Causes and outcomes of New Deal and ISI model

Topics: Unemployment, Economics, Macroeconomics Pages: 13 (4469 words) Published: April 8, 2014
Discuss differences and similarities as to the economic, political and social goals pursued by the New Deal in the USA and the subsequent implementation of the ISI model in Latin America. Which economic and political policies shaped both approaches to economic growth? Why did the New Deal turn out to be more successful than the ISI model?

The primary goals of any macroeconomic policy are to ensure stable prices, full employment, and economic growth. Throughout history world economies have been subject to economic statistics and other tools to measure the current state of an economy, which are characterized by fluctuations in the level of economic activity. These different tools have been used by governments to estimate the level of success or failure of any applied economic policy. Furthermore, tools – such as the business cycle – is used by economist trying to explain the reasons for economic fluctuations resulting in booms and recession. The analysis of the consequences and outcomes of different economic policies has, in modern history, been used to design and apply the most successful economic policies in an attempt prevent recession and obtain and secure economic growth and prosperity both in the global and domestic sphere. This essay will focus on describing the political and economic goals behind the implementation of the New Deal in US and the ISI-model in Latin America in the 1930 as a reaction to the Great Depression. In order to do so, this essay will try to outline some of the similarities and differences between the two economic policies and then discuss some of the reasons to why the New Deal turned out to be more successful than the ISI-model.

In the United States, the pre-New Deal era of the 1920s was a time of economic growth as a result of high levels of private consumption and investment. The productivity and size of the American industry was boosted by the war and high public demand combined with new technology resulted in mass production of cars, radios, white goods and other household electronics. New products and services created a new market, which companies took advantage of. This led to rise in company stocks and created the stock market boom of the late twenties. GNP growth during the 1920s was rapid, 4.2% a year from 1920 to 1929 and the state of the US economy was only affected by short and insignificant periods of recession. (Smiley, G. (2004, June 29). US Economy in the 1920s.) Applied polices and the role of the Federal Government in the pre-New Deal era was highly affected by the economic boom. The main goal was to promote stability in aggregate economic activity to keep the level of private investment and consumption high. The believe was that if the Fed could keep the social engine running trough government-provided goods and services to benefit the business market it would support and sustain the high level of growth and low level of unemployment. The economic golden rule of the era was that supply would create demand. The governments during the 1920s were highly conservative and the belief was that if the Fed did what it could to foster private business, prosperity would eventually encompass most of the population. Policies were intended to create the most favourable conditions for U.S industry. For instance the Fed started a program of tax cuts to give the best conditions for investment in industrial enterprises. The presidents of the 1920s has been perceived as defender of the laissez-faire1 economic policy and even when the stock market crash hit the US economy in 1929 the presidency of Herbert Hoover failed to recognize the need for government intervention and a turn away from the laissez-faire principles to restore the economy. It was not before Franklin D. Roosevelt took the presidency that the US experienced a radical change in the role of the Federal government reflected in the New Deal policies. (Horwitz, S. (2011, September 29). Hoover’s Economic Policies.)


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- Horwitz, S. (2011, September 29). Hoover’s Economic Policies. Library of Economics and Liberty. Located March 2014:
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