Friday, June 7, 2013

NEW DEAL: ROOSEVELT AND KEYNESIANISM

NEW DEAL: ROOSEVELT AND KEYNESIANISM

Hello everybody!

Today, when we have arrived to the class, Paqui had copied a scheme on the blackboard about the New Deal. The New Deal was the program of the Democrat Franklin Delano Roosevelt to solve the crisis of the Great Depression. He won the elections in November 1932. The New Deal was based on John Maynard Keynes' ideas.



As we saw the other day Keynes was a British economist who proposed different solutions to go out from the Great Depression. He said that the State had to intervene in economy and increase public expenses, even if this meant increasing the State deficit. The State can intervene in economy investing in public works to create jobs and reduce unemployment, and he also said that the State can intervene stimulating production and consumption and reducing stocks.

As we are studying functions in Maths, I have added an image of the aggregate demand function invented by Keynes to increase consumption and recover economy:



Then we have talked about the elections in the USA. Paqui has said that the presidential elections of the USA are celebrated every month of November of the leap years in the correspondent Tuesday between the 2nd and the 8th day of this month. Then she has explained that an American president can't be in office of the government for more than two terms (in this case term is equal to four years) in charge of the government. It was written on the Constitution after Roosevelt's term in office. He was in charge of the executive power for twelve years. As I have said before, he was elected in 1932 and he left power when he died in 1945. He was replaced by his vice-president, Harry Truman, until the next elections. Truman continued to be the president because he won those elections. Truman was in charge of the Presidency of the USA until 1953. Fernando García has asked who the next one was and Paqui has said all the men who have been the president of the USA from Truman until Obama. 



Presidents of the USA

There you can see the presidents of the USA from 1885. Maybe you remember Theodore Roosevelt (maybe you remember the Roosevelt Corollary), Wilson (he proposed the Fourteen-Point Plan to maintain peace after WW1 but his ideas weren't taken into account in many cases), Hoover (the strong defender of laissez-faire, who was in charge of the executive power before F.D.R.).

You can also see the presidents between F.D.Roosevelt and Obama. They are Truman (vice-president of Roosevelt), Eisenhower (he was a famous general and he commanded a lot of USA troops during WW2), Kennedy (he was killed when he was visiting Texas), Johnson (he replaced Kennedy and he continued, as Paqui has said, with the social reforms of F.D.Roosevelt), Nixon (he resigned because of the Watergate scandal), Gerald Ford (he appears in one chapter of The Simpsons), Jimmy Carter (he appeared on The Simpsons too), Ronald Regan (he promoted, together with Margaret Thatcher, economic liberalism, in crisis since the Great Depression. This new conception of economy was called economic new-liberalism and it consists of reducing the intervention of the State in economy. We can say that our economic system is based on their ideas and it's the cause of the new "Great Depression"). 

And finally, George H.W. Bush (he also appeared on The Simpsons), Bill Clinton (his wife is Hillary Clinton. Paqui has said that maybe she will be the next candidate of the Democratic Party in the elections of 2017), George W. Bush (his father was president too. Bush provoked a war against Iraq because he said that Iraq had nuclear weapons. Finally, the world discovered that this wasn't true. There is a very good documentary about this, it is called Fahrenheit 9/11), and Barack Obama (he is in charge of the government at this moment and he will be known as the first black president and also because he has made some social reforms like making a law of Health Care System for the poor North American people which is called with an Acronym (PPACA) too, but the opposition of the republicans and bureaucracy linked to its implementation will make its effectiveness very difficult).

Presidents from the Democratic Party (liberals) are in blue and presidents from the Republican Party (extreme-liberals and conservatives) are in red.

I think that the main features of the last presidents of the USA are interesting.

Here I have added some pictures of some of the USA presidents that appeared on The Simpsons:


Gerald Ford in The Simpsons


Jimmy Carter             George H.W. Bush 


Bill Clinton
Source: www.tumblr.com

Coming back to F.D.Roosevelt, Keynes and the New Deal, after this interval, Paqui has written on the blackboard that the New Deal was based on a Three R Program: Reform, Relief and Recovery. She has said that the Keynesian program of Roosevelt included a lot of laws to reactivate economy and improve the living conditions of the poor. They made such a big amount of agencies to recover economy, written with acronyms, that all the names together looked like an alphabet soup.



