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John Maynard Keynes
comes with economic theory known as Demand Side
first to come with business cycle—economy goes through natural boom and bust
steps a government needs to take to prevent a recession according to demand side economics
public work projects—creating demand for certain things which creates domino effect
creation of social programs
cut taxes—when people don’t have to pay as much tax, they have more money to spend
steps a government needs to take in order to prevent inflation under demand side economics
stop work projects
cut social programs
raise taxes
the two benefits of raising taxes under demand side economics
gets rid of the cause of inflation (oversupply of money)
either able to pay off the debt or if its already paid off, create a rainy day fund
biggest flaw of Keynesian economics
the government is unwilling to raise taxes even when they’re in a time of prosperity and at risk of inflation
problems that emerged in the US economy in the 1920’s
increase gap between factory owners and workers—wages not keeping up with inflation
two factors that set the price of stock
how much money the company is making
law of supply and demand
problems with the stock market in the US in the 1920’s
companies reporting false profits—no government regulations on the stock market
insider trading—the number one rule of the stock market is you have to make sure all your information is accessible. this is holding back information
buying stocks on margin
people taking out large loans from the bank to invest in the stock market because they could not afford it
first event that caused the Great Depression
stock market crash in October 1929, prices of all stocks dropped substantially
issue with the stock market crashing
everyone selling stocks at the same time, high supply and low demand
the main cause of the stock market crash was _______, everyone starts to panic, and withdrawal all their money from the stock market
fear
who did the stock market crash hurt the most
those who bought stocks on margin
could not repay loans
banks took their houses
what happened when the banks took people’s home
high supply of homes, low demand (no one could afford to buy them) and the banks could not get their money back
bank runs
people lining up outside banks wanting to withdrawal all of their money
becomes a self fulfilling prophecy
factors that made the Great Depression worse
low wages: even if someone had a job, their wage was too low to buy non necessary products
lack of any kind of social safety net: no welfare, pension, or unemployment insurance
businesses getting no money from the stock market
protectionism
dust bowl: incredibly dry during the 30’s
protectionism
countries start to shut down and implement protectionism policies to protect the jobs in their country
increase tariffs on foreign products
how did protectionism make the great depression worse
all countries were doing this, internation trade was frozen
hoover-villes
groups of these dwellings for the homeless meant to mock US president at the time Herbert Hoover
FDR’s Plan
the New Deal
first part of the New Deal (providing jobs)
civilian conservation
works progress administration: people hired to beautify cities
public works administration: massive construction jobs
Tennessee valley authority: specifically focused on energy/electricity
Second part of the New Deal (protecting workers)
creation of Securities Exchange Commision
creation of FDIC
Social Security Act
Wagner Act
Fair Labor Standards Act
the National Recovery Act
job of Securities Exchange Commision
create laws for the stock market and enforce them
job of FDIC
federal government insures that if the bank gets shut down, people’s money would be protected
Social Security Act
for the first time, a social security net would be put in place. government programs to help people through difficult economic times
Wagner Act
made it legal for workers to join a union
Fair Labor Standard Act
protection of the rights of workers. establishment of minimum wage maximum hours, and outlaws child labor
National Recovery Act
set wages and established price control. Businesses no longer free to raise the price of basic goods to whatever they wanted
New deal is an example of __________________
welfare capitalism
two groups that opposed the New Deal
business owners
US supreme court
why did business owners oppose the New Deal
feared FDR’s involvement in the economy would make things worse (unions allowed, plus all these new taxes to pay for government programs)
why did the US Supreme Court oppose the New Deal
they specifically rules FDR’S attempt of price control as unconstitutional
the Neal Deal transformed the US economy moving from classical liberalism to ________________________________________. These government programs are still in place today.
modern liberalism (welfare capitalism)
aspects of neo conservatism/ supply side economics
tax cuts for the rich
cuts to social programs
privatization
deregulation
Supply side economics believed in having a ___________, their job was to fight off inflation
central bank
how do central banks help with inflation
they establish interest rate that they lend to banks, and this can tighten the supply of money
monetarism
controlling the supply of money as the chief method of stabilising the economy.
