Economic Depression
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Transcript of Economic Depression
• How can it be fixed, and by what or whom?
• What is the government’s role during times of economic downturn?
*Two opposing theories existed on the causes of and remedies for economic depression that affected governments’ behaviours during and after the Great Depression:
*The theories of John Maynard Keynes (canes) and Friedrich August Hayek (hi-ek)
*They recently worked through their differences in a rap battle!
Keynes Hayek
*Make a t-chart to compare the theories of Keynes and Hayek
*Read the curriculum handout about economic theories and principles surrounding the Great Depression in Canada and answer the following:
*Which economic school of thought would each economist belong to?
*Theories are reform liberal
*Economy driven by aggregate demand (total demand for goods and services in the economy at a given time and price level)
*Government should intervene when the economy is in a downturn, taking actions such as cutting taxes, subsidizing housing, or lowering interest rates so people can have access to spending money. SPEND, SPEND, SPEND! It’s the only way to increase demand!
*Giving people the power to buy will multiply that invested money in the economy (multiplier effect)
*WARNING from Keynes: If money being saved is greater than what is being invested – which happens when interest rates are too high – unemployment will rise
*Theories are classical liberal
*The “invisible hand” (coined by Adam Smith) of the free market will prevent and cure economic cycles
*This is called “laissez-faire” economics (“let it be”)
*Government should not control the money supply
*Unnatural adjustments of interest rates artificially displace capital (money)
*“easy money” causes people to change their normal spending habits, and leads to inflation
*WARNING from Hayek: Socialism (what he believed to Keynesian economics) requires central economic planning and that will lead to totalitarianism
*The government will control our social lives!
*Despite his laissez-faire beliefs, Hayek did believe that wealthy nations should provide a safety net without endangering freedom – basic food/shelter/clothing
*Because provincial and municipal gov’ts were already in debt from expanding infrastructure and education during the 1920s, economic improvement became the responsibility of the feds
*Mackenzie King was PM when the depression began, and he refused to provide aid to the provinces, and only made minor relief efforts (classical liberalism)
Relieve yourselves, you bums!
*R.B. Bennett’s Conservatives won the 1930 election, and Bennett also initially refused to offer large-scale relief to the provinces
*Bennett advocated for high import tariffs and large-scale gov’t spending as remedies
*He eventually was forced to offer some relief to the unemployed
*His make-work programs and system of unemployment aid got too large and he had to severely cut back federal spending – this deepened the depression because gov’t employees were laid off and make-work projects stopped
*It wasn’t until Bennett was in danger of losing the 1935 election that he came up with a “new deal,” based on US president Roosevelt’s “New Deal”
*Bennett did a series of radio announcements promising the following changes:
*Minimum wage
*Fair treatment for employees
*Marketing boards for farm products
*Trade commission to stop price-fixing by businesses
*Unemployment insurance
*Limited working hours
*Health insurance
Woah! Please don’t fire me! I’m sorry for not helping you out. Let’s make a new deal. I was going to propose this earlier. Seriously!
*Despite the “new deal,” Bennett was defeated in the 1935 election by his predecessor, Mackenzie King.
*King lowered tariffs and signed a new trade agreement with the US, but largely believed in laissez-faire economics
*His main goal was to balance the budget but cutting gov’t spending
*To save $, King closed down relief camps and cut aid to the provinces
*After studying economics, however, King decided to become more interventionist and spend more $ to get the economy going
*Regardless, King pretty much just waited the depression out
*The depression officially ended with the start of WWII in 1939