The laws they did can be divided into three groups:
  • ECONOMIC LEGISLATION. 
-They gave subsidies to farmers who destroyed their stocks in order to reduce prices. As we saw other days, the overproduction of the Roaring Twenties gave origin to an accumulation of products that couldn't be sold. She has also said that this measure has been done in many places like Brasil. We have asked Paqui why they destroyed the stocks and they didn't give them to, for example, poor countries of Africa. She has said that the destruction of stocks was related to save the internal economies of every country adapting supply and demand. It was a period of strong protectionism. Every country focused on their own survival, tried to protect their economy and forgot about co-operative solutions. She has said that every country tried to "save their ass".
-They established minimum prices to reduce deflation.
-They created the Public Works Administration, to build big infraestructures with public money and create jobs.

  • SOCIAL LEGISLATION.
-Social Security Act: pensions for retired workers and assistance for orphans and the disabled. It also created unemployment benefits.
-National Labour Relations Act, which gave the unions the right to organize and represent workers in collective bargaining.
-National minimum salary.
-Child labour was abolished.

I have asked Paqui that if giving food to the poor people can be a measure to recover economy. She has said that this was an emergency measure and that the government gave food to the poor people but they continued to have a lot of stocks.

I have also asked that if a social measure can be also a measure to recover economy. She has answered yes because spending money in consumers led to more demand, and she has said to me that she thinks that I am so liberal. I have asked because logic says that liberalism increases wealth (GDP) of a country while it increases injustices, and socialism reduces the GDP while reducing injustices. I have to answer that I'm not in favour or against any economic system. I'm only 15 years and I am learning. I want to learn as much as possible about Economics always viewing all types of points of view. Apparently, keynesian ideas are very good, but there are economists who don't like keynesian ideas and maybe they have good arguments against it. Maybe when I finish studying I will have an ideology in this topic, but now I'm a student.


Smith        Marx    Schumpeter     Keynes

We have also talked about Keynesian Zapatero's Plan E. Paqui has said that it hadn't good results because it was small and because Spain is submitted to the European Union. I think Spain mustn't have more than three percent of deficit, however, we have reached more than eleven percent. The European Central Bank and the European Union also obliged Spain to apply the austerity.

  • FINANCIAL LEGISLATION.
-Banking reform: strict control of banks in order to avoid another bankruptcy and government help in exchange for cheap credits to recover investment.
-Creation of the SEC (Securities and Exchange Commission), to supervise the Stock Exchange Market and protect investors. She has said that it is like the Comisión del Mercado de Valores in Spain.

Then, Paqui has said that during the recovery of the economy in the USA, the country suffered a small crisis because some of the New Deal decisions were declared unconstitutional by the Supreme Court of Justice. The Court argued that the Federal Government had imposed these decisions over the states. We have seen a cartoon about this. There Don Quixote (New Deal) appeared fighting against the Supreme Court (windmill).



She has also said that the government of Roosevelt left the gold standard. She has said that the idea of relating the gold reserves with the money you can print is a stupid thing, and Fernando agrees with her. This allowed the government to print money and, this have given origin to questions to Paqui about the new banknotes of five euros. She has said that they made this because the new ones are safer than the other ones. She has also explained that gold standard comes from Mercantilism and the first country to link their currency to gold was Great Britain. 

After that, we have seen another slide that explained that all the decisions of Roosevelt reduced unemployment and production recovered:

MORE WORKERS --> MORE DEMAND --> MORE CONSUMPTION --> MORE PRODUCTION

However, the crisis didn't finish until the outbreak of WW2. Paqui has said that during WW2 the USA got full employment because they sent around 16 million soldiers to fight in Europe and the Pacific and they also produced weapons and resources to help the allies.


"Greetings to the only front of the peoples who love freedom against the fascist invaders".

GLOSSARY

-Gold standard: patrón oro.
-To deepen/ to make something deeper: profundizar.
-New Deal: Nuevo reparto.
-Badge: insignia, chapa (policía).
-To relief: aliviar.
-What a relief!: ¡Qué alivio!
-Dam: pantano.
-Dammit: maldita sea.
-To leave/ abandon the gold standard: dejar el patrón oro.
-Banknote: billete de dinero.
-Purchasing power: poder adquisitivo.
-Widow: viuda.
-To merge: fusionarse.
-Saving bank: caja de ahorros.
-Alphabet soup: sopa de letras.
-Function: función.
-GDP: PIB.
-Full employment: pleno empleo.

That's all! Study for the exam and have a nice weekend! See you on Monday!

10 comments:

Raquel Ortiz Escribano said...

Hello Salvaa!!!! You have done a fantastic journal! I think there is nothing bad to say about it ! I have found some few mistakes...almost perfect! jajaja

-You can also the presidents... --> You can also SEE the presidents...

-dismised --> dismissed

-I also created unemployment benefits. --> IT also created unemployment benefits.

