The Fall of the Keynesian State - IThe Fall of the Keynesian State - I

InternationallyInternationally

Obvious Signs of Growing Obvious Signs of Growing DifficultiesDifficulties

Decline in US trade balance, trend from Decline in US trade balance, trend from surplus to deficit, deficit emerged Spring 1971surplus to deficit, deficit emerged Spring 1971

Persistent US balance of payments deficit, Persistent US balance of payments deficit, export of capital as US provided dollars to export of capital as US provided dollars to worldworld

End result: abandonment of fixed exchange End result: abandonment of fixed exchange rates, August 15, 1971 ($ unhooked from gold)rates, August 15, 1971 ($ unhooked from gold)

Less Obvious Worrisome TrendsLess Obvious Worrisome Trends

Shift from “dollar scarcity” to “dollar glut”Shift from “dollar scarcity” to “dollar glut” Increasing speculation against fixed exchange Increasing speculation against fixed exchange

ratesrates Debate over future of international monetary Debate over future of international monetary

systemsystem Growing conflict over US ownership/influence Growing conflict over US ownership/influence

in Europein Europe Discuss each in turnDiscuss each in turn

““Dollar Scarcity” to “Dollar Glut”Dollar Scarcity” to “Dollar Glut” A shift in the nature of the international liquidity A shift in the nature of the international liquidity

problem took placeproblem took place Dollar provided liquidity in early post-WWII, but ...Dollar provided liquidity in early post-WWII, but ... Growth in European & Japanese economiesGrowth in European & Japanese economies

rapid growth in international traderapid growth in international trade

increased need for dollars increased need for dollars

“ “Dollar scarcity”Dollar scarcity” But But in dollars > in dollars > trade trade int’l inflation int’l inflation So Europeans had to use monetary policy to neutralize So Europeans had to use monetary policy to neutralize

dollarsdollars

Increasing SpeculationIncreasing Speculation

Speculation against exchange rate changesSpeculation against exchange rate changes Result of rapid growth of Eurodollar market Result of rapid growth of Eurodollar market

(and later Asian dollar market)(and later Asian dollar market) Result of rapid growth of multinational Result of rapid growth of multinational

corporations (MNCs), both industrial & corporations (MNCs), both industrial & financialfinancial

Result of conflicts between US & Allies Result of conflicts between US & Allies – when conflict flared up, markets were destabilizedwhen conflict flared up, markets were destabilized

– with consistent conflict with consistent conflict instability of expectations instability of expectations

Debate over Future of IMSDebate over Future of IMS

French vs AmericansFrench vs Americans– Jacques Rueff wanted 3X Jacques Rueff wanted 3X gold price gold price

– US opposed, would undercut alliesUS opposed, would undercut allies

Some economists proposed flexible ratesSome economists proposed flexible rates– supposedly automatic adjustmentsupposedly automatic adjustment

– experience suggested increased instabilityexperience suggested increased instability

Hybrid solutionsHybrid solutions– crawling peg (small regular changes)crawling peg (small regular changes)

– creation of int’l money (e.g., SDRs)creation of int’l money (e.g., SDRs)

Growing Conflict US-EUGrowing Conflict US-EU

Servan-Scriber’s book, Servan-Scriber’s book, The American The American ChallengeChallenge

Stanford School said: differential liquidity Stanford School said: differential liquidity preferencespreferences– US less interested in liquidity, wants long US less interested in liquidity, wants long

term assetsterm assets– Europeans want more liquidity, e.g., dollarsEuropeans want more liquidity, e.g., dollars

Vietnam War expenditures Vietnam War expenditures US dollars, US dollars, inflation in world at largeinflation in world at large

Social RootsSocial Roots

Behind these international problems and Behind these international problems and confrontations lay domestic social conflicts confrontations lay domestic social conflicts within each countrywithin each country

Conflicts put constraints on foreign policyConflicts put constraints on foreign policy Conflicts pushed foreign policy in particular Conflicts pushed foreign policy in particular

directionsdirections See next section, primary example will be USSee next section, primary example will be US

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The Fall of the Keynesian State - The Fall of the Keynesian State - IIII

