The Ebb & Flow of

Economic Liberalism Since

WWII
Chapter 6: Part 2

he Postwar Consensus

In 1942, Sir William Beveridge

presented a report to the British
Parliament entitled Social Insurance
and Allied Services.
It recommended the role of the state
be expanded to provide members of
society
withParty
more
security.
In 1948,
The Labour
adopted
several of

Beveridges recommendations and created the

National Insurance Act, the National
Assistance Act, and the National Health
Service Act.
This period in British politics, from the end of
the First World War until the end of the 1970s,
became known as the postwar consensus.
Despite their political differences, successive
governments of the collectivist Labour
Party and the individualist Conservative
party maintained the programs that made
up the new British welfare state.

Conservative-Labour
Fusion.

The Postwar Economy in

Canada
After the Second World War, Canadian
governments created or strengthened
social programs.

Postwar Canadian governments started several

programs characteristics of a welfare state,
such as the following:
Universal Health Care
The Canadian Pension Plan (CPP)
The Foreign Investment Review Agency (FIRA)
The Canadian Radio and Television Commission (CRTC)
Atomic Energy of Canada Limited (AECL)

Are Social Programs Needed in

Postwar Circumstances?
In Quebec, the provincial Duplessis
government undertook ambitious public
works projects in the postwar period.
Having established its own provincial
income-tax program, the government
used the funds to expand
infrastructure such as:
Hydroelectric projects

The government also introduced the countrys

highest minimum wage and created home
Schools/Universities
ownership assistance acts.
Highways

Hospitals

While the government was heavily involved in the

economy, it wasnt a supporter of social programs

Economic Crisis of
the 1970s &
Stagflation

1971- the United States withdrew from the

Bretton Woods agreement (which set the
currency exchange rates). When other (already
industrialized) countries followed suit, those
countries were affected by inflation. This means
that the dollar had less buying power. This

Parker

1973- Egypt and Syria attack Israel

(triggering 4th Arab- Israeli war).
America and Western Europe support
Israel and the Organization of the
Petroleum Exporting Countries
(OPEC) put a ban on the trade of oil
for five months for the United States,
Netherlands, and other countries.
This lessened the production of oil,
because of this, prices of oil
quadrupled. This caused the inflation
rate to increase even further, making

Stagflation: When recession

and high inflation occur at the
same time.

-In Britain, 1976, PM James Callaghan (Labour Party) was forced to

borrow 3.9 billion dollars from the IMF. He said, we used to think
you could spend your way out of recession and increase
employment by cutting taxes and boosting government
spending. He also said this created a higher level of inflation and
unemployment.
-Cost of welfare programs was too much for
governments, less taxes were coming in for
governments, this lead to economic slowdown and
further inflation.

Socialist
(welfare)

Capitali
st

Monetarism: Friedman & Hayek

Monetarism is an economic theory which
emphasizes the role of the government to be in
control of the amount of money in circulation.
It holds that the control of a countrys money
supply is the best means to encourage economic
growth and limit.
The way in which the money supply is controlled
is through interest rates.

Friedrich Hayek

Hayek believed that, in order for a collectivist society to

function, government would have to maintain an extreme
high level of control over society. That government
controlled society would ultimately be a dictatorship.
He argued that in a centrally planned
(government controlled) economy, the
government, although it controls
supply, does not have enough
information about demand to make
appropriate decisions.

Milton Friedman

Friedman believed that inflation was primarily the resul

of an excess supply of money produced by central
banks (institution that regulates money supply).
When the money supply is increased,
consumer spending would also
increase, causing demand to rise, and
thus inflation to increase.
The amount of money issued by the
central bank should be linked to
economic indicators such as the rate
of inflation

Monetarism versus Keynesian

Economics p.219
K.E.

Monetarism

The adoption of monetarism in Great

Britain, the United States, and others
reflected a move towards classical
liberal principles and away from
interventionist Keynesian economics.
In Keynesian economics, governments
should increase money supply (raise
spending and lower taxes) during
recessions and decrease spending
and raise taxes during inflation
(economic prosperity)

Recession

T
S

Prosperit
The Reality of
y
Keynesian Economics
T

Some argue that liberal democratic

S
governments readily applied Keynes
theories of increasing money supply
during recessions but did not
increase taxes and decrease
spending during prosperous times
because it would be unpopular with
voters.
As a result, government debts
became massive and stagflation in
the 1970s.

