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Economics in contemporary america (constitutional foundations (Other…
Economics in contemporary america
models of capitalism
The European model
the 19 century in France and Germany
the invisible hand and call for more state intervention in econ activity, including more state ownership
civil law
France, Germany and Sweden
The Asian model
closer in its institutional arrangements to the European model
focuses on high rates of capital formation
Exists in variety of forms and involves a considerable amount of experimentation
Japan, South Korea, Taiwan, Hong Kong, Singapore.
The Anglo-Saxon model
England in the 18 century
the classical liberal ideas of A. Smith = government intervention in the economy should be limited
common law
USA
constitutional foundations
ratified in 1787
intent to limit the power and the scope of the federal government
checks and balances between the 3 branches of powers
US economy = considerable success relies on market with less government intervention + most technologically advanced economy
Other factors to the US economy
Large size and rich naturel ressources
Philosophy of individualism ( impact of individuals on the society + higher education, discourages welfare spending)
Changes in the Structure of the Economy ( agriculture most important employment sector until 20th century + the service sector employs)
REAGANOMICS
Stagflation
time before Reagan’s Administration
Political pressure results in expansion of money supply
Nixon's wage and price controls abandoned
Under Ford the problems continued, but policy was more prudent.
Federal oil reserves created to ease future short term shocks
Carter started phasing out price controls on petroleum
much of credit for resolution of the stagflation is given to
a three year contraction of the money supply bu the federal reserver under Paul Volcker to long term easing of supply and pricing in oil during the 1980 oil glut.
pillars
Reduce government spending
reduce marginal tax rates in income form labor and capital
reduce government regulation of the economy
console the money supply to reduce inflation
The roots
lower taxes
a smaller government
reduce income tax rates( with the largest rate reductions on the high incomes )
in a time of battling inflation Reagan raised deficit spending to its highest level since WWII
The beginnings
January 28 1981 : lifted remaining domestic petroleum price and allocation controls
lowered oil windfall profits tax in August 1981 helping end the 1979 Energy Crisis
Ended Oil Windfall Profits Tax in 1988 during 1980s Oil Glut
Tax Reform Act of 1986 ( broaden the tax base and reduce perceived tax favoritism)
The growing economy
The wealthiest tax bracket had their taxes decreased from 70% to 28%
Corporate income tax was decreased from almost 50% to 34%
Capital Gains taxes and estate taxes were also cut
GDP growth recovered strongly after the 1982 recession at annual rate of 3.4% per year slightly
Unemployment peaked over 10.7% percent in 1982 then dropped during rest Reagan's terms
inflation significantly decreased
job increase of 16 million occurred
The trickle down effect
massive inverse in Cold War related defense spending cause large budget deficit
The US trade deficit expansion contributed to saving and loan crisis
cover new federal budget deficits
Trickle down economy due to significant cuts in the upper tax brackets
For Reagan the new debt = the « greatest disappointment » of his presidency
spending changes
Regan cut a number of social programs to try to keep the country from going into debt
But Reagan increase defense spending to try to scare the Soviet Union during the Cold War
achievements
American economy did better than any other pre- or post- Reagan years
Median family income grew by $4,000, during Reagan Era and after wards decreased by $1500
Productivity Rate increased, declined and then stayed the same
nterest Rates, Inflation, and Unemployment decreased faster than pre- and post- Reagan years
Long term consequences
déficit huge increase
his influence on politicians form the left to hight remains in the US and elsewhere