The Fall of the Keynesian State - The Fall of the Keynesian State - IIII

National LevelNational Level

Beneath the International Crises: Beneath the International Crises: local economic problemslocal economic problems

Beneath the International Crises: Beneath the International Crises: local economic problemslocal economic problems

Beneath exchange rate instabilityBeneath exchange rate instability– we find rapid growth of Eurodollar holdingswe find rapid growth of Eurodollar holdings

Beneath excessive liquidityBeneath excessive liquidity– we find chronic US bal of pay deficits caused by increased we find chronic US bal of pay deficits caused by increased

captial flows abroad and captial flows abroad and trade surplus trade surplus

Beneath increased capital investment abroadBeneath increased capital investment abroad– we find reluctance to invest at homewe find reluctance to invest at home

Beneath declining trade surplusesBeneath declining trade surpluses– we find accelerating US inflationwe find accelerating US inflation

Beneath cont’dBeneath cont’dBeneath cont’dBeneath cont’d

Beneath accelerating inflation we findBeneath accelerating inflation we find– an accomodating monetary policyan accomodating monetary policy

– a growing federal budget deficita growing federal budget deficit

– wage growth outstripping productivity growthwage growth outstripping productivity growth

Beneath accomodating monetary policy& Beneath accomodating monetary policy& budgetbudget– we find Vietnam War & War on Povertywe find Vietnam War & War on Poverty

Beneath wage Beneath wage > productivity > productivity – we find new labor militancy (auto, coal, public we find new labor militancy (auto, coal, public

employ)employ)

Beneath cont’d Beneath cont’d Beneath cont’d Beneath cont’d Beneath slowing productivity growthBeneath slowing productivity growth

– we find growing refusal to workwe find growing refusal to work

– increased alienation & resistance to new technologyincreased alienation & resistance to new technology

– shift from manufacturing to servicesshift from manufacturing to services» linked to women’s refusal of patriarchy, nuclear familylinked to women’s refusal of patriarchy, nuclear family

Beneath the Vietnam warBeneath the Vietnam war– we find peasant refusal of developmentwe find peasant refusal of development

– we find student refusal of sacrifice in suspicious we find student refusal of sacrifice in suspicious causecause

» linked to student refusal of discipline in educationlinked to student refusal of discipline in education

» linked to refusal of patriarchy & racismlinked to refusal of patriarchy & racism

Beneath cont’dBeneath cont’dBeneath cont’dBeneath cont’d

Beneath the Great SocietyBeneath the Great Society– we find the urban uprisings of the mid-60swe find the urban uprisings of the mid-60s

– we find human capital investmentswe find human capital investments

Beneath the urban uprisingsBeneath the urban uprisings– we find the Civil Rights Movementwe find the Civil Rights Movement

– we find the Black Power Movementwe find the Black Power Movement

Beneath these movementsBeneath these movements– we find the revolt against racism, unemployment, we find the revolt against racism, unemployment,

low wages, ghettoization of Keynesian periodlow wages, ghettoization of Keynesian period

Social Roots of Crisis - ISocial Roots of Crisis - I“Viewed from Above”“Viewed from Above”

Social Roots of Crisis - ISocial Roots of Crisis - I“Viewed from Above”“Viewed from Above”

Some have seen roots of inflation in crisis of Some have seen roots of inflation in crisis of democracy, but “crisis” = “excess” for himdemocracy, but “crisis” = “excess” for him

Decline in formal voting, Decline in formal voting, ticket splitting ticket splitting protests, demos, alternative forms of political actionprotests, demos, alternative forms of political action 1960s: more demands for Govt “benefits”1960s: more demands for Govt “benefits”

demands produced “welfare shift”, demands produced “welfare shift”, expenditures expenditures minus taxes = deficit + accom.$ policy = inflationminus taxes = deficit + accom.$ policy = inflation

Top Down Cont’dTop Down Cont’dTop Down Cont’dTop Down Cont’d

respect for govt, authority, wealth, hierachyrespect for govt, authority, wealth, hierachy

– function of change in values, fx demographic changefunction of change in values, fx demographic change Thus Thus polarization, disintegration of “governing polarization, disintegration of “governing

coallition”coallition” All produced decline in authority & prestige of All produced decline in authority & prestige of

governing coalition’s representative: the presidentgoverning coalition’s representative: the president

