Economics in the 1930 s and beyond Franklin

Economics in the 1930 s and beyond

Franklin Roosevelt and the New Deal • Comes into power as the people in the USA felt that the government was not doing enough • Pre Roosevelt the plan was to allow the economy to recover (it always had before) • Underestimation of the severity of the depression • Fear that liberalism was failing, falling to extremism (communism, rising fascism) • New Deal was as much about saving liberalism as it was about saving the economy

John Maynard Keynes • British economist who responded to the failure of the unrestricted economy during the Great Depression • Government needed to be more active in regulating the economy to whether the “boom” and “bust” cycles • Prime Pump the economy • In good times=increase taxes • In bad times= increase spending

Demand-Side Economics • Focused on large scale demand • Combination of consumption of goods, industry investment, government spending, exports • Use of fiscal policy, adjusting government spending and taxes to influence the economy

Friedrich Hayek • Austrian-British economist • Defended classical liberalism • Centrally planned economies can never know enough to accurately maintain an economy • The planning involved with socialism would lead to totalitarianism • Efficient exchange and use of resources could only be maintained through the price mechanism

Modern Liberalism • Permanent expansion in the role of Government in the economy – Economic regulation – Resource development – Income maintenance • The New Deal by its self failed to stimulate economic recovery (this was done by WWII) this gave the government the tools to be able to get involved in the economy – Monetary supplies – Federal reserve policies – Increased understanding of its own activities • Taxation, borrowing, spending

The Economic Shift to the Right

Economic Malaise 1970 s-1980 s • High unemployment – Decline of manufacturing – Loss of jobs overseas • Rising inflation – Trade deficit – Value of dollar decreased – Cost of goods increased • Stagflation

Oil Shocks: 1973 and 1979 • OAPEC oil embargo in retaliation for support of Israel during Yom Kippur War in 1973 • Iranian Revolution in 1979 • Iran-Iraq War begins 1980

Supply-side Economics • Economic theory opposed to barriers on the production of goods and services • Managing the economy through a country’s monetary policy • Milton Friedman and Chicago School of Economics • Reduce taxes on business and wealthy class • Decrease government regulation • Result: consumers have access to greater supply of goods at lower prices • Known as “trickledown economics” • Rise of neo-liberals

Ronald Reagan and Margaret Thatcher • Rise of conservatism in western governments epitomized with Reagan and Thatcher • Inflation in U. S. at 14. 76% in 1980 – “Too many dollars chasing too few goods” • Support of supply-side economics, or “Reaganomics” and “Thatcherism” but continued deficit spending on military and social programs, known as neo-conservatism • Stagnation of wages

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