Unformatted text preview: From Structural Reform to Fiscal Keynesianism
America's Third New Deal and the Making of Modern Economic Liberalism Structural Reform and the Early New Deal Core assumption of early New Deal reform: Nation's problems rooted in the structure of modern capitalism Govt's job to repair flaws in economic structure of American capitalism NIRA and associational-styled cartelization Wagner Act and unionization/collective bargaining Structural Reform and the Early New Deal NIRA and the industrial structure of business Excess capacity Overproduction Destructive price competition Structural Reform and the Early New Deal Distribution of economic power b/w capital and labor Regulatory unionism and limits on price competition Labor unions as countervailing organization to increase wages, effective demand, and economic growth Structural Reform and the Early New Deal Other voices in the struggle over structural reform Antimonopoly advocates Like the old antitrust warriors of old Economic planners Socialists The Growing Centrality of the Consumer Economy From a polity of producers to a polity of wage earners From the aspiration of property ownership to the aspiration of leisure, personal growth and rising disposable income The Growing Centrality of the Consumer Economy In a world of wage earners oriented toward consumer values Public policy begins to reflect the new consumerism as well Fiscal Keynesianism Demand-side management Deficit spending Two elements: Gov't spending; deficit financing Fiscal Keynesianism Demand-side management Government spending Using fed govt's budget authority (taxing and spending) to increase disposable income Govt expenditures financed by borrowing Tax cuts ("tax expenditures") Budget deficits Run conscious budget imbalances (new borrowing/new tax cuts) to augment private spending in the economy Not only as countercyclical corrective, but as an instrument to foster long-term economic growth Billions $ $3B Govt Spending $2B Govt Revenue $1B Balanced Budget Billions $ $3B Govt Revenue $2B Govt Spending $1B Budget Surplus Billions $ $3B Govt Revenue $2B + $1 Billion Govt Spending $1B Budget Surplus Billions $ $3B Govt Spending $2B Govt Revenue $1B Balanced Budget Billions $
Govt Revenue $3B Govt Spending $2B $1B Budget Surplus Billions $
Govt Revenue $3B + $1 Billion Govt Spending $2B $1B Budget Surplus Billions $ $3B Govt Spending $2B Govt Revenue $1B Balanced Budget Billions $
Govt Spending $3B Govt Revenue $2B $1B Budget Deficit Billions $
Govt Spending $3B - $1 Billion Govt Revenue $2B $1B Budget Deficit Billions $ $3B Govt Spending $2B Govt Revenue $1B Balanced Budget Billions $ $3B Govt Spending $2B Govt Revenue $1B Budget Deficit Billions $ $3B Govt Spending $2B - $1 Billion Govt Revenue $1B Budget Deficit Deficit Spending and Demand Management New Gov't Borrowing
New Tax Cut New Public Spending Private Spending Demand Stimulus Production Stimulus -- Employment Stimulus -- Investment in New Productive Capacity -- Wage Stimulus NEW TAX REVENUE (retire deficit)
Additional tax revenue from economic growth used to retire govt debt or replenish losses from tax cut Fiscal Keynesianism Fiscal Keynesianism first associated with Democratic Party (part of New Deal orthodoxy) But enjoys considerable bipartisan support in 1960s-1970s. Richard Nixon (1971): "We're all Keynesians now" See Time magazine cover article for December 31, 1965 Fiscal Keynesianism "Keynesian liberalism" openly indicted by Ronald Reagan, supply-siders, and resurgent Republican Party in election of 1980 New Deal "Fiscal Keynesianism" no longer the answer to the nation's problems; it's now the principal source of the problem Supply-Side Critique of Fiscal Keynesianism
Business Borrowing Personal Consumption Savings Rate Falls Smaller Stock of Investment Funds Crowding Out
(competition for available capital) CONSEQUENCES -- Interest Rates UP -- New Productive ddd d Investment DOWN -- Wages STAGNATE -- Economy LESS ccccc c COMPETITIVE Government Deficits Government Borrowing SOLUTIONS -- Balanced Budgets -- Higher Personal XXXSavings Rates ...
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This note was uploaded on 04/02/2008 for the course POL SCI 147C taught by Professor James during the Winter '08 term at UCLA.
- Winter '08