Download Liberalism since WWII-

Views of Economics Following WWI
• In the decades following the First World War,
counties such a Britain, USA, and Canada all
implemented changes to the role of the state.
• There was a growth in the implementation of
the principles of liberalism, particularly in
relation to trade, international cooperation,
and foreign aid.
• The idea of providing a “social safety net”
expanded
The Postwar Canadian Economy:
The government started several programs characteristic of the welfare state:
• Universal healthcare
• Canadian Pension Plan
• Foreign Investment Review Agency – later
renamed Investment Canada – geared toward
monitoring take foreign investment
• The Canadian Radio and Television Commission
• Atomic Energy of Canada Limited
(pg 215 for more information)
Duplessis of Quebec
Use page 215-216 to complete the chart
Policies supporting the creation of a
welfare state:
Policies opposing the creation of a welfare
state:
-Centralized hydroelectric projects –
electrification of Quebec
-Anti communist Padlock Law
- Built schools, universities, hospitals and
highways
-Provincial police to break up union protests
and picket lines
-Huge provincial income tax funded
infrastructure projects
- Preferred lower taxes over social programs
- Highest minimum wage in the country
- Home ownership assistance acts
The Quiet Revolution (1960s) in Quebec eventually brought about the strengthening of
social programs characteristic of the modern welfare state.
Economic Crisis of the 1970s
• The Middle East has
long been a hotbed
for conflict.
• In the 1970s, the
problems of the
Middle East had an
adverse effect on the
economies of the
West.
The Creation of Israel
• In May of 1948, the UN partioned
Palestine and created the Jewish
state of Israel.
• Jerusalem was to remain a UN
mandate.
• Zionists agreed with partition the
Arabs did not.
• As a result, a number of conflicts
arose, including the Arab-Israeli
War (1948), the Suez Crisis
(1956), the Six Day War (1967).
Generally, even when attacked,
Israel, with the support of allies,
was the victor.
• When Israel refused to negotiate
for the return of land gained
during these wars, Egypt and Syria
staged a surprise attack which
became known as the Yom Kippur
War (1973)
The Yom Kippur War (1973)
• The Israelis are caught off
guard and they suffer
heavy losses during initial
phase of war.
• The U.S., Israel’s ally,
airlifts war material to the
Israelis while the Soviets
do the same for the
Egyptians.
• This is typical of conflicts
during the Cold War Era.
The Yom Kippur War (1973)
• The Israelis eventually
turn the tables on their
attackers and threaten
the Syrian capital,
Damascus.
• U.S. pressure reins the
Israelis in and
eventually the UN
brokers a ceasefire.
Energy Crisis (1973)
• The Arabs, frustrated by
the loss of the Yom Kippur
War seek to punish Israeli’s
allies.
• OPEC (The Organization of
Petroleum Exporting
Countries) declares an oil
embargo on the nations of
the West, specifically the
US and the Netherlands
• OPEC also slowed the
production of oil – causing
prices to quadruple.
Energy Crisis and the West
• Oil shortages wreak havoc
with industrialized
economies and force gas
rationing in the U.S.
• Goods became more
expensive, causing rising
inflation and the slowing of
the economy.
• The embargo will only last
for 5 months but the Arab
states now become keenly
aware of the power of oil.
• Thus, inflation and a
recession occurred at the
same time. This is called
stagflation.
Changing Perspectives on Economics
• Stagflation adversely effected the British
economy; in 1976, the British government was
forced to borrow US$3.9 billion from the
International Monetary Fund.
• Inflation caused the cost of running social
programs to increase, yet the slowing of the
economy meant governments collected less tax
revenue.
• The result was an increasing deficit and no means
to repay the debt.
See British Prime Minister James Callaghan’s speech and the chart on
American inflation on page 217.
Pause for reflection…
• Why did Keynes ideas not work as well as he
may have hoped?
• What would you suppose was the major
mistake on part of governments when
implementing Keynes’ theory? Why was this
mistake made?
• 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.
Monetarism
Milton Friedman
Ronald Reagan
Margaret Thatcher
Friedrich Hayek
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
•
•
•
•
•
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 Friedman, 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 is 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
• 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
Reaganomics
• Government debt and spending, however,
increased throughout the 1980s, in contrast to
the ideas of Hayek and Friedman
• Also, in 1977, the wealthiest 10% in the U.S.
controlled 33% of the countries income. By 1987,
the wealthiest 10% controlled 41% of the income.
• Trickle down?
OR
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.