SOCIAL STUDIES 30

CHAPTER 9: MIXED ECONOMIC SYSTEMS

FABIANS

• IN 1884, SMALL GROUP OF BRITISH INTELLECTUALS SOUGHT SOCIALISM THROUGH PEACEFUL MEANS

• REFORM MUST COME FROM DEMOCRATIC SYSTEM NOT REVOLUTION

• SOUGHT FRANCHISE FOR WOMEN & WORKING CLASS

• WERE OUTRAGED AT CAPITALIST SYSTEM FOR CREATING IMMENSE WEALTH & CRIPPLING POVERTY

FABIANS CONT…• SOUGHT TRANSFER OWNERSHIP

OF COUNTRY’S LAND & MEANS OF PRODUCTION TO ENTIRE COMMUNITY

• NATIONALIZATION- STATE OWNERSHIP & CONTROL OF LAND &/OR INDUSTRIES

• NATIONALIZATION WITH SOCIAL WELFARE LEGISLATION & A TAXATION SYSTEM DESIGNED TO DISTRIBUTE WEALTH MORE EQUITABLY = HUMANITY REACH POTENTIAL

NATIONALIZATION ARGUEMENTS• STATE OWNERSHIP WOULD

MODERNIZE BACKWARD INDUSTRIES

• SAVE DYING COMPANIES

• PROVIDE EMPLOYMENT FOR WORKERS IN ENDANGED INDUSTRIES

• HUMAN WELFARE, NOT PRIVATE PROFIT, WAS THE GOAL

• PROVIDE MORE ORDERLY INDUSTRIAL DEVELOPMENT

• WORKER’S MORALE WOULD IMPROVE IF KNEW FIRM WAS MANAGED FOR EVERYONE’S BENEFIT

COMMUNISM VS. SOCIALISM• ONE PARTY STATE• VIOLENT REVOLUTION• EXTENSIVE, IF NOT

COMPLETE PUBLIC OWNERSHIP

• NATIONALIZE WITHOUT COMPENSATION

• NO PRIVATE PROPERTY

• BASED ON WRITINGS OF MARX, LENIN, OR MAO

• MULTI-PARTY DEMOCRACY

• DEMOCRATIC ELECTIONS

• LIMITED PUBLIC OWNERSHIP

• NATIONALIZE WITH COMPENSATION

• MOST INDIVIDUALLY OWNED PRIVATE PROPERTY

• NO GUIDING BODY OF WRITING

JOHN STUART MILL• WROTE ‘ON LIBERTY’

• LIKE ADAM SMITH’S FREE ENTERPRISE SYSTEM BUT DID NOT LIKE ABUSES OF INDUSTRIALIZATION

• BELIEVED GOVT SHOULD PLAY GREATER ROLE IN ECONOMY

• DID NOT THINK THAT MARKET SYSTEM LED TO CLASS CONFLICT

• ADVOCATED GOVT ACTION TO CORRECT ABUSES OF CAPITALISM WITHOUT ALTERING ESSENTIAL FEATURES

• PROPOSED FACTORY ACTS & LAWS IN ENGLAND

GALBRAITH• PERSONAL ADVISOR FOR

DEMOCRATIC CANDIDATES FROM ROOSEVELT TO JOHNSON

• OPPOSED TO SUPPLY SIDERS• CHALLENGED CONSERVATIVES• STRESSED CLEANER AIR, DECENT

HOUSING, & SUPPORT FOR THE ARTS NOT CONSUMER GOODS & FAST CARS

• DEFENDS AN ACTIVE ROLE BY GOVT

• REJECTED TAX CUTS• WANTED TO IMPROVE FREE

ENTERPRISE NOT OVERTHROW IT

JOHN MAYNARD KEYNES• WROTE ‘THE

GENERAL THEORY OF EMPLOYMENT, INTEREST, AND MONEY

• ARGUED CAPITALISM PROBLEMS B/C OF EXTREME SWINGS IN BUSINESS CYCLE

• DEMAND-SIDE ECONOMICS

DURING A RECESSION, GOVT SHOULD…• GOVERNMENTS SHOULD

SPEND $ (WHICH GIVES JOBS & INCOME TO MORE PEOPLE) & REDUCE TAXES (SO PEOPLE HAVE $ TO SPEND)

• DEFICIT FINANCING – SPEND MORE MONEY THAN IT COLLECTS IN REVENUE VIA BORROWING

• START PUBLIC WORKS PROGRAMS

• PROVIDE SOCIAL WELFARE – EX. EMPLOYMENT INSURANCE

• THIS HELPS REMOVE HIGHS & LOWS OF BUSINESS CYCLES

FISCAL & MONETARY POLICY

• FISCAL – GOVT USE OF TAX AND SPEND TO REGULATE & INFLUENCE ECONOMY

• MONETARY – GOVT REGULATION OF SUPPLY OF MONEY TO INFLUENCE THE ECONOMY (THIS AFFECTS INTEREST RATES)

