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Transcript
Ways to Manage an
Economy
From Demand to Supply Siders
History of US Economy:


Government was non-interventionist.
Causes of the Great Depression:
1.
2.
3.
4.
5.
Technology in farming lead to over-supply.
Florida land speculation and subsequent
destructive hurricane.
Buying on margin en mass.
Artificially high stock values.
Rapid descent of stock due to panic selling.

Hoover’s response:

Weak:


Relied on volunteerism
Hawley-Smoot Tariff:
 Recalled loans made over-seas
 Raised tariffs.

Results:


Domestically: very little
Internationally: intensified the effects of the
depression.
Brother Can You Spare a Dime
Once I built a railroad, made it run
Made it race against time
Once I built a rairoad, now it’s done
Brother can you spare a dime?
Once I built a tower to the sun
Brick and rivet and lime
Once I built a tower, now it’s done
Brother can you spare a dime?
Once in khaki suits
Gee, we looked swell
Full of that yankee doodle de dum
Half a million boots went slogging through hell
I was the kid with the drum
Say don’t you remember, they called me al
It was al all the time
Say don’t you remember, I’m your pal!
Buddy can you spare a dime?
Once I built a railroad, made it run
Made it race against time
Once I built a rairoad, now it’s done
Brother can you spare a dime?
Once I built a tower to the sun
Brick and rivet and lime
Once I built a tower, now it’s done
Brother can you spare a dime?
Once in khaki suits
Gee, we looked swell
Full of that yankee doodle de dum
Half a million boots went slogging through hell
I was the kid with the drum
Say don’t you remember, they called me al
It was al all the time
Say don’t you remember, I’m your pal!
Buddy can you spare a dime?
John Maynard Keynes (1883-1946)




Advocated government
involvement in the economy.
Welfare capitalism.
Use of fiscal and monetary
policy to address the
business cycle.
Keynesianism (Demand-side
economics)
Franklin Delano Roosevelt



Took office 1933
Extended federal
government powers
Restored confidence:



Fireside chats
Emergency Banking Act
Ended prohibition


Set up the NRA
(National Recovery
Agency)
Alphabet Agencies
Was the New Deal an Effective
Answer to the Great Depression?

No




Industrial Production
from 1927-40 increased
by 32%.
But the US Gov’t
expenditures rose by
185%.
Just a Liberal alternative
to Socialism
Never alleviated poverty.

Yes




Improvement in Fed.’s
power to enact
programs to aid those in
need
Banking Act 1935
provided insurance on
deposits
Securities Act 1933
monitors stock market
Civil Rights
Reasons for the Post-War
Economic Miracle





Rebuilding of Western Europe and Japan.
US emerges as an undamaged economy;
largest single supplier.
Marshall Plan (Cold War reaction)
IMF/World Bank
Neo-colonialism
All this proves that Keynes
was right.
CAN PROSPERITY LAST
FOREVER?


Maybe it could, but the role of government
had changed.
People expected and got more from their
governments.
The End of ‘Happy Days’ (1960s)




Low productivity levels in US compared
with Japan and Germany.
Technological gap narrows.
Trade surpluses with rest of world
diminishes.
By the end of 1960s US is no longer in a
trade surplus: BUDGET DEFICITS.
SPENDING > REVENUES
ADD THESE TOO:
US PLAYS POLICEMAN IN THE WORLD AND THAT
COST$ LOT$
VIETNAM WAR
AND THEN:
1973-4 OPEC ENERGY CRISIS
prices quadrupled for oil
RESULT:
STAGFLATION
Inflation + Unemployment
SO LONG TO KEYNESIANISM
HELLO, MONETARISM
LET’S JUST MESS WITH
THE SUPPLY OF MONEY
TO CONTROL INFLATION.
WE’LL DO IT CONTROLLING
INTEREST CHARGED AT
BANKS.
ANY OTHER IDEAS?
All that meddling in the economy
isn’t the job of government!
SUPPLY-SIDE ECONOMICS
A Quick Look At
Taxes
Things to Ponder
Laffer Curve (law of diminishing
returns illustrator)
Supply-side
Economics
(a.k.a. Reagonomics, Thatcherism,
Trickle-down Theory)
I been laid off from work my rent is due
My kids all need brand new shoes
So I went to the bank to see what they could do
They said son looks like bad luck got a hold on you
Money’s
Too
Tight
To
Mention
by
Simply
Red
Money’s too tight to mention
I can’t get an unemployment extension
Money’s too tight to mention
I went to my brother to see what he could do
He said brother I’d like to help but I’m unable to
So called on my father, father
Almighty father, he said
Money’s too tight to mention
Oh money money money money
Money’s too tight to mention
I can’t even qualify for my pension
We’re talking ’bout Reaganomics
Oh lord down in the congress
They’re passing all kinds of bills
From up there on capitol hill, we’ve tried it
Money’s too tight to mention
Oh money money money money
Money’s too tight to mention
Cutbacks!
We’re talking ’bout the dollar bill
And that old man who’s over the hill
Now what are we all to do
When money’s got a hold on you
Money’s too tight etc.
We’re talking ’bout money money
We’re talking ’bout money money
Features of Supply-side



Focus on production.
Deregulation of industries.
During recession:




Deregulate (see AB in ’93)
Reduce corporate taxes (corporate welfare)
Lower interest rates.
Privatize government owned businesses (see
Klein’s AB)
Supply-side (cont’d)

During inflation:


