1 00:00:03,310 --> 00:00:04,630 Hi, welcome back. Make yourself comfortable.

In this presentation, you'll see why the 1970s was a tough time to be an authority figure. Let's look at the wary establishment by starting off with the status quo. The status quo had these creaky managerial states we'd been talking about. A sense among a lot of people that socialists, capitalists, they are all these big ministries, big bureaucratic entities, they're all engaged in this competition, military competition that just feeds the governments, feeds the corporations, they are all alike. Meanwhile, the economic models of social democracy and socialism and throughout the Third World were beginning to run into trouble. One of the first phenomena worth noticing is what economists call the Great Inflation of the 1970s. One way to visualize that Great Inflation is this chart prepared by economist Christina Romer and published in the bulletin of the Federal Reserve Bank of St. Louis. If you just look at the 1970s, you can see the levels of inflation in five of the leading countries all moving into the double digit realm. What's going on here? A couple of things are going on. First, the governments are just spending a lot of money, printing money, in order to try to not only meet social services and maintain military spending, like the United States during the Vietnam War, but also because they're trying to combat increasing unemployment with government spending. They believe in a rigid relationship between inflation and unemployment. They believe, because that was the conventional economic orthodoxy of the time, that if inflation goes up, unemployment is bound to come down, and vice versa. Since they want to combat unemployment, they tolerate increased inflation, they think it's okay to spend

more money even if that devalues the currency. But it turns out that relationship isn't as rigid as they thought. You can have both high inflation and high unemployment, and all these governments discover that fact in the 1970s. Another factor that's leading to the great inflation is a spike in oil prices in the early 1970s and the late 1970s, I'll touch on in a moment. But before we get to that, another key factor in the economic breakdown is the end of the Bretton Woods financial system. Just to remind you a bit of some of that international financial history we covered, I think I talked a little bit about World Money 1.0 as being a gold exchange standard, especially between about 1870 and 1914, and then rebuilt a little after World War I until it finally collapsed. And then in the aftermath of World War II, we get World Money 2.0. That's the Bretton Woods System. What's that? That's really a gold dollar standard, in which you both have gold as an anchor, but then you can print dollars that everyone can rely on. But the United States finds that its overseas spending, importing goods from other countries, spending money to sustain its forces and commitments overseas, they're having trouble maintaining the value of the dollar. They would have to do things like hiking interest rates that they don't want to do in order to maintain the value of the dollar against gold. Finally, they just decide to break the gold dollar standard and the Bretton Woods System in 1971. Okay, so then you might ask, well, what takes its place? Answer for a while: nothing really takes its place. The currencies go into kind of a free float against each other, with no hard anchor. That too contributes to the great inflation and a lot of uncertainties in international trade,

because currency values are fluctuating more against each other. In 1973-74 comes the first oil shock. There's a relatively small number of oil producing countries as you can see from this map. In 1973, seizing on a political crisis with another Arab-Israeli war in the Middle East, the oil producing countries flex their muscles. They jack up the price of oil in a cartel. And that has reverberations, especially in the big oil importing countries, but, by the way, will also affect all the countries in the less developed world too. At the end of the 1970s, again picking up off a scare caused by the Iranian Revolution of 1978 and 1979, oil prices make another big jump. That rise in the prices of a key commodity in the world economy also contributes to the Great Inflation. So it's worth taking a moment and just reflecting on what all these sorts of problems would mean for models of modernization like ISI. Remember, that was import-substitution industrialization, practiced by countries like Brazil. Or export-oriented industrialization, practiced by countries like Japan or South Korea. Or for the more socialist models. Why would this be trouble for an ISI-type system? Well, you have to buy imports. You hope you can keep the amount of money you need to buy imports down, but if you're importing a good amount of oil and the price of oil triples, you need more money to buy that oil. Well, how are you going to get it? Because if the price of necessary imports goes up, and import substitution approach doesn't have strong export products, you've sheltered your own domestic industries from foreign competition, they're not producing their goods at a price or quality that has had to be competitive in foreign markets, so you can't rapidly ramp up your exports in order to buy the oil you now need. What do you then do about that problem? You still need to buy the oil. You may even want to give your people more subsidies, so