– from Truman & his Wall Street lawyers to from Truman & his Wall Street lawyers to Johnson/Nixon resignationsJohnson/Nixon resignations

Verdict: behind inflation lies Verdict: behind inflation lies excess of democracyexcess of democracy

Social Roots of Crisis - IISocial Roots of Crisis - IIViewed from BelowViewed from Below

Social Roots of Crisis - IISocial Roots of Crisis - IIViewed from BelowViewed from Below

But analysis of these things can differBut analysis of these things can differ instead of demographics, one can see social conflictinstead of demographics, one can see social conflict instead of excess of democracy, a cycle of struggleinstead of excess of democracy, a cycle of struggle not just “youth”, but a recomposition of social forces not just “youth”, but a recomposition of social forces

which gained power to contest effectivelywhich gained power to contest effectively not just simultaneity of demands, but circulation of not just simultaneity of demands, but circulation of

struggle from sector to sector, unwaged to wagedstruggle from sector to sector, unwaged to waged Blacks in streets to blacks & whites in auto factoriesBlacks in streets to blacks & whites in auto factories Refusal of patriarchy in home to refusal of authority in Refusal of patriarchy in home to refusal of authority in

schools, etcschools, etc

Historical Sketch - IHistorical Sketch - IHistorical Sketch - IHistorical Sketch - I

Labor resistance to productivity deals in 50sLabor resistance to productivity deals in 50s Growing black resistance: Civil Rights, then Black Growing black resistance: Civil Rights, then Black

Power Central City Riots & Welfare RightsPower Central City Riots & Welfare Rights Great Society programs aimed at “unionizing” and Great Society programs aimed at “unionizing” and

stabilizing ghettosstabilizing ghettos But Federal programs financed struggle instead of But Federal programs financed struggle instead of

controlcontrol Welfare struggles, like “riots”, sought decoupling of Welfare struggles, like “riots”, sought decoupling of

wage from workwage from work Refusal of work can be seen to follow from rising real Refusal of work can be seen to follow from rising real

wages because real w and leisure time are complementswages because real w and leisure time are complements

Historical Sketch - IIHistorical Sketch - IIHistorical Sketch - IIHistorical Sketch - II

New waves of struggle appropriated old themes & New waves of struggle appropriated old themes & culture of insubordination and freedom from culture of insubordination and freedom from exploitationexploitation

Examples can be found in musicExamples can be found in music E.g., the song “Which Side Are you On”E.g., the song “Which Side Are you On”

Capitalist ResponseCapitalist ResponseCapitalist ResponseCapitalist Response Counterattack: NationalCounterattack: National

– Nixon’s wage-price freezeNixon’s wage-price freeze

– Pay board (w/ unions in the Pay board (w/ unions in the state)state)

– Labor-Management Labor-Management CommitteesCommittees

– Industrial restructuringIndustrial restructuring

at international levelat international level– End of Bretton WoodsEnd of Bretton Woods

– Food &oil price attacks on Food &oil price attacks on real wagesreal wages

– etc (rest of this course deals etc (rest of this course deals with what follows)with what follows)

--END----END--

The Fall of the Keynesian State - IIThe Fall of the Keynesian State - IIThe Fall of the Keynesian State - IIThe Fall of the Keynesian State - II

National LevelNational Level

Focus of DiscussionFocus of DiscussionFocus of DiscussionFocus of Discussion

Focus on underlying social/national dimensions of the Focus on underlying social/national dimensions of the crisis of the Keynesian statecrisis of the Keynesian state

Reading: S. Huntington’s essay on the “Crisis of Reading: S. Huntington’s essay on the “Crisis of Democracy” (mainstream political scientist, TC)Democracy” (mainstream political scientist, TC)

Reading: P. Carpignano, “Class composition in the Reading: P. Carpignano, “Class composition in the 1960s” (Italian radical sociologist)1960s” (Italian radical sociologist)

Reading: G. Caffentzis, “Throwing Away the Ladder” Reading: G. Caffentzis, “Throwing Away the Ladder” (Professor of Philosophy, Univ of Southern Maine)(Professor of Philosophy, Univ of Southern Maine)

