that Soviet Russia, Keynesianism advocated capitalism with government intervention, while the Chicago School of economics stressed that beyond the regulation of the monetary supply; government should intervene in the private sector of commerce as little as possible.

Who were the main economists that championed each side and what timeframe did they operate in? The first major shift in economic philosophy occurred with the ascendancy of John Maynard Keynes, who stressed the need for the government intervention to lessen the uncertainty that people felt, as a result of the inevitable downturns of the market cycle. Keynes wrote in response to what he witnessed during the Great Depression. During this period, he observed that when jobs were uncertain people hoarded their money. On an individual level, this makes sense.

However, the less money people spent, the more goods would pile up in warehouses, reducing the incentive for businesses to produce goods, resulting in still more layoffs. The only way to break the spiraling cycle into a depression was for the government to infuse money into the economy by creating public works jobs. Keynes advocated more government involvement in economic life in general, and the creation of a social welfare state, which eventually occurred in Great Britain.

Keynes was also influential in the creation of the Bretton Woods system, the World Bank and the International Monetary Fund. As a result of what he saw in World War II, Keynes believed that globalism was crucial to creating a stable economic future for all the nations of the world, and that sound economic policy could foster peace. It was not until the 1970s that Keynesian economics began to be questioned.

The Chicago School headed by Milton Freedman argued against government intervention and a return to a reformed version of Classical economic ideas. High inflation rather than high unemployment was the Chicago School's greatest fear. Unlike Keynes, the Chicago economists argued that the less government intervention in the economy the better, and that deficit government spending, even to stimulate the economy, was wrong. How did real economic and political events shape their ideas? Keynes' most obvious defining historical moment as an economist was the Great Depression.

However, he was also defined by the earlier, looming spectacle of communist Russia, which demonstrated it was necessary to contain the excesses of capitalism and to prevent the calls from the extreme left to adopt a totally socialistic system. World War I had shaped the economic landscape of Europe in a way that, for Keynes, showed that an entirely hands-off system would not work.

Russia's military devastation and participation in the war fostered the necessary political discontent within the populace to first overthrow the czar and then to bring the communist party led by Lenin to power. The widespread inflation that occurred in Germany, as the result of its war reparations resulted in hyperinflation that eviscerated the once-strong economy. Unregulated speculation in the U.S. stock market created a great crash in the financial markets that affected every corner of the globe.

Global economic cooperation was essential to prevent such a worldwide catastrophe again, and without government involvement, such economic and political instability would reoccur, with devastating consequences. In the 1970s, however, dissatisfaction with the social welfare state began to surface. Distrust with the federal government in the wake of the Vietnam War began to rise. Nixon's attempts to instate wage and price controls and failed. Powerful trade unions in Britain brought the nation to a standstill, spurring on the rise of Thatcherism.

America applauded Ronald Regan's union-busting policies regarding the air traffic controllers in America. World economic events had demonstrated that higher inflation did not necessarily assure lower unemployment, just like the Chicago School economists had said, rather high government deficits to correct high unemployment only created a more unstable economy. The devastating hyperinflation affecting Latin American nations, such as Argentina, were the result of a capitalist yet highly regulated and protectionist regimes. These called into question the applicability of Keynes' government-based solutions to the current economic instability.

Describe whose ideas were shaped into the economic remedy known as "Shock Therapy" and what were the main countries it influenced? Towards the end of the 20th century, with the fall of communism, the question arose as to how to undo the damage caused by a purely command economy.

How to create competitive market structures in a land once dominated by a single, state-run regime that planned every facet of people's economic life? The former republics of the Soviet Union and members of the Warsaw Pact were faced with this dilemma. The answer proposed by the International Monetary and the World Bank, seconded by the U.S. government, was to begin a rapid transition to a capitalist economic system. Hence the name 'shock therapy.' The formerly communist economy must be 'opened up' to allow for foreign imports.

Price and wage controls must be removed,.