MILTON FRIEDMAN• MONETARIST• GOVT TO EXPAND OR

CONTRACT MONEY SUPPLY

• INCREASE MONEY SUPPLY TOO MUCH = INFLATION

SUPPLY SIDE ECONOMICS• NEO-CONSERVATIVE-

OPPOSES GOVT INVOLVEMENT IN ECONOMY & EMPHASIS ON PRIVATE ENTERPRISE

• A.K.A REAGANOMICS & THATCHERISM

• PRAISE FREE MARKET• DISLIKE GOVT REGULATIONS• GOVT-RUN BUSINESSES

INEFFICIENT & WASTEFUL• SUPPORT CUTS IN SOCIAL

SPENDING• SUPPORT LOWER CORPORATE

TAXES • SUPPORT PRIVATIZATION

SUPPLY SIDERS• THATCHER• REAGAN• RALPH KLEIN• MIKE HARRIS • BRIAN MULRONEY

DEMAND VS. SUPPLY SIDERS DURING A RECESSION

• INCREASE GOVT SPENDING

• LOWER TAXES• LOWER INTEREST

RATES (INCREASE MONEY SUPPLY)

• DECREASE GOVT SPENDING

• PRIVATIZATION• REDUCE GOVT

REGULATION• LOWER TAXES• LOWER INTEREST

RATES

DEMAND VS. SUPPLY SIDERS DURING INFLATION

• CUT GOVT SPENDING

• INCREASE TAXES

• UNRESTRICTED MARKET WILL EVENTUALLY BRING INFLATION UNDER CONTROL

REAGANOMICS – SUPPLY SIDE• CUT INCOME TAX BY 25%• CUT BILLIONS FROM THE FEDERAL BUDGET

– 1981: SPENDING ON 20 GOVT PROGRAMS CUT $101 BILLION– 1983: CUT $84.5 BILLION– 1984: CUT $71 BILLION

• FOOD-STAMP PROGRAM – CUT BY $2 BILLION (ABOUT 20%) & OVER 800 000 CUT FROM PROGRAM

• 3 MILLION CHILDREN CUT FROM SCHOOL-LUNCH PROGRAM & 20% CUT TO PROGRAM

• SCHOOL MILK PROGRAM CUT 80%• MEDICAID WAS CUT BY $2 BILLION• JOB TRAINING & JOB CREATION PROGRAMS CUT IN HALF

REAGANOMICS CONT….• REDUCED FEDERAL

ENVIRONMENTAL, HEALTH, AND SAFETY REGULATIONS B/C REDUCED BUSINESS PROFITS & DISCOURAGED ECONOMIC GROWTH

• SUPPLY-SIDERS AGAINST DEFICIT BUDGETING & SUPPORT BALANCED BUDGETS

• REAGAN HAD SOME SUCCESS IN CUTTING INFLATION & UNEMPLOYMENT

• REAGAN HAD CHOICE TO CUT MILITARY BUDGET, INCREASE TAXES, OR CUTS TO WELFARE & SOCIAL PROGRAMS.

• HE CUT WELFARE PROGRAMS & INCREASED MILITARY SPENDING BY 13% = DEFICIT TRIPLED B/T 1985-1988

REAGANOMICS-EVALUATION• FAILURE B/C HIGHEST DEBT IN

U.S. HISTORY

• INCREASED RICH-POOR GAP

• DE-REGULATED ECONOMY = BOOM & BUST CYCLES

• LED TO DECLINE IN MIDDLE CLASS

• BAILED ON THE LESS FORTUNATE

• SUCCESS B/C REDUCED INFLATION & UNEMPLOYMENT

• SUCCESS B/C INCREASED PRODUCTION

• SUCCESS B/C REST OF WORLD MOVED TOWARDS MARKET ECONOMIES

THATCHER – SUPPLY SIDER• GREAT BRITAIN AFTER

WW II LED BY LABOR PARTY WENT LEFT (SOCIALISM) TIL 1970s

• GOVT NATIONALIZED COAL INDUSTRY, RAIL TRANSPORTATION, PART OF AUTOMOTIVE INDUSTRY, AIRLINES, TELEPHONES AND OTHER UTILITIES & PETROLEUM

• CREATED A ‘CRADLE TO GRAVE’ SYSTEM

THATCHER CONT…• THATCHER PRIVATIZED:

– ROLLS ROYCE

– BRITISH AIRPORTS

– ROYAL ORDINACE FACTORY

– PARTS OF NATIONAL BUS CORPORATION

– LEYLAND TRUCK & BUS CO

– CATERING AT BRITISH RAIL STATIONS

– SOLD SHARES IN BRITISH PETROLEUM

– WATER, ELECTRICY & MUNICIPAL SPORTS CENTERS

THATCHER CONT…• ATTACKED ORGANIZED LABOR – PROHIBITED WILDCAT STRIKES,

PICKETING, & STRIKES REQUIRED ONLY BY APPROVAL OF A SECRET BALLOT

• UNION MEMBERSHIP FELL FROM 54% IN 1979 – 40% IN 1988• REDUCED INFLATION FROM 18% TO 3%• CUT INCOME & CORPORATE TAX RATES• LABOR PARTY RENTED HOMES AT SUBSIDIZED RATE. THATCHER HAD

HOMES SOLD AT DISCOUNT RATES B/T 20-80% OF THE MARKET PRICE• 670 000 FEWER STATE EMPLOYEES• 20% FEWER CIVIL SERVANTS• GOVT FIRMS WHICH LOST MONEY NOW MAKE MONEY IN PRIVATE

SECTOR• UNEMPLOYMENT DROPPED

THATCHERISM-EVALUATION• SUCCESS B/C

ECONOMIC GROWTH• INFLATION DOWN• LESS STRIKES• TAXES LOWERED• FAILURE B/C RICH –

POOR GAP