Reading: M. Montano: “Notes on the International Reading: M. Montano: “Notes on the International Crisis”(student radical, whereabouts unknown)Crisis”(student radical, whereabouts unknown)

Beneath the International Crises: Beneath the International Crises: local economic problemslocal economic problems

Beneath the International Crises: Beneath the International Crises: local economic problemslocal economic problems

Beneath exchange rate instabilityBeneath exchange rate instability– we find rapid growth of Eurodollar holdingswe find rapid growth of Eurodollar holdings

Beneath excessive liquidityBeneath excessive liquidity– we find chronic US bal of pay deficits caused by increased we find chronic US bal of pay deficits caused by increased

captial flows abroad and captial flows abroad and trade surplus trade surplus

Beneath increased capital investment abroadBeneath increased capital investment abroad– we find reluctance to invest at homewe find reluctance to invest at home

Beneath declining trade surplusesBeneath declining trade surpluses– we find accelerating US inflationwe find accelerating US inflation

Beneath cont’dBeneath cont’dBeneath cont’dBeneath cont’d

Beneath accelerating inflation we findBeneath accelerating inflation we find– an accomodating monetary policyan accomodating monetary policy

– a growing federal budget deficita growing federal budget deficit

– wage growth outstripping productivity growthwage growth outstripping productivity growth

Beneath accomodating monetary policy& budgetBeneath accomodating monetary policy& budget– we find Vietnam War & War on Povertywe find Vietnam War & War on Poverty

Beneath wage Beneath wage > productivity > productivity – we find new labor militancy (auto, coal, public employ)we find new labor militancy (auto, coal, public employ)

Beneath cont’d Beneath cont’d Beneath cont’d Beneath cont’d Beneath slowing productivity growthBeneath slowing productivity growth

– we find growing refusal to workwe find growing refusal to work

– increased alienation & resistance to new technologyincreased alienation & resistance to new technology

– shift from manufacturing to servicesshift from manufacturing to services» linked to women’s refusal of patriarchy, nuclear familylinked to women’s refusal of patriarchy, nuclear family

Beneath the Vietnam warBeneath the Vietnam war– we find peasant refusal of developmentwe find peasant refusal of development

– we find student refusal of sacrifice in suspicious causewe find student refusal of sacrifice in suspicious cause» linked to student refusal of discipline in educationlinked to student refusal of discipline in education

» linked to refusal of patriarchy & racismlinked to refusal of patriarchy & racism

Beneath cont’dBeneath cont’dBeneath cont’dBeneath cont’d

Beneath the Great SocietyBeneath the Great Society– we find the urban uprisings of the mid-60swe find the urban uprisings of the mid-60s

– we find human capital investmentswe find human capital investments

Beneath the urban uprisingsBeneath the urban uprisings– we find the Civil Rights Movementwe find the Civil Rights Movement

– we find the Black Power Movementwe find the Black Power Movement

Beneath these movementsBeneath these movements– we find the revolt against racism, unemployment, low we find the revolt against racism, unemployment, low

wages, ghettoization of Keynesian periodwages, ghettoization of Keynesian period

Social Roots of Crisis - ISocial Roots of Crisis - I“Viewed from Above”“Viewed from Above”

Social Roots of Crisis - ISocial Roots of Crisis - I“Viewed from Above”“Viewed from Above”

Huntington sees roots of inflation in crisis of democracy, Huntington sees roots of inflation in crisis of democracy, but “crisis” = “excess” for himbut “crisis” = “excess” for him

Decline in formal voting, Decline in formal voting, ticket splitting ticket splitting protests, demos, alternative forms of political actionprotests, demos, alternative forms of political action Huntington evokes James Madison on need for “balance” Huntington evokes James Madison on need for “balance”

between governability & democracybetween governability & democracy 1960s: more demands for Govt “benefits”1960s: more demands for Govt “benefits”

demands produced “welfare shift”, demands produced “welfare shift”, expenditures expenditures minus taxes = deficit + accom.$ policy = inflationminus taxes = deficit + accom.$ policy = inflation

