Causes of the Long Boom in the World Economy

Topics: Keynesian economics, Economics, Unemployment Pages: 2 (702 words) Published: October 18, 2008
Whilst the physical and economic destruction resulting from the second world war was devastating, it also succeeded in demolishing the preeminent economic order. This presented a new set of opportunities to embrace more progressive economic tenants focused around globalisation and these were structured around J.M Keynes’ approach to domestic demand management. As we know, the result was a near global experience of a long boom which would not abate until the 1970s.

Keynsian economics at a very basic level centred around the idea that some level of economic intervention is necessary for an economy to reach full employment and prevent capitalist hoarding. This is as injecting money into the economy will manipulating demand to increase and stimulate growth. Whilst these theories were first related to a single domestic economy, it was their application to maintaining full employment and high levels of growth on the world stage that caused the Long Boom. After the war of the US possessed 70% of the worlds gold and ForEx reserves thus making it impossible for many deficit nations in Europe to expand their way back into surplus, or indeed even out of a potential recession. Whilst at first glance the US might not mind this situation, under a more orthodox lasses faire approach whilst deficit nations might be the first to fall into economic turmoil, surplus nations would soon find they could not maintain their growing exports to declining economies and unemployment and contraction would follow.

The solution to this was to apply keynsian policies of demand management on an international scale This required international organisations able to perform roles equivalent to governments and national banks of individual states. Thus the savings of surplus countries could be loaned to deficit countries, not just in the short term to aid balance of payments, but in the long term for growth and developmental purposes

The application of these policies took a very real step...
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