Economic Liberalism & US Economic Pw Flashcards
(33 cards)
Top global Economics by Nominal GDP
- USA - $27 trillion
- China - $19 trillion
- Japan - $4.4 trillion
Core principles of American capitalism
- Private Property
- Free Enterprise
- Limited Gov interference
- Competition
- Profit Motive
Private property
- Means of production (factories, land, etc) owned by individuals or businesses
- Owners take on investment risk (earn or lose profits)
- 5th amendment of the US constitution protects property right
Free Enterprise
- Private individuals are free to own, operate n profit from businesses
- Encourages competition, innovation n consumer choice
- Helps develop a middle class, as workers can also become entrepreneurs or property owners
- Boom & Bust cycle of capitalisme involving periods of economic growth followed by downturns
Ex : Great Recession 2008, economic crisis
Limited Gov Interference
Comes from Adam Smith n his book “Wealth of Nations”. He believed that markets function best when individuals pursue their own interests.
In theory : Instead of the gov, the “invisible hand” of the market ensures that goods n services flow efficiently.
In practice : the gov does regulate through agencies like
- FDA — ensures safety of food n medicine
- EPA — protects the environment
The gov is supposed to balance the power of big corporations for the public good.
Competition
- vital in capitalism : encourages innovation, lowers prices n give consumers choice
- Monopoly : when one seller dominates the market n sets prices without competition
Historic monopolies
- Rockefeller’s Standard Oil
- American Tobacco Campany
Antitrust laws to prevent monopolies
Sherman Act — 1st law against monopolies
Clayton Act — strengthened rules against unfair business
FTC Federal Trade Commission Act — created the FTC to monitor businesses
2 of the severest recessions in the US history
- Great Depression 30’s : massive economic collapse
- Great Recession 2008 : housing crash n financial crisis
Profit motive
- The profit motive is the driving force of capitalism
- Goods n services are created, marketed n sold not for the public good, but for the soul purpose of making money/financial gain.
- Encourages innovation
- Success measured by wealth
Top 10 charts richest individuals shows how the profit can lead to extreme wealth
The Great Depression 1929 : Keynes argued for more government intervention to stabilize the economy.
This influenced US policies :
FDR’s New Deal 30’s
- Glass-steagall Act : separated investment n savings banks to reduce risk
- FDIC (federal Deposit Insurance Corporation) : guaranteed bank deposits to restore trust in the banking system
- SEC (Securities n Exchange Commission) : Created to regulate Wall Street n prevent fraud in financial markets
What did the Great Depression change in the economic system ?
The crisis showed that markets could not regulate themselves, so the US redefined economic liberalism to allow state intervention — to protect consumers, regulate finance.
WWII & US economic Leadership
After WW2, the US emerged as the world’s economic leader, shaping the economy through institutions n agreements
Bretton Woods system
GATT : Reduced Trade barriers n encouraged global commerce
Employment Act : Gov committed to ensuring jobs n economic growth
The 1970’s Crisis : Context
- Stagflation
- Pb : recession, inflation, high unemployment, energy crisis
- Deindustrialization : traditional manufacturing regions declined, becoming the “Rust Belt”
The 1970’s Crisis : Nixon’s Response
- Price and wage freezes to stop inflation
- Wage-price review board to monitor salaries & prices
Carter’s view on economic issues (1980’s)
- Acknowledge that the gov alone can’t solve everything
- Promoted deregulation
- Supported a free-enterprise revival
Influence of Milton Friedman / Monetarism
- Critic of Keynesianism
- Believed the state should control inflation through monetary policy, not gov spending
- Advocated less regulation, lower taxes, free markets n free trade
Rise of Neoliberalism
Under Reagan & Thatcher
- Supply-side economics / “trickle-down” theory
- New Federalism : Reagan transferred regulatory power from federal to state level
- Deregulation: especially of the Savings and Loans industry, which led to a crisis and a real estate bubble burst.
1990’s : move toward a single global market
Globalization : intensified under Clinton
- NAFTA
- Financial Services Modernisation Act : deregulated the financial sector even more, removing barriers between commercial banks, investment banks, n insurance banks — paving the way for the 2008 crisis
- Market globalist policies : opened up the US economy to global markets
- Antitrust lawsuits
Battle of Seattle 1999 (resistance to neoliberalism)
- Protest against WTO
- Symbol of anti-globalization mvt — critics saw free trade as benefitting corporations at the expense of workers, the environment n national sovereignty.
The 2008 Financial Crisis (Subprime Mortgage Crisis)
- Result of deregulation
- Dismantling of the Glass-Steagall Act allowed banks to combine commercial n investment activities
- Toxic mortgage bundles were sold as low-risk when they were not
- When borrowers defaulted, the financial system collapsed
Tea Party Mvt 2009 (right-wing)
Opposition to Obama’s economic recovery plans
Demanded
- less gov intervention
- lower taxes
- smaller public spending
- Anti-Obama and anti-state expansion
OWT 2011 (Left-Wing Populism)
Occupy Wall Street
“We are the 99%” — protest against
- Economic inequality
- Corporate greed
- Political influence of banks n big business
Neoliberalism in the 21st C. / Obama
Supported some neoliberal free trade ideas :
- TPP (Trans-Pacific Partnership) : promoted globalization n free markets
But also introduced state-driven reforms :
- Obamacare (Universal Healthcare)