That's all! Have a nice weekend! Kisses :) :) :) :)

Paqui Pérez Fons said...

Hello Salva,
Congratulations! You've done a very good work! The journal is very detailed, the links are very good to learn more and the pictures you've included are very good as well (including Keynes' graph).

I'm not going to correct the small mistakes now, but I want to make some comments to what you've written:
- Obama's healthcare reform will increase the coverage of the USA healthcare system, but it won't mean universal healthcare. The opposition of the republicans and the bureaucracy linked to its implementation will make its effectiveness very difficult.

- The political trends of the parties of the USA don't correspond exactly to what we consider right and left in Europe. Both the Democratic and the Republican Party in the USA would be right-wing parties. The Democrats are more moderate (closer to the center), but they can't be considered a left-wing party.

- The destruction of stocks was related to save the internal economies of every country. It was a period of strong protectionism. We could relate this to the environment of social Darwinism and the idea of the survival of the best fitted. Every country focused on their own survival, tried to protect their economy and forgot about co-operative solutions. That's why I've said that every country tried to "save their ass". In the currency war of the 30s the motto was "beggar thy neighbour" (impoverish your neighbour), because economic liberalism is based on competition and competing means trying to be better than the others, selling more and taking advantage of the others' weakness.

- When I've said that you are a liberal, I was joking ;) I've said this because your question has reminded me of the arguments the liberals use about poor people: they say that helping the poor doesn't really help them, because they become dependent and parasitical. Nobody chooses to be poor and my opinion is that not all the people have the same opportunities and as members of mankind we have the duty to help those who are in trouble. But I don't really think you're a liberal (although living in a capitalist society makes us assume many of the ideas of liberalism as normal and correct). I like your attitude of permanent search for explanations and that you try to learn as much as possible to have your own opinion and I hope your conclusion won't be joining a particular ideology or current. Orthodoxy kills criticism. The biggest thinkers of history were open-minded and willing to review their own ideas. Remember what Marx said about Marxism ("I'm not a Marxist") and the same happened with Keynes. Even Adam Smith wouldn't have liked how people use his ideas. He warned about monopolies and concentration of wealth in the hands of a few. Joining an economic current without any criticism is like becoming a member of a sect.
The main arguments against Keynes are referred to debt and the intervention of the State in the economy. I've recently read a book called La gran búsqueda. Una historia de la economía, by Silvia Nasar, which tells the story of some important thinkers who studied economy from 1840 to the beginning of the 21st century. Some of the chapters are dedicated to Marx, Keynes and Schumpeter. Not all the chapters have the same quality, but you can learn a lot about what they thought and what problems they tried to solve. I like Keynes idea of economy as a useful tool to solve three problems: economic efficiency, social justice and individual freedom. And I also like that he wasn't an orthodox thinker. He wasn't obsessed by data and tried to look forward, because there are always people behind the numbers and this is something many economists forget. I can lend you this book if you want. It has around 600 pages, but it can be interesting for you.

(To be continued)

Paqui Pérez Fons said...

Hello again,

- As for the gold standard, I haven't said that leaving the gold standard was a stupid thing. Fernando has said that the idea of relating the gold reserves with the money you can print is a stupid thing and I agree with him. I have said that the value we give to gold is not rational, because it's only a metal. It was a convention everybody accepted and was useful for certain purposes. But when some countries decided to leave the gold standard, they saw that they could use different strategies to correct the economic problems they were having. This is another example of how following an orthodox idea (the gold standard) can be harmful for many people. And something similar is happening with the euro at the moment.

- In my opinion, one of the problems of the Plan E was improvisation. The idea of investing public money to stimulate economy is good, but the government didn't take many things into account: the contraction of the economy and the reduction of the incomes from taxes, the rigid criteria of debt of the EU and the lack of control and continuity of many of the works included in Plan E. I think this Plan was an example of ZP's style of government: good intentions, optimism, but lack of knowledge. I will look for the explanations of experts about Plan E and I'll tell you more when I have more information.

- As for debt criteria in the EU, I think they are too strict. Economy needs debt to create progress. Many inventions or many businesses started with people getting into debt. Most of the people want to cancel their debts, to give the loans they have asked for back. This criteria about deficit are also another example of orthodoxy: why 3% and not 3.5%? If this is a figure for periods of economic growth, why not making it more flexible in periods of recession? And the big questions: why did the FED in the USA and the Central European Bank in the EU flood the market with a lot of credits at a low interest rate and why didn't they control banks or the risky operations they were doing? Some years ago politicians and new-liberal economists didn't talk about getting into debt as a negative thing. If you didn't ask for a loan to buy a house or a car or go on holidays, everybody considered you stupid, because this was convenient for the economy. People forget about this, but these things happened not so long time ago.