Britain in the 1970’s
going through stagflation
massic government debt
high unemployment
US economy in the 2000s
continued to follow supply side economics
economic disparity like in the 1920’s—lack of government involvement in the economy, specifically in the stock market
causes of the economic meltdown in 2008
sub prime mortgages
derivatives
sub prime mortgages
people encouraged to take mortgages that could not qualify for, In fine print, it would say that interest was going in drastically increase. People could not make their mortgage payments and would lose their house
core of the cause of the 2008 economic meltdown
the lack of regulation of the banks
Occupy Wallstreet Movement
left-wing populist movement against economic inequality, corporate greed, and the influence of money in politics
Robert Owens
came up with welfare state/mixed economy/socialism
factory owner during the industrial revolution, however he saw the negatives and believed workers could be treated well and that society could provide basic needs
utopian socialism
you can work within the system to improve the conditions in gradual change, and still make money
key ideas to socialism
cooperation instead of competition
nationalisation of only key industries
closing the gap between the rich and the poor
universality—social programs apply to everyone equally
socialistic aspects in canada
everything medically necessary is free (with exception to prescription medicine, eye care, and dental care)
education—k to 12 is paid for by the government
taxes in Canada
GST, plus PST/HST in other provinces
property tax (local tax)
income tax (provincial and federal tax)
progressive tax system
the more money you make, the more you taxes you pay
regressive tax
tax that is more burdensome to the poor (ex: increasing bus fare pe pying for parking at hospitals)
flat tax
everyone paying the same percent
tax loopholes for businesses
claiming business expenses
purpose of Canada’s social programs
redistribution of the wealth
indicative planning
government comes up with economic plan where the believe the economy is headed
provide predictions
companies can either follow or ignore this plan
sweden social programs
health care: anything medically necessary INCLUDING perscription medicine, dental, and eyecare
education: k to 12 is paid for AND post secondary + pre school is covered
Karl Marx
started communism/ command economy
wrote “The Communist Manifesto”
elements of “The Communist Manifesto”
all of history can be explained by the class struggle (rich vs poor)
all of society can be divided into two groups: proletariats (workers) and bourgeois (owners)
core to capitalism is the exploitation of the workers
there will be a violent revolution of the proletariats, and they will take over means of production
production no longer based on profit motive, but instead the common good
the main goal: economic equality
Russia in the beginning stages of the industrial revolution
majority uneducated peasant farmers
subsistence farmers
led by monarchy, Tzar (Nicholas II)
Vladimir Lenin
follower of Karl Marx
slogan “bread, peace, land”
core to Lenin’s ideas
revolution had to be planned and organized, it could not just happen
the first thing that Lenin did when he got into power
sign the treaty of Brest Litovsk
treaty of Brest Litovsk
marked Russia's final withdrawal from World War I and resulted in Russia losing major territorial holdings
1917-1922 Russin Civil War
Red’s (led by Lenin) vs White’s (in favor of the Tzar returning) vs the Non Russians (wanted independence)
War communism
the implementation of Marx’s udeas, everything was nationalized
main purpose of war communism
support the Red Army
1921
Lenin and the Red’s gained full control of russia and transformed Russia into the USSR
War communism was a ________
disaster
The New Economic Plan
“one step forward to take two steps forward”
some aspects of capitalism allowed to exist but once the economy rebounded ther’’s be return to the ideas of Marx
Trotsky’s plan for communism
spread it throughout the world
Stalin’s plan for communism
strengthen it within the USSR first before taking it to other places
first concern of Stalin when he got voted in as the USSR leader
strengthen the army
Why did Stalin ant to industrialize so fast?
feared that capitalist countries would invade the USSR, and they were extremely behind industrially, so if they did the USSR would lose
main goal of Stlain;s economic plans
quickly industrialize
Stalin’s first economic plan
forced collectivization
forced collectivization
the USSR grows a lot of crops, and then sells them to the west and use the money to buy modern machines
problem with forced collectivization
everyone is a subsistence farmer, they do not have exra food. Stalin steals food from his own people to the point of mass starvation
problem with centralized economy
the individual becomes secondary to the state
first group to oppose forced collectivization
kulaks (Russia’s best farmers). they were very successful and had gotten rich under the Tzar. Would burn their crops, and destroy their own livestock rather than give it to Stalin. Lalbed enemy of the state
anyone caught hiding food was called a _______and sent to the gulags
kulak
1932, 1933 Holodomor
direct result of Stalin’s forced collectivization policy, Millions of Ukrainians starved to death becuase of the food stolen from them for the benefit of the communist party
Stalin’s second economic plan
5 year plans
5 year plans
set goals that specific industries had to meet by the end of the 5 years
main focus: heavy industries
main goal of the 5 year plans
modernization of the military
Gosplan
government agency that was responsible for ALL economic decisions the USSR
accountants artificially setting prices
massive bureaucracy
flaw of Gosplan
if one accountant makes a minor error, the government could lose millions of dollars
after Stalin died, factories stopped metting their quotas, workers had to be _______________________ to meet these quotas
extra incentive (bonuses, vacation time)
in a rush to meet quotas it was ______________________________
quantity over quality
problem with 100% employment
people do not take pride in their work, and you cannot automate/modernize. USSR factories were far behind American ones
three types of farms in the USSR
collective farms
state farms
private plots
collective farms
people work the land that’s owned by the government together. The crops are privately owned but there’s only one buyer (the government). The selling price is very low in order to make food affordable for factory workers
state farms
treated like factories. everything is owned by the government. farmers paid as an hourly worker. These workers do not care about quality because they are getting paid either way
private plot
a; farmers in the USSR were allowed to srt aside small plots of land to grow whatever they wanted and sell it on the side of the road.
most productive use of land—only 3% but produced 30% of the food
who replaced stalin after he died
bunch of old bolveshaks
stalin’s economic policies were continued after his passing but…
without the brutality
1984 USSR leader
Gorbachev
why was Gorbachev different
he was young
wanted to help the people of the USSR
two reforms of Gobachev
perestroika: allowed some elements of capitalism to exit
glasnost: political freedoms
1991
USSR collapsed, debatable whether it was because of Gorbachev or if it was inevitable. USSR reverted back to Russia
Today Russia…
has both elements of communism and classical liberalism and is not the USSR/communist
stagflation
time of high prices, low emolument, and overall slow economic growth
Note 
Flashcard (166)