State Intervention Amatori-Colli Economic History PDF

State intervention Amatori-Colli, part of ch. 13 Economic history cl. 15 Ay 2024/2025 Sonia Schifano In this episode The influence of the 1929 crisis on economic thinking Policy responses to the crisis: The US of Roosevelt and the New Deal...

State intervention Amatori-Colli, part of ch. 13 Economic history cl. 15 Ay 2024/2025 Sonia Schifano In this episode The influence of the 1929 crisis on economic thinking Policy responses to the crisis: The US of Roosevelt and the New Deal a.y. 2024/2025 30067 - cl. 15 2  The Great Crash The Wall Street Crash (1929) led to: a global financial and economic crisis the reduction of American loans a massive contraction in world trade restrictive monetary policies and deflation increased customs barriers and control over capital flows rise in unemployment rates Increase in taxes Remain under the gold standard Searching for the right answers and finding bad results Balanced budget a.y. 2024/2025 30067 - cl. 15 3 The father of the Welfare State Who was John Maynard Keynes? From mathematics to economy Under the influence of Alfred Marshall and Arthur Cecil Pigou 1919: The Economic Consequences of the Peace 1921: Treaties on Probability 1925: The economic consequences of Mr. Churchill 1936: General Theory of Employment, Interest, and Money 1944: Head of the British delegation in the Bretton Wood Conference a.y. 2024/2025 30067 - cl. 15 4  The father of the Welfare State Writer for Vanity Fair https://archive.vanityfair.com/article/19 32/1/banks-and-the-collapse-of-money- values New York Times a.y. 2024/2025 30067 - cl. 15 5 The birth of the Welfare State State intervention proved indispensable to correct market failures  the Welfare State was established. According to John Maynard Keynes' vision, states were to adopt counter-cyclical policies a.y. 2024/2025 30067 - cl. 15 6 Goodbye economic orthodoxy During the 1930s, more and more countries decided to disengage their currency from gold. In this way, central banks had the freedom to: Lower rates Print money to stimulate consumption, investment, and employment. The great crisis challenged economic orthodoxy based on the idea of market self- regulation. We have to say that the dogmatic adherence to the Gold Standard was abandoned more out of necessity than out of conviction Monetary policy began to be influenced by domestic policy objectives. a.y. 2024/2025 30067 - cl. 15 7 Gold Standard and Great Depression The refusal to provide liquidity to banks to protect fixed exchange rates led to more bank failures than they could have been. UK (1931), USA (1933), Scandinavia: with devaluation there is an adjustment of prices and wages that reabsorbs unemployment and stimulates growth. The intransigent ‘gold bloc’ (France, Italy, Belgium, Holland) up to 1935-36 experienced persistent stagnation and unemployment. a.y. 2024/2025 30067 - cl. 15 8 a.y. 2024/2025 30067 - cl. 15 9 USA: FDR and the New Deal Presidential election of 1932. Herbert Hoover (outgoing Republican), accused of not handling the crisis properly, is defeated. Democrat Franklin Delano Roosevelt is elected. a.y. 2024/2025 30067 - cl. 15 10 FDR “This great Nation will endure as it has endured, will revive and prosper. So, first of all, let me assert my belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. “ Franklin Delano Roosevelt, March 4, 1933 a.y. 2024/2025 30067 - cl. 15 11 USA: FDR and the New Deal Who was F.D. Roosevelt Graduated in law at Harvard and Columbia University 1910 election: New York state assembly 1913: Assistant Secretary of the Navy 1928-1930: Governor of the State of NY 1932: Presidential Elections 1933-1945: Presidency a.y. 2024/2025 30067 - cl. 15 12 a.y. 2024/2025 30067 - cl. 15 13 USA: FDR and the New Deal The first 100 days!!! In an attempt to resolve the consequences of the 1929 crisis, Roosevelt initiated a set of economic and social reforms aimed at the 3 Rs: Relief: support of the unemployed and the poor Recovery: restoring the economy to pre-crisis levels Reform: reform of the financial and economic system in order to prevent new recessions a.y. 2024/2025 30067 - cl. 15 14 USA: FDR and the New Deal The first 100 days!!! The Brain Trust Creation of empirical evidence Abandoning of mainstream approaches a.y. 2024/2025 30067 - cl. 15 15 a.y. 2024/2025 30067 - cl. 15 16 a.y. 2024/2025 30067 - cl. 15 17 USA: FDR and the New Deal The New Deal consisted of two phases: 1933-1935, more focus on economy 1935-1938, more focus on social policies The first objective was to inject liquidity into the system: A Bank Holiday of one week was proclaimed in order to assess the solvency of credit institutions  only ‘healthy’ banks were provided with liquidity and put back on the market. A government fund, the Reconstruction Finance Corporation (RFC) was used to buy shares and bonds of banks. The US moved towards a decision to abandon the GS (abandoning it in 1933): restored confidence in the banking and financial systems and stimulated domestic demand. a.y. 2024/2025 30067 - cl. 15 18 USA: FDR and the New Deal A massive public works programme was established to pursue two main objectives: providing income for the unemployed and stimulating demand to improve the infrastructure of the country In 1935 a series of welfare measures and new labour market regulations brought America closer to a social democracy. Social Security Act: old age pension; disability and unemployment insurance; allowances for widows and children. National Labour Relations Act (labour market regulation): obligation for companies to recognise trade unions; introduction of collective wage bargaining. a.y. 2024/2025 30067 - cl. 15 19 USA: FDR and the New Deal The path, however, was not entirely downhill: in 1935 and 1936, the Supreme Court ruled that various acts (NIRA and AAA, for instance) were unconstitutional because they were against economic freedom. Many were abandoned and other amended so as not to incur sanctions again. In the second mandate they have been reintroduced!!! !!! IMPORTART!!! Despite the symbolic importance of many measures, their results were relatively limited in scope. Economic recovery was in fact also due to the policies of currency devaluation. a.y. 2024/2025 30067 - cl. 15 20  New Deal a.y. 2024/2025 30067 - cl. 15 21 a.y. 2024/2025 30067 - cl. 15 22