¡Descarga US and Germany's Economic Policies during Great Depression y más Apuntes en PDF de Historia Económica solo en Docsity! The Crisis of Traditional Liberal Capitalism Economic Reactions to the Depression US President Hoover, 1929-32 • 1929, reduce taxes = negative public budget. To recover it, in 1931, increase taxes • No public deficit • Contractive monetary policy which didn’t allow them increase money in the market and, therefore, inflation. • ^Tariffs: Smoot-Hawley Tariff o Close market to imports by introducing tariffs == increase demand of national goods. o All countries increased tariffs = vicious circle === BAD IMPACT IN THE LONG RUN BECAUSE EXPORTS DECREASED = BE AT THE SAME PLACE THAN BEFORE TARIFFS INCREASE INTRODUCTION DEEPER CRISIS Roosevelt, 1933: New Deal Expansive Fiscal policy = Increase expenditure even reaching public deficit • Agriculture Adjustment Act: cut output by reducing land under cultivation to increase prices • Resettlement Administration • Rural Electrification Administration (because it was more expensive to supply rural areas, they weren’t Electrified until the moment) = more jobs, • rural welfare projects, • school lunches, building new schools == more employment = more consumption = revitalize economy • Forest Service: opening roads in remote areas, reforestation, and purchase of marginal lands to enlarge national forests. • Tennessee Valley Authority: build hydroelectric power stations, more regulated water Subsidies: they softened economy contraction • WWI Veterans Subsidy • Unemployment Subsidy Expansive Monetary policy. • Increase money = devaluation of the currency = Abandon Gold Standard o Society had too much deflation that the increase of money didn’t bring inflation but stabilization of deflation 1937 > return to equilibrated budget = cut public expenditure = decrease consumption,high unemployment, etc. RECUPERATION WITH HUGE PUBLIC EXPENDITURE ( to achieve this huge expenditure, they needed high increase in taxes to the higher incomes) DURING THE SECOND WORLD WAR = Decrease of inequality during 1945-1980 due to the introduction of taxes to high incomes GERMANY 1923-32 Hyperinflation problem due to the war effects + reparations to be paid. • Social democrat Coalition (similar to Hoover’s economic policy): o Deflation policy (they were in the Gold Standard = cannot develop inflation) o No credit increase o No increase in public investment WORSENING OF THE GERMAN ECONOMY 1933 HITLER’S National Socialist German Workers (Nazism) party won 1932 democratic elections: - Economic program/policy: • Recover Economic and Military role of Germany o Military was the base to recover NATIONAL PRIDE • Social State with a nationalist and populist base o Policies and public services are very innovative = that made the Nazi program attractive Expansion of the Public Sector • Increase of indirect taxes (increasing prices so people didn’t realise that they were paying a tax) • Increase public investment: public works ( motorways, ...), defence industry (Military industry, to become the power) • Increase aggregate demand PUBLIC SPENDING INCREASED AND UNEMPLOYMENT DECREASED, BUT, WHERE DID THE MONEY CAME FROM??? DEBT!!!! = Germany is close to bankruptcy political concensus Why did workers and businesses accept the increase of taxes? A. There was an increase of wages due to a wage control. The wages’ increase was lesser than the increase of the profits and the wholesale prices increase. B. Workers supported the price control because, as the employment raised, the improvements in the Social Services. PROBLEM OF THE MODEL? Model with no future: • It increased the public deficit. • Decreased the reserves. 1938 was close to default / BANKRUPTCY = The Second World WAR will worsen Germany’s situation The Second World War • Destruction of human capital: 62-78 million deaths, 35 million injured. Destruction of physical capital. • Costs: 750 to 3000 million of $ Year with MAX GDP before the end of the War o The European economies faced a steep decrease of their GDP from their highest year to 1945.