Market will solve it.
Use only monetary policy.
Allentown by
Billy Joel
Well we're living here in Allentown
And they're closing all the factories down
Out in Bethlehem they're killing time
Filling out forms
Standing in line
Well our fathers fought the Second World War
Spent their weekends on the Jersey Shore
Met our mothers in the USO
Asked them to dance
“rust-belt”
Danced with them slow
And we're living here in Allentown
But the restlessness was handed down
Off-shore
And it's getting very hard to stay
production
Well we're waiting here in Allentown
For the Pennsylvania we never found
For the promises our teachers gave
If we worked hard
If we behaved
So the graduations hang on the wall
But they never really helped us at all
No they never taught us what was real
Iron and coke
And chromium steel
And we're waiting here in Allentown
But they've taken all the coal from the ground
And the union people crawled away
Every child has a pretty good shot
To get at least as far as their old man got
But something happened on the way to that place
They threw an American flag in our place
Well I'm living here in Allentown
And it's hard to keep a good man down
But I won't be getting up today
And we're living here in Allentown
Example of “Corporate Welfare” in
Alberta






Insurance Industry 1,000 % profit increase
Logging Lowest royalties and stumpage
fees in the world.
Big Oil 300 % increase; lowest wellhead
royalties and fees in the world
Cigarette Industry 300 % profit increase
Banking 600 % profit increase
Meat Packers 300 % profit increase
Positives points of Supply-side.

U.K.:





Decreased inflation,
18% in ’78, 3% in ’88.
Manufacturing improved,
5% increase in 1980s.
Real wages went up
Home ownership up.
Stock ownership up.

USA:



Inflation went down
Unemployment dropped.
Productivity went up.
Negatives of Supply-side

U.K.





Unemployment stayed
high, 11%
Labour rights lost.
Two tiered health care
system.
Public education
suffered.
Income gap increased.

USA:


Created a huge debt
(1997 $4 Trillion)
Explosive social setting:



Crack cocaine.
Top 20% controlled
80% of wealth, 1%
controlled 40%.
35 million without
healthcare insurance.
Let um feel the beat first
I'm bout to come through your stereo
Should my rhyme start with the hook
Start with the hook
Next
Friday
By
Wyclef
Jean
To my people who don't wanna go to work
Thank God it's Friday
Cover me she bout to put up her skirt
Thank God it's Friday
Do Your mom know you act so berserk
Thank God it's Friday
What's the track, what's the track girl?
She don't wanna, she don't wanna work on Monday
(I wanna thank my hood)
For makin me a star before I had fast cars
And couldn't tell the difference between Whoppers and caviar
Before the fame
Way before things changed
All I wanted to do was freestyle and get a name
I used to work at the fast food restaurant
For minimum wage
Dreamin I'm on stage
At 17 I left the house
Cause my father was a minister
And I didn't want the Marvin route
What's goin on?
Today to sell a song you need a video with soft porn
MC's in the industry
You wanna tip?
Don't let them pimp you like Goldy
And tell Sony they better have my money
Cause I play wit the Comodores and be like Lionel Richie
Low Income, I stay so hungry that if 50 Cent came to rob me
He'd be part of my charity
(I wanna thank my hood)
To my people cuttin here in the shops
Thank God it's Friday
To the thugs sweatin up in the chop shops
Yo, it's Friday
To my people that don't got no job
Everyday it's Friday
What's the track, what's the track yo?
She don't wanna, she don't wanna work on Monday
All the Ladies sing
[Ladies:]
I don't feel
Like cookin you no breakfast
This mornin
(Wyclef: All my hoodlums say)
[Guys:]
You don't have
To cook me breakfast
Cause your girlfriend will
After you leave
(I wanna thank my hood)
For the love of money
I know kids who'll slit your throat
Friday the 13th
Jason wit a trench coat
But you can't scare Suzie
Cause her man got so many uzi's you'd think he was Cadivi
Meanwhile, she's getting her nails done
Crystal clear so they could shine like wit diamonds
It's such a shame what happened last week
Man they found her under the sheets with a letter from the Son of Sam
It said to tell New York I ain't sleepin
You want to be clubbin then you better pack your heat in
And to my man G Swar Rest in Piece
I still poor liquor
1 draw on the cocoa leaf
Inhale, exhale smoke grasses
Polices in the area, but ain't no need to panic
You wit Wyclef you getting in
If not, then we gonna make CNN
(I wanna thank my hood)
To my people who don't wanna go to work
Thank God it's Friday
Cover me she bout to put up her skirt
Thank God it's Friday
Do your mom know you act so berserk?
Thank God it's Friday
What's the track, what's the track girl?
She don't wanna she don't wanna work on Monday
Yo, to my people cuttin here in the shops
Thank God it's Friday
To the thugs sweatin up in the chop shops
Yo, it's Friday
To my people who don't got no job
Everyday it's Firday
What's the track, what's the track yo?
She don't wanna she don't wanna work on Monday
All the Ladies sing
[Ladies:]
I don't feel
Like cookin you no breakfast
This mornin
[Wyclef:] All my hoodlums say
[Guys:]
You don't have
To cook me breakfast
Cause your girlfriend will
After you leave
Unemployment




Natural rate = that rate at which full employment
does not lead to inflation.
Higher levels give business owners the ability to
“discipline” labour.
Lower levels give labour the ability to negotiate for
higher wages, hence the possible cause for
inflation.
Governments that attempt to achieve full
employment (Milton Freidman) run danger of
activating high inflation. True?



Wealthy people (bond holders) like higher
rates of unemployment. Why?
Means interest is low; thus, bonds pay
higher returns.
Conclusion: it was Keynesian focus on
achieving “full employment” that caused its
demise by right-wing economists.