The administration of President George H.W. Bush has fashioned economic policies that are much more in keeping with Keynesian economic theory than the classical economic theory of individuals like Adam Smith and David Ricardo. Classical economic theory advocates free markets in the sense that an "invisible hand" helps regulate markets through the unfettered forces of demand and production (Adam, 2008, p. 1). The concept "laissez-faire" is part of classical economic theory, the doctrine that market forces should dictate the economy and not government (Adam, 2008).
Keynesian economic theory is based on the ideas of John Maynard Keynes. Keynes rejected classical economic theory, especially the concepts of the "invisible hand" and laissez-faire. Keynes argued that government policies should be applied to increase aggregate demand, thereby "increasing economic activity and reducing high unemployment and deflation" (Keynesian, 2008, p. 1). Keynes argued that government could invigorate the economy by providing incentives for investment either by lowing interest rates or by increasing government spending.
The policies of the Bush Administration squarely fit in with the theories of Keynesian economics. Federal Reserve Chairman Ben Bernanke has lowered the prime interest rate multiple times since taking over for Alan Greenspan, something aimed at stimulating increased investment by firms in new plants and increased production. Such incentives are also aimed at producing more jobs since lower interest loans will create greater demand among consumers for automobiles, houses, and the like, which creates a need for more production and labor. Bush's tax cuts were also a direct example of government interference as a means of stimulating the economy, with the idea that if people have more disposable income they will spend it. Bush's tax rebate checks were aimed at the same goal. Howe
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