S: By: Tayyaba Tahir
FC: The Ebb and Flow of Liberal Economics
1: Index 1. Pre World War I 2. The 1920’s – Europe and North America 3. Stock Market Crash 4. The Great Depression 5. Roosevelt’s New Deal 6. Keynesian Economics 7. Canada and the Depression 8. Post World War II 9. The 1970’s 10. Monetarism 11. Reaganomic 12. Thatchersim 13. The Fall of Communism 14. Blair’s Third Way 15. The Current Economic Crisis
2: Pre World 1 -The Sherman Anti-Trust Act (1890) was introduced to prevent the collusion and monopolies between competing companies in an industry. -Roosevelt's progressivism included reforms like the Meat Inspection Act (1906) and the Pure Food and Drug Act (1906). -He also introduced the “Square Deal” which was used to prevent large companies from abusing their control in the market place. -Roosevelt’s successor William Howard Thaft, who served as president from (1909-1913) . He forced the Standard Oil company to break into 34 smaller companies in (1911). Later the Clayton Act (1914) was passed and it strengthened the Anti-Sherman Act by allowing labour unions to boycott and making collective bargaining legal. -Alphonse Desjardin and Credit Unions ( early 20th century)were the first credit unions in North America that provided financial assistance to small business and farm owners with little or no credit history. By the 1920 there were 187 credit unions in Quebec with an estimated $6 million in asset.
3: Significance: This was a shift from right to left towards modern liberalism. The shift from classical liberalism to modern liberalism allowed more government involvement in the market economy. By restricting economic freedom in the forms of laws and legislation i.e. “Sherman Anti-Trust Act” . This also marked the end of industrial revolution and as more people were used to the laissez-faire government where the “invisible hand” drove the economy. Having government interference in the business marked a huge shift from an extreme right capitalist society to more of a “hands on” government.
4: The 1920’s – North America -The “First Red Scare” laid the foundation for the 1920’s political conservatism. The First Red Scare (1917-1920) was this fear of left-wing communist taking over American government. -During this chaos Warren G.Harding became the president and took office in (1921). He promised Americans a “return to normalcy” . The three central ideas of his platform were “isolationism, nativism, and less government involvement”. He introduced the Revenue Act of (1921) tax reduction, Emergency Quota Act (1921) reduced immigration. Due to his death Coolidge took office and continued limiting immigration by the Immigration Act of (1924). And reduced taxes through the Revenue Act of (1928). -The roaring 1920’s was also an era of brief economic prosperity and consumerism as more people started buying good such as cars and radios. And business started producing consumer goods rather than war materials. And the free-market economy expanded major social changes occurred. Women and Natives got the right to vote and North American population became more urbanized.
5: Significance: This was an era of capitalism, with minimum government involvement in private ownership. This was a major shift on the economic spectrum form left(modern liberalism) to right (classical liberalism). This was made possible due to the policies of Harding and Coolidge who believed in reducing taxes and isolationism. This also caused issues such as income disparity as in 1928 10% of the population of US earned 49% of the total income.
6: -During the prosperity of the 1920s, the stock prices of successful companies rose. Many people started borrowing money from banks to invest in the stock market hoping the prices would continue rising. | -The prices of stock market crashed in October 1929. -People began selling their stocks before the prices dropped more, this caused a even larger drop in prices. This also caused Bank run as more people tried to withdraw money from their bank accounts.
7: The Stock Market Crash of 1929 | Significance: This was a huge downturn as the American economy was flourishing in the 1920s. The stock market crash greatly affected the low income as large business went bankrupt more people lost jobs. The main reason for the stock market crash was the laissez-faire government. Without government regulation there was an unequal distribution of the profits of the boom which ultimately led to the crash. This also allowed for the shift from capitalism “right” to mixed economy.
8: The 1930s and the Great Depression -Investors were buried in huge debts and worthless stocks. -Banks went bankrupt and many people lost their savings. -Unemployment rose drastically because huge business went bankrupt and could no longer pay their workers. -International trade slowed down because of new tariffs which were to promote domestic good. -This was felt all around the world and in Germany it increased the inflation causing it to swing towards political extremism.
