he word “economics” is derived from the Greek word “oikonomos,” referring to the management of the household. Today the term is defined by Investopedia as “the study of how people allocate scarce resources for production, distribution, and consumption, both individually and collectively.”
Many Americans say they hold a conservative stance in regards to how they think the economy should function, but the term is quite broad. I am by no means an economist, but the following is a breakdown of what it means to have a conservative point of view towards the economy.
The Roots of Conservative Economics
Prior to the United States gaining its independence in the 18th century, it was a part of Great Britain, which relied on the economic system known as mercantilism. This theory prioritized a “favorable balance of trade” by exporting more items than a country imports. In addition, this system encouraged keeping gold and silver domestic, both of which were commodities that were used to measure the wealth of a country in the past.
A change occurred with a man named Adam Smith, who was a Scottish philosopher and economist who offered a new understanding into the world of politics and economics. In his book, An Inquiry into the Nature and Causes of the Wealth Of Nations, Smith argued that the wealth of a country should be measured through its “total of production and commerce,” which is referred to today as the gross domestic product (GDP).
Smith argued that the wealth of a country should be measured through its “total of production and commerce,”
This new perspective led politicians of the time to abandon the previous system of mercantilism in favor of a capitalistic economy and free-market where competition and the open exchange of goods would propel it forward.
Economics in the 20th Century
Prior to the Second Industrial Revolution, the role of government in the economy was limited. This changed at the turn of the 20th century where it began to crack down on monopolies, improve conditions for American workers, and establish quality standards for foods and medicine. About 25 years later, economic policies became increasingly more liberal with President Roosevelt’s New Deal to combat the devastating effects of the Great Depression.
The increase in government regulations and spending that characterized this era was based on what is known as Keynesian economics. This theory that was developed by economist John Maynard Keynes focused on government involvement in the form of deficit spending to increase consumer spending and compensate for the lack of investment during the Depression.
From the 1970’s onward, conservative policies based on lower taxes and regulation have reduced government spending through what is known as supply-side economics. This theory says that economic growth is caused by increased production through business expansion. Decreased regulation and taxes allows companies to invest more, hire more employees, and create more goods and services. This leads to a growing economy because of the increase in production to drive supply.
President Reagan put this theory into practice along with the theory of trickle-down economics to counter stagflation, or high inflation coupled with high unemployment. To combat stagflation, Reagan’s policies promoted tax cuts for companies and individuals, more military spending, less government spending on domestic programs, and decreased business regulations.
His administration’s policies led to a 4% inflation reduction and unemployment rate of less than 6%, according to Investopedia. The economic theory under Reagan became known as Reaganomics, and it commenced one of the longest eras of economic growth and success in American history.
Economics Under the Trump Administration
Under the current Trump administration, economic policies share some similarities with Reaganomics such as tax cuts, increased government spending, and deregulation of businesses. This combination has led to creation of more than 7 million jobs, record low unemployment rates for minorities, and close to 2.5 million Americans escaping poverty, according to The White House.
These figures, however, were released prior to the economic slowdown brought on by the coronavirus pandemic, which has brought on widespread unemployment and a decline of international trade and investment. Whether the American economy sees a rebound or a recession in the months to come, only time will tell based on how the COVID-19 crisis plays out.