Federal Government Policies and the Economy
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The paper explains the Keynesian theory of economics that suggests increasing federal spending during a recession to stimulate job growth and consumption and decreasing federal spending to cool an economic expansion and forestall the possibility of rampant inflation. The paper looks at the 1920s and the Great Depression and explains Roosevelt's Keynesian policies and the impact of WWII on the American economy. The paper then relates that up to the 1970s, the American economy was viewed in terms of a delicate Keynesian balancing act between unemployment and inflation, but in the 1970s there was high inflation but also high rates of unemployment for a long period of time, and this triggered the Reagan theory of trickle-down economics. The paper notes the drive for deregulation that continued well into the 1990s and the Clinton Administration but points out that deregulation has fallen out of favor in the wake of the credit crisis, and the current Obama administration seems unsure how to proceed.
From the Paper:"The boom of the 1920s in America was partially caused by the fact that America had remained relatively untouched by World War I in terms of its infrastructure. However, over the course of the decade, wealth became increasingly unevenly distributed amongst the population. This inequality led to under-consumption and over-production although the stock market continued to surge upwards. Despite a common perception that all of America was enriched during the Roaring 20s, "earnings for farmers and industrial workers stagnated or fell. While this represented lower production costs for companies, it also precluded growth in consumer demand. Thus, by the mid 1920s the ability of most Americans to purchase new automobiles, new houses and other durable goods was beginning to weaken" (Wilkison 2010). "High profit rates are hard to sustain given low workers' demand because both investment and capitalist luxury spending (the other domestic private sources of demand) tend to be more volatile than workers' consumption. In addition, fixed investment creates new capacity that implies the need for rising investment and capitalist luxury consumption. In this view, the U.S. economy became increasingly prone to collapse as the 1920s progressed. This meant that prosperity was more vulnerable to 'shocks' such as the stock market crash" (Devine 1996)."
Sample of Sources Used:
- Blumberg, Alex & Davidson, Adam. "Obama gives Keynes his first real-world test." All Things Considered. NPR transcript. January 29, 2009. May 28, 2010.http://www.npr.org/templates/story/story.php?storyId=100018973
- Devine, James. "The Origins of the Great Depression of the 1930s." Found in Encyclopedia of Political Economy. Phil O'Hara (ed). 1999. November 20, 1996. May 28, 2010.http://myweb.lmu.edu/jdevine/depr/shortdepr.html
- Krugman, Paul. "Who Was Milton Friedman?" The New York Review of Books. February 15,2007. May 28, 2010.http://www.nybooks.com/articles/archives/2007/feb/15/who-was-milton-friedman/
- Wilkison. "The Great Depression and the New Deal." History 1302. May 28, 2010.http://iws.collin.edu/kwilkison/Online1302home/20th%20Century/DepressionNewDeal.html
Cite this Term Paper:
Federal Government Policies and the Economy (2013, February 19) Retrieved March 29, 2020, from https://www.academon.com/term-paper/federal-government-policies-and-the-economy-152473/
"Federal Government Policies and the Economy" 19 February 2013. Web. 29 March. 2020. <https://www.academon.com/term-paper/federal-government-policies-and-the-economy-152473/>