Economic Policies Impact Business

Written By: Lance Piatt

How Economic Policies Impact Small Business Freedom

In today’s complex economic environment, small business owners navigate a landscape where freedom often feels constrained by government intervention, regulatory bodies, and central bank policies. Here’s a clear breakdown of how three main economic theories—Keynesian, Austrian, and Supply-Side—approach these issues and impact small business freedom.

1. Government Intervention: To Intervene or Not?

Keynesian Economics
Advocates for high government intervention, where fiscal policies, regulations, and public spending actively steer the economy. This approach supports the economy during downturns by increasing government spending or adjusting taxes to stabilize demand. Small businesses benefit from demand stimulation but face constraints as the market adjusts based on government decisions rather than natural forces.

Austrian Economics
Takes the opposite approach, emphasizing minimal to no government intervention. Austrians argue that individual choices should guide economic outcomes without interference, allowing natural cycles to play out. This approach minimizes government influence, making the market the primary decision-maker. However, in practice, achieving a purely Austrian system can be challenging in modern economies.

Supply-Side Economics
Favors medium to low intervention. Supply-side policies encourage business growth through tax cuts and deregulation but accept some level of government involvement to remove obstacles to production. This approach, while business-friendly, risks opening the door to more government involvement over time, which could lead to further constraints on market freedom.

2. Economic Goals: Demand vs. Supply vs. Neutral

Keynesian
Focuses on demand management, aiming to stabilize employment and spending by stimulating demand through fiscal and monetary policy.

Austrian
Holds a neutral stance on supply or demand management, allowing the market to balance naturally without trying to control either side.

Supply-Side
Prioritizes supply-side policies, believing that economic growth is best driven by incentivizing production and investment.

3. Market Freedom: How Much Control?

High Freedom (No Manipulation)
Markets operate independently of government or regulatory interference, aligning most closely with Austrian principles.

Medium Freedom
Markets function freely but with limited government guidance, such as tax incentives, which reflects some aspects of supply-side policies.

Low Freedom (High Manipulation)
Markets are tightly controlled, with significant government intervention and regulation, typical of Keynesian systems.

4. Monetary Policy Approach: Active or Passive?

Active Monetary Policy
Central banks adjust interest rates, influence inflation, and manage economic cycles—a hallmark of Keynesian economics that allows the government to act in response to economic conditions.

Passive Monetary Policy
In line with Austrian principles, this approach allows money supply to grow organically, avoiding artificial manipulation.

5. External Influence on Markets: The Degree of Control

None
A market with no external influence functions solely on individual decisions, which aligns with a purely Austrian view.

Minimal to Moderate
Supply-side economics accepts limited government involvement, such as tax cuts, as a means to stimulate productivity.

Significant
Keynesian economics, with its active management, places considerable influence on markets, shaping them through regulatory and fiscal policies.

Final Verdict: Where Does Today’s Economy Stand?

Considering each dimension, today’s economy most closely resembles a Keynesian model, characterized by:

High levels of intervention and active management.
A focus on stimulating demand rather than letting the market self-correct.
A heavily managed system that limits true market freedom and individual choice.

While supply-side policies like tax cuts are present, they typically function within a broader Keynesian framework. Austrian principles of minimal intervention and free markets are largely absent, as the current economic environment relies heavily on government and central bank intervention.

For those seeking true market freedom and resilience, Austrian principles offer a compelling but challenging path, aiming for an economy driven by individual choice rather than centralized control. However, under the current Keynesian-dominant model, small business owners should prepare to navigate a landscape where intervention and policy shifts are frequent realities.

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