Key Economic Concepts: New Deal, Deflation, and Protectionism

The New Deal: Federal Intervention and Economic Reform

The term New Deal, often translated as 'New Opportunity', was used by Franklin D. Roosevelt as a political banner in the U.S. presidential elections of 1932, the first since the Great Depression of 1929. After winning the election, the name was applied to a series of federal laws that fundamentally changed the American economic system. Previously governed almost exclusively by the laws of supply and demand, the system became heavily involved with the federal government.

The New Deal program was very broad, ranging from emergency solutions to long-term structural projects:

• Emergency Measures: Such as the Emergency Banking Act, which was implemented within a few days to prop up the banking system.
• Long-Term Projects: Such as the Tennessee Valley Authority Act (TVA), a special agricultural and industrial project that is still not completely finished.

Understanding Deflation and Its Economic Impact

Deflation is the increase in the purchasing power of money as a consequence of a low price index. At its root is a decrease in the amount of money or monetary income, which causes an oversupply of goods and services in the economy. Deflation can lead directly to depression and mass unemployment due to reduced production and spending.

The adoption of deflationary policies to restore the value of money provides numerous historical examples, such as the period in the Spanish state from 1932–1935.

The term "deflationary policy" is also applied to measures set with more modest goals, such as reducing the rate of loss of purchasing power caused by the reverse process: inflation.

Economic Protectionism: Tariffs and Trade Policy

Economic Protectionism is a policy aimed at safeguarding the economy of a state by defending its domestic products from foreign competition. This policy manifests at different levels of intensity, ranging from outright import or export bans to the use of tariffs as a primary instrument of protection.

The intensity of protection is determined by graduating the level of duties imposed.

Protectionist policy can be:

1. Permanent: Such as during periods of autarky (economic self-sufficiency).
2. Temporary (Infant Industry Argument): Known as "educator protectionism," based on the need to shield nascent industries from developed or less favorable foreign conditions until they can improve their competitive position.

If this policy is well-targeted and successful, the protected industry achieves efficiency and becomes more competitive, allowing the protective tariff to eventually be lowered.