State Intervention Hinders Economic Growth

When we talk economcis, we do talk about policies and how they have affected the world better or worse. For example, FDR and Emperor Diocletian are examples of policies that involved dramatic state intervention in the economy. You would defend these. You mentioned Reagan and Thatcher, both strongly supply-side free market leaders. I will have to defend them. Yes, I do mean policies and not completely free or completely unfree utopias. That would be more difficult to explain. When we talk about policies and state intervention, you are a proponent of those who sought to expand the state into the economy in order to create growth. I am a proponent of those who wished to scale back the state's intervention in the economy to promote growth. Now to the debate. Interventionist Policies I. Trajan, the Severan, and DiocletianThe Roman Empire was one of the greatest world powers to ever exist and was generally a free nation for its people. The Romans living in the capital and Italy enjoyed a free market economy and strong property rights. Investments and trade were very widespread in the empire even during times of war. Roman legions were only needed at the frontiers and not internally, which greatly expanded urban trade. Trade was only expanded through one of the earliest forms of private insurance. All good things must come to an end. Rome's decline has three parts to it starting with Emperor Trajanus Augustus. When he died he was largely beloved, but had started Rome's demise with the first public welfare program dealing with people in poverty. It started the state's obligation to create programs to help the poor. Trajan was followed by his son Hadrian, who also increased government intervention in the economy focused the empire's treasury inward rather than outward on defense policy. At the end of his tenure, Hadrian cancelled any debts on any state loan from the last fifteen years. The loan records were marched out and burned, but this just destroyed all fiscal discipline. The second part to Rome's decline was the Severan debasement. The Severan was Rome's currency and was largely backed by silver (over 95%). However, more and more emperors debased the silver currency and replaced it with copper, ruining the strong Severan Rome once had. Hubbard and Kane explained what happened next:"The trick of debasing the currency soon lost its effectiveness once the public figured out what was happening. Merchants responded by raising the prices of goods. Even if the emperor minted some small amount of thinner coins, their existence drove purer money out of the market. People hoarded stronger coins, and spent the weak ones. " [1]II. Imperial Spain FadesThe year 1492 marked an important year in Spanish history. Christopher Columbus "discovered" America, the Spanish finally defeated te Muslims on the Iberian Peninsula, and the crown decided to ban its economically important Jewish population. Their hope with the ban of the Jews was to create a stronger Spain economically and militarily through one religion. Spain hoped to expand in the Americas in order to gain more raw materials and wealth. Just like with Rome, silver played a key role. The monarchy kept a fifth of all silver being transported to the mother country and encouraged expansion. This would hurt it in the end. The Spanish monarchy hoped to take as much silver as possible in order to become the richest country in Europe, but silver destroyed Spain because too much of it left the precious metal with less value, thus creating hyperinflation. The monarchy started to control and tax commerce in order to benefit the country's businesses and people. This capital could have been used for more investments into businesses, but it never happened. Fiscal deficits and state bankruptcy became rampant, destroying Spain's attempt at preserving itself as a great power. [1]III. FDR's Fail DealIn 1933, Franklin Roosevelt became president of the United States while the Great Depression was strangling the nation. He decided that in order to save the economy he would put forward his New Deal, a dramatic expansion of the federal government into a largely private sector economy. He sought policies mainly from the Keynesian model of more spending to support workers, but also some from Stalin's totalitarian regime and Mussolini's fascist model. State intervention in the American economy increased massively. His main economic legislation was the National Industrial Recovery Act, which created over 10,000 new pages of regulations in hope of raising wages to create more demand and prices to increase corporate profits. The top income tax rate was raised to over 70%. Several programs like the CCC, TVA, and AAA were created to support this, but overall the New Deal failed. Unemployment generally remained between 20 and 10$ for most of the 1930s. During its best years, unemployment could go down to 9% but it failed to enduce hope and real growth. In 1937, the