The 100 year Journey

The main discussion point of this blog is to just illustrate the journey taken by policy makers over the last 100 years moving from one economic theory to another. A disclaimer to start with, the illustration is at a very high level description and does not take into account the micro level differences in the various approaches. 

Free Market Era (1900 to 1930)

Lets start with the 1910 -1920 in the US. This was the period of the ultimate free markets and this was a period wherein the US administrators started taking the first steps towards having regulators in various industries. The monopolies erected by the Robber Barons were the target and these were broken down with the break up of the Standard Oil being the pinnacle of these efforts. However the lack of regulation of the markets ultimately led to a skewed allocation of resources leading to a boom and bust phase. This era of free and unbridled market economy came to an end with the 1929 depression  People lost faith in the markets and viewed markets as perverse to economic development.

Era of Government (1945 to 1980)

The golden period of Keynesian economists was during this era. With the opinion of the public being firmly to regulate the market with Government taking the main role. This was in done in various formats in different countries. In US, it took the form of multiple regulators regulating the economy.In UK, the Government owned companies lead the efforts for regulating the market. The role of the Government expanded quite rapidly and in some countries, the Government was present in most of the industries in some form or the other. As Government role started increasing, inefficiencies started creeping in.This strong Government role lead to an economic crisis brought about by high fiscal deficits and high government debts. This laid the base for the return of the market.

Return of the Market (1980 to 2008)

With the economic crisis brought about by the large Government role, the opinion again started moving back to have a limited Government role and free markets. The Thatcher and Reagan government firmly moved towards having a less regulated markets, this lead the groundwork for the next period of economic growth. The Chicago School of Economics lead the charge towards the free market. Milton Friedman and Hayek both firmly were against the large role of the Government. Markets were expected to do a much better job than the Government in allocating resources and ensuring growth. Free markets were back and that again brought with the lose regulation. The results of this growth were a boom and bust growth which ended in 2008.

?? (2008 to ??)

So now that we have again realized that a loosely regulated free markets are not a solution, do we go back to the Government? We have seen Government using fiscal and monetary tools to revive the economy with the private sector/market not putting in its resources in the revival. The role of the Government is increasing slowly.Have we not learnt anything over the last 100 years? we have moved from one extreme to another and are back again to the same state. It will always be very difficult to pin point the exact mixture of free market and Government led regulation. Till we are able to do so, the pendulum shall always be moving from one end to another.