This also makes me think about our idea of wealth. What is creating wealth? Accumulating a lot of money, properties? Why is wealth something material, which has to be translated to numbers, economic balances? Why not spreading welfare? Can we spare in welfare, even if we know that this will make the living conditions of people worse? What about intellectual wealth? Many questions to think about …

- There is one mistake with the number of USA soldiers who were mobilized in WW2. They were 16 million.

This comment is becoming too long. I'm finishing. If you want, you can write the translation to English of the poster in Russian you've included. I've used my Russian dictionary to translate it: "Greetings to the only front of the peoples who love freedom against the fascist invaders".

Congratulations again. See you!

elena escribano said...

Hi Salva, you have done a very very good journal. I haven't found any mistakes. Goooood work, see you:))

Laura Casero Mínguez said...

Hello Salvador! Your journal y very completed and fantastic ! Good Good Good work! See you on Monday! Study for the exam! :)

Car Rivas said...

Hello Salva!!
Your journal is very good and complete, I think my mates and Paqui have said all the mistakes. Study for the exam!!

Cris Mínguez said...

Hello Salva! I like a lot you journal, because you explaine all very well. For be your last journal, I think it's the best. I haven't found any more mistakes, probably there are but I haven't seen them.

Bye, and come on! only one week more!

Gema Ortiz said...

Hi Salva!
Your journal is perfect like all that you make... jajajajaj!
I like it because you explain it very well and also the pictures of the simpsons are very funny!
Have a good weekend and study for the exam!
Bye bye see you tomorrow!

Paqui Pérez Fons said...

Hello again,

Raquel’s corrections are OK. These are mine. They are small mistakes of spelling or prepositions mainly:

- increase consumption

-the leap years in the correspondent Tuesday between the 2nd and the 8th day of this month

-a USA president can't be in office/ in charge of the government for more than two terms

-after Roosevelt’s term

-Truman continued to be

- has asked who the next one was

-Roosevelt Corollary

-Eisenhower ….a lot of USA troops during WW2

- Nixon…resigned. “Dismiss” is “despedir”. “Resign” is “dimitir”

-Jimmy Carter’s foreign policy wasn’t successful. It was probably more realistic, after Vietnam’s defeat, but and in fact it was one of the causes of Reagan’s victory. Iran revolution and the Iran hostage crisis damaged his image and the USA intervention in Afghanistan supporting the radical Islamists (Bin Laden and company) started during his presidency.
http://news.bbc.co.uk/2/shared/spl/hi/picture_gallery/04/middle_east_iran_hostage_crisis/html/1.stm

- Reagan …drove/ promoted, instead of “impulsed”. The verb "impulse" doesn't exist.

-it consists of reducing the intervention

-subsidies

-...why they destroyed… I didn’ t finish my explanation about destroying stocks, because I probably lost the thread of what I was saying. The destruction of stocks was partly related to nationalism/ protectionism and was a way of adapting supply and demand. Besides, remember that at that time the most part of Africa was dominated by the European countries, under colonial rule. The European could have sent their stocks to their colonies, but they didn’t have a problem of overproduction. They were still recovering the production levels they had had before WW1. Overproduction was a problem for the countries that exported food. Brazil destroyed 69 million bags of coffee, because they couldn’t sell them. Another thing we can’t forget is that the idea of humanitarian help is very recent. The campaigns to send food to Africa started when the TV showed images of people starving on the news. Before, people didn’t know what was happening in other places of the world. At present, the EU also pays farmers to reduce their crops, but at least they don’t destroy them as before.

-... the government gave food to the poor people, but they continued to have a lot of stocks.

-The relation between economic ideologies and GDP is not so simple. Both economic systems, liberalism and socialism, want to increase the GDP, although their idea of distribution of wealth is different

-Keynesian in capital letters

-...we have reached

-...another bankruptcy/ collapse of the economy

-There Don Quixote appeared

-...that gold standard comes from Mercantilism and the first country to link their currency to gold was Great Britain.


I hope you didn’t feel offended when I said you were a liberal. As I said, your question reminded me of what the liberals and new-liberals say about social protection. There is another film by Michael Moore called Capitalism: a love story , where you can see what the true liberals think about the helping the poor. Here you have a link, if you want to watch it. It’s in Spanish:

http://vimeo.com/44007400

Good work. See you!

Fernando Marcos-Alberca said...

Hello Salva, i think that you work much and you have my congratulaitons, but all the people should work how you, you are a role model jaja. And the corrections of Paqui are good, and i think she work much to correct and search new content. See you!