One way to understand the fluctuations in the economy is through the lens of business cycle theories.
There are four main theories that help us make sense of business cycle theories.
1. The Keynesians believe that government intervention is necessary to stabilize the economy during times of recession.
2. The monetarists emphasize the role of money supply and monetary policy in driving economic growth and stability.
3. The real business cycle theory posits that economic fluctuations are driven by changes in technology and productivity
4. The Austrians attribute economic cycles to the natural ebb and flow of markets.
Overall each theory offers a unique perspective on the factors that shape the economy, making them essential tools for policymakers and economists alike.
I believe that Keynesian economic theory embodies the most effective approach to managing an economy. At the heart of the Keynesian theory is the belief that government intervention is necessary to stabilize an economy and promote growth. This differs from more conservative economic theories that advocate for a free-market system devoid of government control. "Government can use fiscal and monetary policy to control aggregate demand and thereby promote economic stability." (Great Debates in Economics: Keynes versus Hayek. Par. 9) However, through its emphasis on stimulating consumer demand and using fiscal and monetary policies to manage economic cycles, the Keynesian approach provides a more comprehensive and realistic framework for economic management. Ultimately, the Keynesian theory offers a sensible solution to ensuring that an economy remains vibrant, dynamic, and inclusive.
It seems like almost every theory has its strengths and weaknesses, there is no perfect solution for a super complicated problem (our economy). Based on the two videos it seems like a select party and people pick the best of the theories and then work with them while adding tidbits of other theories to supplemental missing parts that are needed to solve problems.
Politicians tend to favor Keynesian economics because it has played a pivotal role in shaping modern macroeconomic theory. Its focus on government intervention to stimulate demand during economic downturns has been influential in economic policy-making around the world. However, it's important to acknowledge that there are limitations to the Keynesian approach. Critics argue that the Keynesian approach may overlook the importance of supply-side factors, such as technological advancements, and that excessive government spending can lead to inflation. "Within the Keynesian framework, it is essentially assumed that political decision-makers will implement policies in a proper manner." (Great Debates in Economics: Keynes versus Hayek. Par. 27) Despite its limitations, Keynesian economics remains an essential tool and tends to be favored by politicians for policymakers in addressing economic instability. By continuously evaluating and adapting the Keynesian model, we can strive toward a more stable and prosperous global economy.
Sources:
Marginal Revolution University. "Game of Theories: The Keynesians" YouTube. Nov 7, 2017. https://www.youtube.com/watch?v=cYNVB5iqydk&t=327s
James A. Gwartney, Richard L. Stroup, Russell S. Sobel, & David A. Macpherson. "Great Debates in Economics: Keynes versus Hayek" Reprinted with permission, Cengage 2015. From: Economics: Private and Public Choice Fifteenth Edition https://cabrillo.instructure.com/courses/31208/pages/great-debates-in-economics-keynes-versus-hayek
Emergent Order. "Fight of the Century: Keynes vs. Hayek - Economics Rap Battle Round Two." Apr 27, 2011. https://www.youtube.com/watch?v=GTQnarzmTOc
Achuthan, Lakshman. "Business Cycle: What It Is, How to Measure It, the 4 Phases." June 15, 2022. https://www.investopedia.com/terms/b/businesscycle.asp