The Ebb and Flow Effect

The theory that control of a country's money supply is the best means to encourage economic growth and limit unemployment and inflation. This control comes from regulation of interest rates.

According to monetarist theory, economies should have enjoyed low inflation and high stability. But in fact, they did the opposite. They sank into a deep recessions, while lead economic indicators were all over the place. Although inflation came down, this was at the price of rising unemployment, which soared. This lead to the demise of monetarism

Milton Friedman is believed to be standing alone in supporting monetarianist ideals.

Had been a critic of collectivist thinker since before WWII but had not widely been accepted due to how much everyone were supporters of Keynesian economic theories.

Theories became more reconized and accepted between the 1960's and 1970's.

Government needed to maintain very high control over society.

Believed that history "got off on the wrong track" when politicians began listening to John Maynard Keynes. The market crash of 1929 showed just how well laissez-faire had worked for them (which was not at all) and that governments needed to intervene in the economy to even out all the wealth and regulate the corporations. "The major error, in my opinion... was to believe that it is possible to do good with other people's money."

Theories heavily influenced Ronald Reagen and Reaganomics.

Trickle Down Theory - An idea Ronald Reagan developed that supports the idea of decreasing taxes for the rich leaving them with extra money to buy and make investments, thus increasing the flow of money through the economy.

However, this method did the opposite of what was iontended. It created an even larger gap between the classes of the rich an poor, and nearly demolished anything in between. Americas national deficit rose 1.5%, while their fedral spending dropped 1.5%.

Wanted less government involvement so he reduced control on businesses, lowered income and business taxes, and increased government spending on the military.