9: Significance: The Great Depression allowed people to realize that government involvement in the economy is necessary to avoid huge downfall. The economy shifted from a classical liberal to more of a mixed economy.
10: Roosevelt's New Deal -Became the president in March 1933 and introduced the New Deal which was inspired by Keynes philosophy of government spending and tax reduction during recession. -His new policies focused on relief , reform and recovery. -He also started the American Welfare system. -This helped in stabilizing the banking system. -The programs involved redistributing wealth to business, consumers, farmers and workers. Unions were encouraged.
11: Significance: Roosevelt's New Deal extended government involvement and intervention in the economy farther than it had ever gone before in the US. The purpose of this was to protect people from the abuses of uncontrolled government. This marked a shift from classical liberal to modern liberalism.
12: Keynesian Economics -Demand-side economics developed by Keynes. -He believed that government involvement is necessary to stabilize the economy. -During inflation government should increase taxes and cut down government spending i.e. Social programs. And during recession government should increase government spending and reduce taxes so that money keep circulating . This is also known as fiscal policy.
13: Significance: Keynes ideas influenced F.D. Roosevelt's New Deal policy during the Great Depression. His theories went against the principles of classical liberalism because of government involvement in the economy for stabilizing it. His ideologies lasted until the times of 1970-1980s. This was a shift from right to left.
14: Canada and the Great Depression Prime Minister Richard Bennett was elected in 1930 Created Bank of Canada, which took control of country's money supply, and began to use interest rates as means of regulating the economy. William Lyon Mackenzie King won the election in 1935 and became the Prime Minister. Focused on more government involvement and created many social programs and a modern mixed economy. C.D. Howe played a major role in government expansion Trans Canada Airlines (1937) Created 28 Crown corporations to produce war goods this created jobs and helped the economy grow.
15: Significance: After the Great Depression Canada became a welfare state. This was shift from classical liberalism to a modern mixed economy. This was achieved through government regulation and the creation of social programs i.e. “Unemployment Insurance Act”.
16: Post World War II With the end of WWII many western democracies continued providing publicly funded “social safety net” programs such as employment insurance. -In Britain under Sir William Beveridge’s control many social welfare programs were created such as the National --Health Service Act and National Insurance Act (1948). -----Britain became a welfare state. -Canada also strengthened social programs and adopted several characteristics of a welfare state -Social programs included AECL (1952), Universal Health Care (1966),CRTC(1968),CPP(1966),FIRA(1974).
17: Significance: Most western democracies strengthened social safety net programs. Moving towards a social welfare state especially in Britain and Canada. By providing assistance through social programs such as the employment insurance, child care and universal health care. All of this was managed by taxes making it a public ownership. Britain and Canada adopted the policies of modern liberalism with an acceptance of social programs and having government regulations. This also increased taxes to support such programs hence evidencing a shift towards left “public ownership and co-operation”
18: Economic Crises of the 1970s -The 1970s were a difficult period for governments in several liberal democracies. -In 1971, US withdrew from the Bretton Woods Agreement allowing world currencies to freely float around the world which caused gold prices to go down hence worlds currencies went down. -Oil production went down, making oil prices to increase In the US this played a major role in recession and causing high unemployment -Also due to the rise in oil prices, prices of other goods also rose. -All of this set the stage for “stagflation” when recession and inflation happen at the same time.
19: Significance: Because of the phenomenon of stagflation, governments in many western democracies realized that it was too costly to maintain social programs due to the inflation. And the economic slowdown meant the governments collected less taxes. This situation lead to a shift in economic thinking to supply side economics aka. Neo-conservative.
