Economic Policy Analysis and Critique

The provided assignment is a comprehensive analysis and critique of different economic policies, including Keynesian economics, classical economics, and the mixed economy. It examines the strengths and weaknesses of each approach and evaluates their impact on economic growth and development. The document also explores the relevance of these policies in contemporary economic contexts, providing insights for policymakers and economists.

A. Please compare and contrast two of the different schools of economics that we have
discussed in class. In your view, which of these schools is the more compelling?
Explain your answer (17 marks).
B. Which would you describe the Irish economy as: A) a command economy, B) a
free market economy or C) a mixed economy? Explain your answer (17 marks).
C. How would you define ‘economic justice’ and what criteria would you apply?
Justify your answer (16 marks).
Introduction
The theoretical and conceptual framework of economics, as a subject itself, has
developed considerably over the decades and it is currently a cumulative outcome of different
concepts brought forward by different schools of thoughts at different periods. Each of these
schools of thought have evolved under different circumstances and have different outlooks
regarding economic activities (Stanford 2018). Their views contrast with each other, and
depending upon the situations, the viability and applicability of the theories proposed by
these economic schools of thoughts vary. The most discussed economic schools of thought
are the Classical School and the Keynesian Economic School of Thought (Brue and Grant
2012). The concerned assignment will compare and contrast these two schools in various
theoretical and conceptual aspects, resulting in determining the more compelling school of
thought in the real economic scenario, especially focusing on the housing sector of Ireland.
The assignment also tries to reflect on the different types of economies present and in the
context of that tries to find the nature of the economy of Ireland. It also tries to discuss about
the notion of economic justice.
A.
Classical and Keynesian School of thoughts
The Classical School of Thought is the oldest economic school of thought, primarily
proposed by eighteenth century economist, Adam Smith and followed by economists like
Robert Malthus, David Ricardo and others (Sockwell 2016). On the other hand, the
Keynesian School of Thought, is comparatively newer economic conceptual framework,
which originated in the twentieth century from the macroeconomic ideas brought forward
primarily by John Maynard Keynes and then developed and modified by the economists of
this school (Tily 2016). The primary conceptual root on which the Classical economists have

