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Lecture11_pt2 - From Structural Reform to Fiscal...

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    From Structural Reform to Fiscal  From Structural Reform to Fiscal  Keynesianism Keynesianism America’s Third New Deal and the Making  America’s Third New Deal and the Making  of Modern Economic Liberalism of Modern Economic Liberalism
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Structural Reform and the Early Structural Reform and the Early New Deal 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
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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 aspirations of leisure, personal growth and material comfort, and rising disposable income
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Fiscal Keynesianism Fiscal Keynesianism Demand-side management Demand-side management Government spending Using fed govt’s budget authority (taxing and spending) to increase disposable income Government spending on new programs 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
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Deficit Spending and Demand Deficit Spending and Demand Management Management New Public Spending New Public Spending Demand Demand Production Production -- Employment Stimulus Private Spending Private Spending Stimulus Stimulus Stimulus Stimulus -- Investment in New -- Investment in New Productive Capacity Productive Capacity -- Wage Stimulus -- Wage Stimulus Additional tax revenue from economic Additional tax revenue from economic growth used to retire govt debt or replenish growth used to retire govt debt or replenish losses from tax cut losses from tax cut NEW TAX REVENUE NEW TAX REVENUE (retire debt) (retire debt) New Gov’t Borrowing New Gov’t Borrowing New Tax Cut New Tax Cut
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Fiscal Keynesianism and Fiscal Keynesianism and the New Deal the New Deal New Dealers turn to fiscal policy as central tool of the new economic management Allow for management of macro-economy w/ less direct intervention in day-to-day business affairs Direct intervention (NIRA; Wagner Act) create new problems, new conflicts, new constitutional problems
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Fiscal Keynesianism and Fiscal Keynesianism and the New Deal the New Deal Demand management as tool to manage economic performance w/o transforming economic institutions of American capitalism Achieve New Deal goals (“full employment economy”) in manner consistent with American antistatist political culture
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The Fiscal Keynesian Strategy The Fiscal Keynesian Strategy Two assumptions #1 Consumption, not investment, drives economic growth Increased consumption as the principal goal of public policy #2 Scientific manipulation of federal budget best instrument for fighting recession and economic stagnation
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