Download Liberalism since WWII Chapter 6

• This theory holds that control of a country’s
money supply is the best means to encourage
economic growth and limit unemployment
and inflation.
• Essentially, it reflected a return to the
principles of liberalism through the application
of classical liberal laissez-faire policies.
• Premiers Ralph Klein (Alberta), Mike Harris
(Ontario), and Prime Minister Stephen Harper
attempted to undo interventionist policies of
previous governments.
Freidman and Monetarism
• Milton Friedman is a key economic
thinker associated with neoConservatism which is also known as
classical economics.
• His ideas are more closely linked with
classical liberalism; thus his ideas are
opposed to modern liberalism
• He is against the welfare state (social
safety nets via government
intervention) as it requires large
government and excessive spending
which leads to debt
• He is for fiscal responsibility and
balanced budgets
• His economic theory/practice is called
MONETARISM which is also known as
SUPPLY-SIDE ECONOMICS
Belief Regarding Inflation:
Inflation is the result of an
excess of money produced by
the central banks.
Hayek and Monetarism
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Fredrick Hayek was critical of collectivist thinking
since before the Second World War, but the
prevalence of Keyneisan Economic thought made
Hayek’s ideas unpopular. His ideas gained
popularity in the 1960s and 1970s.
He believed that in order for a collectivist society
to function, the government must have a high
level of control over society.
Eventually, this would threaten the liberty of the
individual as the government gained control over
all aspects of a citizen’s life.
It is impossible for central planners to have
sufficient information to make wise and ration
decisions – cannot predict demand for
products/service.
Therefore, like Freidman, Hayek believed that
the price system (free market) was the only way
to balance supply and demand in the economy
while maintaining individual liberty.
• Decrease government intervention and
spending in the economy
• Downsize the public sector by privatizing and
deregulating government owned business and
services/programs
• Decrease taxes and lower interest rates to get
businesses to increase supply
• Control the amount of money in supply
• Keep some unemployment to keep wages low –
as this helps business to grow (can reinvest
profits)
• Keep government small (costs less money then
to run a government)
Reaganomics
• Ronald Regan became president of
the USA in 1981; during this time the
US was still dealing with an economic
crisis.
• While Nixon’s administration had
tried to combat stagflation by setting
wage and price controls, Reagan
wanted less government involvement
and a more individualist approach to
economics.
• This known as supply-side economics
or the “trickle down theory” –
lowering taxes, especially among the
wealthy will result in greater
investment in the economy, thus
resulting in greater growth.
• Increased investment and
government defense spending will
“trickle down” through the economy
to the working class.
In Times Of
Recession…
In Times of
Inflation…
• Reduce corporate taxes
– Creates more profit
– Acts as incentive to enter
business
• Reduce public income tax
– Increases public’s incentive to
work
– Provides more money to
spend
– Increased production creates
demand
• Supply-siders insist that
increased demand for
goods and services must
come from the private
sector, not from
government spending.
• The unrestricted market
will eventually bring
inflation under control
Reaganomics in Action
Reaganomics
Following 1981 the Reagan administration put in action the following policies…
• Tax cuts primarily for corporations and the wealthy
• Cut income tax 25%
• Government spending cuts in social services
• Welfare subsidies, Medicaid, food stamps
• A stable money supply
• Deregulation of the economy
• Reduced environmental, health, & safety regulations
• Aim to balance the budget.
See the chart of government spending on pg 221
Thatcherism in Action
Thatcherism
• Following 1979 the
Thatcher government in
Britain put in action the
following policies…
British prime minister Margaret Thatcher:
Influenced by monetarism and tried to
reduce the government’s role in the
economy through the application of
classical economic principles.
– Wide scale privatization
– Emphasis on individual
initiative
– Reduced the power of labor
unions (pg 221)
– Reduced income and
corporate taxes
Reaganomics/Thatcherism:
A Balance Sheet
Arguments in Favor
Arguments Against
• A reduction in
unemployment
• Growing national debt
• A reduction in inflation
• Growing inequalities in
income levels
• An increase in
production
• A world wide move
towards private
enterprise
• A boom and bust cycle
• The decline of the
middle class.
Blair’s Third Way
• Tony Blair ran for office in 1997 on a platform called
the “Third Way”
• It was the adoption of some Thatcherite and freemarket policies, while maintaining some social
programs
• It was a compromise between Keynesian economics
and monetarism - an attempt at balancing
individualistic values of monetarism with collectivist
values of social justice.
• In practice, resulted in increased public spending on
health care and education and introduced a minimum
wage.
• At the same time, introduced tuition fees for postsecondary education.