Top Down Cont’dTop Down Cont’dTop Down Cont’dTop Down Cont’d

respect for govt, authority, wealth, hierachyrespect for govt, authority, wealth, hierachy

– function of change in values, fx demographic changefunction of change in values, fx demographic change Thus Thus polarization, disintegration of “governing polarization, disintegration of “governing

coallition”coallition” All produced decline in authority & prestige of All produced decline in authority & prestige of

governing coalition’s representative: the presidentgoverning coalition’s representative: the president

– from Truman & his Wall Street lawyers to from Truman & his Wall Street lawyers to Johnson/Nixon resignationsJohnson/Nixon resignations

Verdict: behind inflation lies Verdict: behind inflation lies excess of democracyexcess of democracy

Social Roots of Crisis - IISocial Roots of Crisis - IIViewed from BelowViewed from Below

Social Roots of Crisis - IISocial Roots of Crisis - IIViewed from BelowViewed from Below

Three articles from Zerowork express radical Three articles from Zerowork express radical perspective from the core of what Huntington calls an perspective from the core of what Huntington calls an excess of democracyexcess of democracy

Yet there is a parallelism to the analysesYet there is a parallelism to the analyses

– both recognize politics behind economicsboth recognize politics behind economics

– both attribute the crisis to upsurge in grassroots both attribute the crisis to upsurge in grassroots strugglestruggle

– both recognize existence of permanant anatagonismboth recognize existence of permanant anatagonism

DifferencesDifferencesDifferencesDifferences

But analysis of these things differBut analysis of these things differ instead of demographics, ZW authors see class struggleinstead of demographics, ZW authors see class struggle instead of excess of democracy, a cycle of struggleinstead of excess of democracy, a cycle of struggle not just “youth”, but a recomposition of the whole class not just “youth”, but a recomposition of the whole class

which gained power to contest effectivelywhich gained power to contest effectively not just simultaneity of demands, but circulation of not just simultaneity of demands, but circulation of

struggle from sector to sector, unwaged to wagedstruggle from sector to sector, unwaged to waged Blacks in streets to blacks & whites in auto factoriesBlacks in streets to blacks & whites in auto factories Refusal of patriarchy in home to refusal of authority in Refusal of patriarchy in home to refusal of authority in

schools, etcschools, etc

Historical Sketch - IHistorical Sketch - IHistorical Sketch - IHistorical Sketch - I

Labor resistance to productivity deals in 50sLabor resistance to productivity deals in 50s Growing black resistance: Civil Rights, then Black Power Growing black resistance: Civil Rights, then Black Power

Central City Riots & Welfare RightsCentral City Riots & Welfare Rights Great Society programs aimed at “unionizing” and Great Society programs aimed at “unionizing” and

stabilizing ghettosstabilizing ghettos But Federal programs financed struggle instead of controlBut Federal programs financed struggle instead of control Welfare struggles, like “riots”, sought decoupling of wage Welfare struggles, like “riots”, sought decoupling of wage

from workfrom work Refusal of work can be seen to follow from rising real Refusal of work can be seen to follow from rising real

wages because real w and leisure time are complementswages because real w and leisure time are complements

Historical Sketch - IIHistorical Sketch - IIHistorical Sketch - IIHistorical Sketch - II

New waves of struggle appropriated old themes & culture New waves of struggle appropriated old themes & culture of insubordination and freedom from exploitationof insubordination and freedom from exploitation

Examples can be found in musicExamples can be found in music E.g., the song “Which Side Are you On”E.g., the song “Which Side Are you On”

Capitalist ResponseCapitalist ResponseCapitalist ResponseCapitalist Response Counterattack: NationalCounterattack: National

– Nixon’s wage-price freezeNixon’s wage-price freeze

– Pay board (w/ unions in the Pay board (w/ unions in the state)state)

– Labor-Management Labor-Management CommitteesCommittees

– Industrial restructuringIndustrial restructuring

at international levelat international level– End of Bretton WoodsEnd of Bretton Woods

– Food &oil price attacks on real Food &oil price attacks on real wageswages

– etc (rest of this course deals etc (rest of this course deals with what follows)with what follows)