Economic Woes Have Shook the Essay

(Major Schools of Economic Thought) This theory was born from the crucible of a Great Depression and a World War. Chicago theorists vehemently disagreed. They made the argument that the wealth of nation's increase when the market is allowed to naturally price goods and services. Spending would unnaturally change the prices of these goods, thus changing the reaction of the market to the goods, causing a misallocation of wealth or goods.

According to the Chicago theorists, the role of a government was to make sure individual rights were not trodden upon during market interactions and to mitigate the damage of neighborhood effects. Neighborhood effects are defined by Milton Friedman, the godfather of Chicago Economists, as when, "the action of one individual imposes significant costs on other individuals for which it is not feasible to make him compensate them or yields significant gains to them for which it is not feasible to make them compensate him" (Friedman, 1955, para. 3). This is a significantly cut down view of the purpose of government, especially when compared to the Keynesian view.

As to whether or not there are economic crises that require governmental intervention, many experts, and this author answer that with a resounding no. Government intervention is simply a way of taking wealth from one section of society and giving it to another.It does not create wealth, for it does not put the money where it is most needed (which would be best communicated via market driven prices), but instead it is put where the politicians think the money is most needed. In the stimulus bill of 2009, for instance, you see money going to states where politicians have constituents. In short, governmental intervention prolongs recessions and crises.

Works Cited

Friedman, M. (1955). School Choices. Retrieved June 25, 2010 from the ROLE of GOVERNMENT in EDUCATION: http://www.schoolchoices.org/?roo/?fried1.htm.

The Federal Reserve Bank of San Fransisco. (2010). Retrieved June 25, 2010 from Major Schools of Economic Theory: http://www.frbsf.org/?publications/?education/?greateconomists/? grtschls.html#a8......