Capitalism - Pros and Cons

Pros of Capitalism● Market gives incentives to produce● Incentivizes acquisition of useful skills● Variety of goods available● Incentive to use resources efficiently● Competition leads to better quality of goods● Productivity is rewarded by large profit● Self-Reliance● American Dream (Anybody can become rich)

Examples of ProsIndustrial Revolution

● Nouveau Riche● Rapid Innovation

Roaring 20’s● Americans getting rich by getting involved

with stocks1980’s - Commercialism/Globalization

● Lack of regulations increase marketing pool for companies

● Countries start liberalizing their markets to have greater access to investments and markets

Drawbacks of Capitalism

Cons of Capitalism● Manipulation by advertising● Prices and Income might not be best for society● Not consistent - Prone to ups and downs● Monopolies and oligopolies can emerge● Inequality exists● Environmental issues can arise● Insecurity● Impoverished don’t get equal opportunity

○ Trapped in poverty

Examples of ConsIndustrial Revolution

● Working class is exploited in terms of wages, safety and work hours

1929 Stock Market Crash & Great Depression

● Millions lost their saving● Millions out of jobs

2008 - Subprime mortgage crisis

● Banks lost large amounts of money● High unemployment● Gov’t bailouts - Companies too big to fail

Keynes & Welfare Capitalism

Historical Context● 1929 - Stock Market Crash

○ Millions bought on stock on margin creating a huge issues

● The Great Depression 1929-1939○ Many unemployed in Canada and US○ Created a bad economic cycle

■ No one buying -> No one producing ->No jobs -> No job/No money to buy

○ President Hoover did nothing■ The weak companies should fail■ Little to no government intervention■ Economy will naturally come back

The End of Laissez Faire Capitalism● 1932 - Americans elected a new president,

Franklin Delano Roosevelt (FDR)● Elected on the premise he would revive

the economy by intervention○ Promised the New Deal

■ Government will spend more and tax less

○ Social Security■ Government will provide a social

security net - unemployment insurance, minimum wage, welfare

● Largely based off of John Maynard Keynes - Demand-side economics

Keynes’ Demand-Side Economics● Keynes was an interventionist

○ Believed gov’t should be involved in order to control the times of boom and bust to create more stability

● Encouraged deficit spending

Boom Times

● Gov’t should tax heavily and spend less○ This controls inflation

Bust Times

● Gov’t should cut tax and interest rates● Spend more

○ Spending on items like infrastructure○ Stimulate more job creation and increase

spending in society

‘The General Theory of Employment, Interest and Money’ (1935)

The New Deal (1933-40)● President FDR’s economic policy● It created programs and policies to help

lessen the impact of the depression○ Created public work programs

■ Giving jobs building highways, schools, hospitals, etc

○ Social security○ Pensions for the old○ Gov’t sanctioned workers rights/wages

● He transformed the USA into a Laissez Faire capitalist state into a welfare capitalist state

○ Often looked at as the end of Laissez faire capitalism as a whole

● Did not end depression, but helped improve the conditions of those impacted by the downfalls of capitalism

Impacts of Keynes TodayTrudeau’s Economic Stimulus Plan

● Deficit spending in order to create growth○ 125 Billion invested into infrastructure over

10 years■ Invest in public transit■ Social Infrastructure

● Affordable housing● Childcare● Recreation

○ Books to be balanced in 10 years● Bank of Canada plans on monetary

stimulus to create growth

Economic PolicyFiscal Policy

● Taxation● Government spending● Use taxation to regulate business cycle● Set by current government

Monetary Policy

● Interest rates● Money Supply● Set by the Bank of Canada