economy collapsed a second and unemployment skyrocketed back up. Employment slowed incredibly because of increased labor costs from a high minimum wage. As prices rose, consumption slowed because goods and services became more expensive. Many of those jobs that were created by public works programs were only temporary as people were only hired for a couple months. These jobs that were created were largely inefficent to economic growth. In some cases, the New Deal sucked up whole industries. As Shlaes says here on utilities:"Washington sucked up much of the available capital by selling bonds and collecting taxes to pay for the TVA or municipal power plants in towns. In order to justify their own claim that public utilities was necessary, New Dealers also undermined private ulities directly, through laws - not only the TVA law but also the infamous Public Utility Holding Company, which legislated many companies out of existence. " [2]Free Market PoliciesThe next part of my debate is giving proven examples of when the government scaled back and took less intervention in the economy. I. The Roaring TwentiesPresidents Harding and Coolidge both scaled back the government's role in the economy, lowering taxes and vetoing several pieces of legislation that would have expanded the government's role. The top tax rate under their administrations went from Woodrow Wilson's 77% rate to Coolidge's 24% rate. This increased industrial production and output massively. Millions of jobs were created. It is believed that unemployment went from a high of 7% in 1921 to 1% in 1929 with the lowest recorded unemployment rates in American history. As Shlaes explains:"In July 1921, there had been 5.7 million Americans out of work; now that figure was 1.8 million. Manufacturing output was up a third since that time. Iron and steel production had doubled. .. .The national debt of $28 billion, nearly all war costs, was finally down $17.65 billion. " [3]The middle class started rapidly expanding and more Americans could afford simple goods. The stock market boomed and many people grew wealthy. Businesses lowered prices and still generated more profit than before. Like:Cars: 26% to 60%Radios: 0% to 46%Electric Light: 35% to 68%Washing Machines: 8% to 24%Vacuums: 9% to 30%Indoor toilets: 20% to 51% [4]II. Reagan Ends StagflationThe 1970s brought an economically devastating period to the world. Presidents Nixon, Ford, and Carter expanded the federal government into the economy, but this failed to end economic woes and stagflation. Unemployment went from 3% at the start of Nixon's presidency to over 7%. Ford and Carter both dealt with high rates. Ronald Reagan became president in 1981 and scaled back the government's role through lower taxes and less government expansion. Reaganomics as well call it today, is supply-side tax cut policies combined with money supply reduction. The unemployment rate went from 11% to 5% when he left office in 1989. Pesonal incomes of people rose for all classes of society. There 5,000 people with an income over $1 million at the start of Reagan's presidency. When he left that number was over 35,000. Many people were becoming more wealthy during Reagan's tenure. Inflation was also a problem, but it rapidly declined allowing poorer Americans to afford more goods and services. D'Souza notes that this wealth did spread to charity organizations and the people at the bottom:"Americans who contributed about $65 billion (as measured in 1990 dollars) in charity in 1980 gave more tha $100 billion in annually by the end of the decade, a real increase of 57 percent. The average American who gave $377 to charity in 1980 raised his or her contribution to $493 in 1990. " [5]III. Thatcher Saves BritainConservative leader Margaret Thatcher became the British prime minister in 1979, almost the same time as Reagan. At this specific period, Britain was a socialist country with rapidly declining nationalized industries. In the case of coal mines, over 75% were making losses. There were terrible working conditions for miners. British coal was far more expensive than any other type of coal. Thatcherism is the British verison of Reaganomics and once again the policies worked. In fact, both the two top political parties in Britain accept Thatcher's policies. When Labour regained power, they kept her policies in place. Berlinski states the benefits:"Britain is now the world's second-largest producer and exporter of services. What remains of its manufacturing sector is highly competitive. " [6]Sources1. Glenn Hubbard and Tim Kane, Balace: The Economics of Great Powers from Ancient Rome to Modern America2. Amity Shlaes, The Forgotten Man: A New History of the Great Depression3. Amity Shlaes, Coolidge4. Stanley Lebergott, Pursuing Happiness: American Consumers in the Twentieth Century5. Dinesh D'Souza, Ronald Reagan: How an Ordinary Man Became an Extraordinary Leader6. Claire Berlinski, "There is no Alternative": Why Margaret Thatcher Matters