20: Monetarism -A shift towards classical Liberal laissez-faire economics in the form of monetarism (1970s). -Swing of an economic pendulum which alternates between intervention and free market, returning to the principles of liberalism. -Lasted well into the 2000s, was also promoted in Canada -This theory holds that the control of a country’s money supply is the best way to encourage economic growth, limit unemployment and inflation. Friedman believed the inflation was primarily due the excess supply of money produced in the bank. -Maintain the supply and demand in the economy and allowing individual liberty.
21: Significance: This theory stressed the importance of controlling the supply of money to ensure economic growth. Agreed with Adam Smith’s idea of free market economy where supply and demand determine the value of goods. Less government involvement in the economy which went against the ideas of Keynes. This was the start of going back to the principles of classical liberalism and supply side economics.
22: Reganomics -Ronald Regan became the president of the United States in 1981. -Reduced income and business taxes, reduced government involvement. However, he did increase military spending. -Supporter of the Trickle- Down theory which is based on the idea that lowering tax rates, especially for big corporations would allow them to invest money and create jobs. -This system did not work in reality as it increased government spending and debt. Contradictory to what Friedman and Hayek suggested.
23: Significance: This was a major shift from the Keynesian economic. As Reganomics believed in the “hands off” policy. Regan believed in lowering taxes and less regulations. This did not help the poor middle class and it also increased the debt. The US went back to the classical liberal ideology a shift towards the right “supply side economics”
24: Thatcherism -Margaret Thatcher was the Prime Minister of Britain from (1979-1990). -She also supported the principles of free-market economy by reducing government involvement and increasing entrepreneurism. -Under Thatcher, Britain sold much of its social housing and encouraged people to buy them. -Privatized many utility companies and did not support the labour unions.
25: Significance: Margaret Thatcher made efforts to shift the economic policies of Britain form a welfare state to more of a free-market economy. This was achieved by reducing taxes, privatizing public ownership and less government involvement in the economy. Her policies were similar to Regan’s economic polices which ultimately increased the deficit.
26: The Fall of Communism -Fall of communism is the era of multiple revolutions going around the world that tried to overthrow the communist regimes (1989). -The USSR dissolved in (1991) broke into smaller states. -In (1994) Ukraine president and American president met to discuss how Ukraine can reform its economy by promoting competition, foreign trade, and taxation. -Mexico joined NAFTA to increase international trade and competition. -Many other countries have moved towards modern liberalism and gave up command economy.
27: Significance: This is significant to the ebb and flow of classical liberalism because more countries around the world have promoted economic freedom and free trade over command economy. This was a shift towards capitalism allowing entrepreneurs to start business anywhere in the world. Countries like Ukraine which were communist opened up to idea of free market economy and promoted competition. This can also be seen as a shift from extreme radical society to more of liberal society.
28: Blair’s Third Way Tony Blair was the Prime Minister after Margaret Thatcher in (1997). Proposed a new theory “Third Way” A method that combines both liberal economics and socialist economics. An attempt to balance both individualistic and collectivist values. Focused on trade unions, public ownership, strong welfare state, government intervention, and redistribution of wealth. Increased public spending on health care and education, introduced a national minimum wage. However, he also introduced tuition fees for post secondary which was free before.
29: Significance: This marked yet another shift from Thatcherism “Laissez-faire” economics to more of mixed economy. His idea of helping the economy was by increasing government spending on social programs. The “Third Way” theory supported the idea of compromising the Keynesian economics and monetarism economics. This was shift towards left modern liberalism.
30: The Current Economic Crisis -The economic crisis of late 2000s (2007-2008). President Barack Obama is elected the president of US. -Around the same time as the global economy credit and mortgage crisis. The collapse of huge financial institutions which were bailed out by the government. Stock market crashed all around the world thus increasing unemployment and decreasing GDP. Interest rates rose as housing prices dropped.
31: Significance: This is related to the flow of liberal economics as once again people have to look back to government for saving the economy. Obama used government intervention to stop banks from going bankrupt. Countries like the US and Canada have agreed in (2008) to allow government to regulate the national banking system to help solve the recent crisis. At present this is a flow towards the left side of economic spectrum with more government involvement and cooperative internationalism.