Reaganomics
In 1981 Ronald Reagan became president
of the United States during a time of high
unemployment and high inflation.
It was an ongoing argument between
supporters of Friedman and Hayek that
stagflation was partly the result of massive
national deficits(A shortage of income or
assets) government spending.
Reagan pursued less government
involvement and practice what is now called
Reaganomics (The economic policies of
Ronald Reagan, which advocated less
government intervention in the economy

Trickle-down Economics
Reagan created policiessuch as reduced income
and business taxes, reduced regulation on
businesses, and increased government
spending on military known as trickle-down
economics (An idea of economics in which
allows people to accumulate as much wealth as
possible without a tax structure. Ideally the
wealthy will then hire workers and their capital
will then Trickle-down by hiring more people
and investing in more money-creating
opportunities.)
Supports of this believed: by lowering tax rates,
especially among the wealthy, economic growth
would be encouraged through increased
investment.
Benefits of increased private investment and
government defense spending would trickle-

How did Reaganomics

affect the nation?
In the 1980s the nation plunged further into debt
because of increased government spending.
Reagan spent more money on the military than
any of the past presidents, however the increased
spending of the government went against the
ideas of Friedman and Hayek.

Britain's Thatcherism
Britains
conservative Prime
Minister Margaret
Thatcher (19791990) strived to
reduce
government
involvement in
the economy and
increase
economic
freedom and

Brittan's Thatcherism
Thatcherism is
often compared to
classical
liberalism.
Thatchers
economic policy
was influenced by
monetarist ideas
and economists
such as Milton
Friedman.

Brittan's Thatcherism
Thatcher
increased
interest rates to
slow the growth of
money supply and
lower inflation.

Thatcher did not

like labor unions
and fired workers
who went on strike.
under Thatcher,
Great Brittans
union movement
suffered a huge
loss.
Thatcherism

What is Blairs Third Way?

Tony Blair was the prime minister of
Britain from 1997 to 2007
He promoted right-wing economic
policies and left-wing social policies
Blair supported a new ideology,
involving politics that recognized
individuals as socially
interdependent, and promoted social
justice, equal worth of each citizen,
and equal opportunity while
Joel
supporting a free market economyPg.
222

 Blairs Third Way combines aspects

of liberal capitalism with democratic
socialism.
Introduced a minimum
wage, increased public
spending on health
care, education, and
other social programs,
and involved the state
more in social justice.

Supports
entrepreneurship,
enterprise, wealth
creation, free market

The USA argues that

Liberal goals are best
supported limiting
government
intervention.
The drive to produce
wealth arises from selfinterest and competition.
During time of crisis
however the
Government will
intervene.

Economic
Practices and
Principles of
USA

 Sweden favors
more
Government
intervention in
the economy.
Maintain higher
levels of
taxation, but still
encourage
private property
and industry.
90 per cent of
Swedens
industrial output
is produced by

Economic Practices
and Principles of
Sweden

Sweden very social is on the edge of Modern

Liberalism.
USA is in between Modern and Classical
Liberalism .
Communism Socialis
m

Modern
Liberalism

Sweden

Classical Classical
Liberalis Conservatis Fascis
m
m
m

USA under
Obama

Economic liberalism in
Ukraine
. In Ukraine today, the position of liberalism is unclear.
Parties go back and forth, never stay at the same place on the
spectrum.
. Ukraine is trying to integrate economic liberalism due to
its great influence of liberalism from world counter-parts
. Ukraine is more left on the economic spectrum, but
trying to go more right
. Need for a separation of powers and economic
organization which accords first place to individual freedom
and capabilities.

Economic liberalism in
Mexico
Shortly after Mexico gained independence from Spain (1810),

Mexico looked at a liberal government as a way to diminish

the power of the Catholic Church and the baggage of its
colonial legacy
In Mexico, liberalism is represented by the Partido Nueva
Alianza (New Alliance Party)
Mexico is a little bit on the right side of the economic
spectrum, just to the right of Canada
With low earnings of about $1,000 a month (working, middle
class), they are trying to increase the economy for the
better

USA under Obama

What is the effect of Obamacare?
~Economic Liberalism gives people freedom to make choices
without government restraints in the economy
~Obama would like the US to introduce a mandatory free
health care system known as Obamacare
~Privately owned hospitals become public, owned by the
government while costly medical insurance is abolished
~This is a step away from Economic Liberalism because the
people are forced to join Obamacare and privately owned
hospitals are forced to become public
~Obamas Main Goal: eliminate the gap between rich and poor
with a focus This
on medical
requires care
a small shift to the left on the
political spectrum which is MORE government
USA
involvement
Left Wing

Centre

Right
Wing

Why People are Against it

~strips some economic freedom
~Obamacare was supposed to cost 850 billion but is now at 2
trillion!
~Devastating to a suffering US economy
~Since
are publically
~higherhospitals
taxes
owned, everyone receives equal
help so wait times for treatments
and aid increase