developed their theories and assertions over the years is the concept of the presence of a
“Laissez-Faire” system in the economy, which means that the economy should operate in a
free market situation with no or very little government intervention. The main working notion
behind this concept of the Classical School of thought was that the businesses and productive
activities function most optimally when there is no intervention from any third party, which
primarily include governing authorities of a country (Burda and Wyplosz 2013). However, in
the Keynesian school of thought, the government or the public sector plays a more crucial
role than that in the Classical school of thought. Keynesian economists believe that leaving
the economy in the hands of the market forces alone can lead to situations which can be
hurting for one sector of the economy, while benefiting another sector (Keynes 2016). Thus,
intervention of government is required to mitigate the negative effects of economic
discrepancies. The Classical economists take markets to be perfectly functioning whereas the
flaws of markets, including those of monopolistic tendencies, unequal distribution of market
powers and others are incorporated in the Keynesian views.
In the Classical school of economic thought there exists the concept of full
employment or at least no involuntary unemployment of resources in the economy, which
again arises from the assumption of free market. However, Keynesian economists do not
agree the same. Keeping the assumption of full employment in consideration, the Classical
economists remain bothered about the allocation of resources for production purposes in the
economy and are thus a supply-sided economic school of thought (Cate 2013). The
Keynesian school of economic thought takes into account the demand side dynamics also. In
classical purview, there is no role of government spending activities in the dynamics of any
economy, while the Keynesian school of thought imposes considerable importance on the
policies and expenditures of government as way-outs at times of economic hardships. The
classical school of thought is mostly a long run economic theory, in which there exists a
stable long run trend of economic growth and the theory tends to overlook the short run
fluctuations in the economy (Brue and Grant 2012). On the other hand, the Keynesian view is
mostly a short run overview of any economy, in which the short run and temporary
fluctuations are taken into consideration. Thus the significance of government is more in the
Keynesian school of thought than that in the Classical school of thought.
The Keynesian school of thought appears to be more compelling than that of the
classical school of thought, especially in the real economic scenario (Burda and Wyplosz
2013). This can be explained with the help of the Housing Crisis which occurred in Ireland in
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2007-2008. The property bubble started in the country in 2000s owing to the prosperity of the
economy, which increased the investment and demand in the residential sector. The bubble
burst specifically affected the housing sector of Ireland as can be seen from the following
figure:
Figure 1: Irish Housing Sector Bubble (Source: Macrobusiness.com.au 2018)
As is evident from the above figure, the consistent increase in demand for housing
investment, which was even more facilitated by the banking sectors which lowered the
interest rates thereby increasing borrowing in Ireland. The bubble which was created in this
way in the residential sector of Ireland, burst in 2008, thereby bringing a huge recessionary
situation in the country. The main reason behind the crisis can be attributed to the lack of
proper government regulations in spending and investment habits. Leaving the growth
dynamics of the economy in the hands of free forces brought about enormous market
distortions which was eventually solved only by the intervention of the government of the
country, thereby indicating towards the greater viability of the Keynesian theory over the
Classical school of thought (Heijdra 2017).
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B
Nature of the economy of Ireland
The economic systems existing in the different countries, in real global scenario, can
be divided into three broad types depending on the nature, the characteristic traits and the
level of control of the economy in the hands of the governing authorities of the country. The
essay tries to discuss these types of economies and keeping their differences into
consideration the essay tries to analyse the nature of the economy of Ireland.
Types of economic system
The command economy or planned economic system is an economic framework where the
government of the country plays greater roles than the free market system. The government
of such countries determines the types as well as the quantities of goods and services to be
produced in the economy as well as the price levels and the incomes of the residents of the
country (Marglin 2014). Free Market economies, the production, pricing and demand supply
decisions as well as the working of the different economic indicators are left in the hands of
the free market forces and the government of the country does not have the power to
intervene in the economic activities (Lewis 2013). Mixed economies are an amalgamation of
both the free market economy as well as the planned economy and they have traits of both of
these types. While there remains the presence of free market mechanisms in these economies,
the economies are not devoid of government interventions totally and the government plays
significant roles of regulating and intervening in the economic activities as and when
required.
The Irish Economy
Taking the three types of economic systems and their differences into consideration
the contemporary economy of Ireland can be termed as a mixed economy, as it has both the
elements of a free market economic system as well as the elements of considerable
government planning and intervention system (Irishtimes.com 2018). On one hand, the free
market system in the economy facilitates the production and economic activities including
income and profit generation in the private sector, thereby giving the economy somewhat
Capitalistic structure, which benefits the growth of the industrial and commercial sector of
the country considerably, in terms of profit maximization, higher revenue generation as well
as in terms of efficiency (Whelan 2014). The concept of a free market comes from the theory
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of “Invisible Hand” proposed by Adam Smith (Oslington 2012). According to this theory,
under a no-restriction situation, the market is forced to interact with each other and stabilizes
in an equilibrium situation by mutual interaction, from where none of the economic forces
have any tendency to deviate. On the other hand, the freedom of the private sector of the
country is coupled with the presence of a centralized system of economic planning and
regulations imposed by the governing authorities of the country. In addition, Ireland is also a
member of the European Union, which implies that the country needs to abide by the rules
and regulations of the Union as well.
Despite the presence of a free market mechanism in the country, government
intervention is required for several reasons. Firstly, the essential merit goods like education
and primary health care are provided by the government of the country. There also remain
several socially desirable commodities or services which being non-profitable and non-
excludable are not provided by the private sector. These services (like parks, libraries and
transport infrastructures) are provided by the government of the country (Meade 2012).
Secondly, to ensure the greater welfare of the residents of the country, the government of
Ireland imposes several regulations like that of the minimum wage regulations as well as
regulations in health and safety of the residents. Thirdly, there remains many under-
privileged citizens in the country who are not absorbed in the private sector employment and
income generation process. These groups include the jobseekers as well as the poor
population who are incapable to find any employment or income source. The government of
Ireland arranges for different social welfare benefits for these people by collecting taxes from
the higher privileged individuals (Barr 2012).
C.
Economic Justice
The term “Economic Justice” is an abstract and wide-spread concept which have
defined in different perspectives by different economists over the years. Broadly economic
justice can be viewed as a significant component of social justice (Hahnel 2013). The same is
defined as a framework of moral principles which are used in constructing economic
institutions in a country, with the objective of providing equal opportunities to all the
residents of the concerned economy, such that each of them can create enough material base
for themselves, thereby enabling them to live a productive and dignified life as a whole,
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enriched with enough freedom and decision making ability infused in each of the residents of
the economy (Unrisd.org 2018).
Criteria of Economic Justice
There are various principles and criteria of economic justice, which are defined by
different scholars at different periods of time. As per the Kelso-Adler Theory there remains
three primary criteria for implementation of economic justice in a society. According to the
participative justice proposition, each of the individuals should get equal opportunities to
participate in the productive works in an economy and should have equal access to the
acquisition of private properties in the economy (Darity and Hamilton 2012). This criterion
of economic justice does not guarantee that all the individuals would yield same level of
economic productivity and enjoy same economic welfare but ensures that every individual
gets equal rights to participate and earn economic advantages according to their own
capabilities and not discriminated in other perspective (Hayek 2013). According to the idea of
distributive justice the output produced in an economy should be distributed among the
participants in the concerned economy according to the amount of labour or inputs put by the
individuals in the production process (Darity and Hamilton 2012). The term “Distributive
Justice” may often be confused with charity in an economy.
However, these two concepts are not similar. While charity means provision of
facilities or economic welfare to an individual according to his or her need, the concept of
distributive justice refers to the allocation of economic facilities and outputs to an individual
according to his or her contribution in the productive process of the economy. This criterion
follows from the existence of participative justice in an economy. The social justice criterion
of justice as a whole indicates towards the absence of any kind of market distortions in the
economy, which by default benefits one class of the participants and affects another class of
participants negatively in the same economy. Presence of distortions like monopoly,
monopsonies (one buyer and many sellers), inequality in information distribution as well as
distorted market powers among buyers and sellers often lead to benefits of one class at the
cost of the welfare of the others, which automatically hampers the growth of equal
opportunities of the latter (Possumah, Ismail and bin Mohd Shafiai 2014). The principle of
social justice tries to detect such distortions and rule out the same.
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Conclusion
As is evident from the above thee-part discussion, there exists two primary school of
thoughts in economics, the Classical and the Keynesian school of thought, of which the latter
seems more relevant and appropriate in the contemporary period. There also remain different
types of economies in the global framework, of which the economy of Ireland is of the nature
of a mixed economy. From the above discussion it can be concluded that the economy of
Ireland shows traits of a mixed economy, where the substantial presence of market freedom
does not lead to reduction in the role of government in the economy and the same also plays
considerable roles in determining the dynamics of the economic indicators of the economy
and in the growth of the economy itself. There are also other criteria for ensuring economic
justice in any region and there exist various policies and strategies which are taken by the
government of the countries to ensure the existence of the same in the economies. One such
policy is the progressive tax policy under which the individuals are taxed according to their
income, that is, an individual earning more is taxed more than an individual earning
comparatively less.
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