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Chapter 19.docx

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Indra Hardeen

Chapter 19 – Growth and Prosperity, 1946-1973 Conversion to a Peacetime Economy, 1945-1950 • Real GDP declined in 1946 but rose consistent there after • Increases in aggregate demand were strong and widely based • Beginning in 1948, European nations could use American credit under the Marshall Plan to buy Canadian goods, and that provision, together with Canada’s own export credits, meant that sales abroad fell less than might otherwise have been the case • Consumer spending had been curtailed during the war by rationing and the absence of key goods such as new automobiles, so there was considerable pent up demand and a large stock of liquid assets in the hands of the public to finance it • Business investment was particularly strong, as firms set about retooling to meet peacetime demands, stimulated, at least in part, by federal tax provisions • The numbers also reflect a significant recovery of the major resource industries from the lull they found themselves in at the latter stages of the war • Regional demand for petroleum was quickly met, and surplus supplies became available • Plans were under way at this time to take crude oil west and to transport natural gas, but approval had not yet been given • The Canadian economy faced important material shortages and such shortages forced choices • Canadians went shopping not to purchase a new appliance, but often to negotiate with retailers for a sport on a buyer’s waiting list • Besides the risk of inflation, consumption of luxury items would divert resources and materials away from the longer term capital investment needed to revitalize and expand Canada’s productive capacity • Canadian policy for the short run after the war was designed to encourage rebuilding of the capital goods sector and to discourage the expansion of the consumer goods sector • These policy instruments included direct and indirect taxes and credits, and exchange and import controls Stabilization Policy, 1945-1950 • With the unexpected aggregate demand, inflation rather than stagnation was the main policy problem in the immediate post war period • The consumer price index, which had move very little during the war, as wartime controls were removed • Budget were consistently set, not to regulate aggregate demand but to reduce the share of government in the economy • Taxes were reduced in every budget from 1945 to 1949, and they remained unchanged in 1950 • Monetary policy was concerned mainly with supporting government bond prices, meaning that interest rates were kept low, so there was little restraint on inflation from this quarter • Canada had for a very long time, imported more from the U.S. than it exported and it exported more to Europe than it imported • The U.S. was to be Canada’s dominant market, as well as supplier, meaning that their economic fortunes would be intertwined to an even greater extent than before War and the Resource Boom, 1951-1956 • The origins of this growth were war, resource development, and demographic change • The ongoing Cold War would keep military expenditures high through much of the decade • Exports boomed, as the war created a demand for Canadian resource products, in particular • Strong consumer spending added fuel to the boom • For two decades after the war, the American economy was unrivalled in the world • Crude oil production rose significantly, from 47.6 million barrels in 1951 to 181 million in 1956, at the height of the Suez Crisis • Exports increased even more dramatically, going from a mere 342000 barrels in 1951 to 55.7 million in 1957 • Natural gas projects had a tougher time with regulatory authorities • Federal authorities were concerned with ensuring that any gas exports were surplus to domestic needs, the authorities were insistent that pipelines to eastern and western markets pass through Canadian territory • Exports were approved, because Vancouver demand was insufficient to support a pipeline by itself and because the northern supplies were judged to be surplus to Canadian needs • The most controversial project, concerned transporting natural gas to markets in Ontario and Quebec • Assistance was given, the line was constructed on Canadian territory, the loan was repaid, natural gas flowed to Toronto and Montreal in 1958, and the company ended up Canadian-controlled • The idea of improving the St. Lawrence Seaway to allow ocean going vessels to sail into the heart of the continent goes far back in Canadian history • American interest in the project had never been great, but it was stimulated at this time by the hydroelectric potential of the system and by a growing demand for iron ore from Quebec and Labrador • A treaty was signed in 1954 , providing for joint construction and ownership of the works • The completion of the seaway had important benefits for Canada • U.S. interest in the St. Lawrence Seaway stemmed, from the access this route gave the Great Lakes steel towns to Labrador iron ore resources • The result was that Canadian iron ire production, which had been at about million gross tons in 1945, jumped to 14.5 million tons by 1955 • The uranium industry grew dramatically for a time as well • The U.S. and the U.K governments were the main buyers of the ore in the immediate post-war period • The combination of military and civilian demand in the U.S. generated an export boom in Canada, with sales jumping from $1.6 billion in 1956 to $13.5 billion by 1959 • Atomic Energy of Canada Limited was created as a crown corporation in 1952 to develop a capacity in nuclear power • The U.S. government used stockpiling practices to increase world nickel production and to reduce Inco’s monopoly of the metal • Falconbridge was the main Canadian beneficiary of this practice • Houses had to be bought to accommodate all these new families • Materialism became a deeply imbued social ethic that was tied to the provision of security • The baby boomers have always had the economic power to reshape th
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