they can pay those higher oil prices without much domestic unrest. The answers are going to be, you're going to start printing money to solve problems like these. And the answer for a country like Brazil then was increasingly endemic inflation leading to hyperinflation and a breakdown in the value of Brazilian currency, and eventually, the breakdown of Brazilian economic growth. Similar patterns were seen in other countries that had followed models like this. Okay. So why would these economic troubles be a problem for an export-oriented economy? Remember, these are economies that have depressed their domestic standard of living in order to keep their exports cheap, in order to enrich the people, the companies, that are making these exports and their allies in the government. But what if problems in importing countries like the United States, like Western Europe, means their demand for import falls. Then you're, not only are you depressing the living standards of your own people, you're taking in less money as an offsetting compensation for that. Your political problems might get even worse. You can imagine greater tensions between historic allies like the United States and Japan, the United States and South Korea, and that's definitely there during the 1970s. So, lots of economic troubles, including international economic tensions, what does it mean? Fraying ties among allies, the routinization of rivalries among enemies. Meanwhile in the early 1970s, the United States suffers the appearance of a catastrophic failure, a defeat, in the Vietnam War. The United States had gotten its troops out of Vietnam. It had helped sign a treaty at the beginning of 1973, but the treaty breaks down. Meanwhile, the fed up US Congress won't support more military assistance to South Vietnam. North Vietnam overruns South Vietnam.

The Vietnam War is over. It looks and feels like a huge American defeat. It feels like American power is in retreat, maybe in decline. The country is divided at home. Meanwhile, it looks to the outside world like the Soviet Union is just getting stronger and stronger in the 1970s. Although quietly, behind the scenes, socialism is having some serious economic problems of its own. But, you might ask, isn't it a good thing that the tensions between the Soviet Union and the United States have relaxed? Didn't people feel like with this relaxation of tensions, with detente, things were getting much better? After all, the sides seemed to be practicing a kind of peaceful coexistence. Here's Nixon and Brezhnev having regular summit meetings, talking freely about each other's concerns. But what the world also has is a sense of routine, managed conflict. For a sense of the peculiar balance in the detente of 1972 between the Soviet Union and the United States, take a look at this Time Magazine cover. This's 1972, so you have President Richard Nixon on the right, Soviet leader Leonid Brezhnev on the left, and they're shaking hands. They're getting along, you see Nixon has just received a whole suitcase bulging with money and even an olive branch representing peace because the Americans have just sold a whole lot of wheat to the hungry Russians. Commercial relationships and friendship. Now both men, as you see, have something hidden behind their back. Just an armful of missiles and guns and arrows, all the implements of war. Right there too. But they're trying to manage their conflict, routinize their conflict. That fellow you see in the far right, that's the Democratic senator Henry Jackson, called Scoop Jackson. He doesn't think the United States and the Soviet Union should be getting along so well.

He thinks the United States should be confronting the Soviet Union a little bit more. But, they're going ahead with trying to manage all of this. Two great powers trying to routinize their rivalry. And you see things aren't all dismal in the world: Time Magazine is calling attention to a brand new invention, you see there in the bottom right hand corner, these newfangled string bikinis. There are some obstacles to detente, to a happy relaxation of tensions. Well, like what? Theyll have some real problems in domestic support for this. Well, why would that be a problem? Because the government is saying in effect, well, you just need to be realistic. We're the two great powers. We need to just adjudicate these conflicts and disputes among us, that's the realistic path. But on the one hand, it seems like you're betraying the ideals that your country is standing for. And on the other side, it might look like, yes, and you're making conflict and competition a matter of accepted routine. And also the process and style in both United States and Soviet Union of managing these super power conflicts and having quiet discussions of how to sort things out, seemed incredibly secretive, deceptive to the outside world. So there's a lot of domestic criticisms of that. And it does tend to reinforce the argument that, you know what, the two big superpowers are kind of alike, and the rest of the world is trapped in their rivalry and their little games. To give you some sense of the idealistic argument, notice the way Time Magazine is calling attention to the plight of these interesting Soviet intellectuals. Writers who are trying to expose the way Soviet totalitarian rule has worked. Here in this cover story of 1968 on Russia's dissident intellectuals, you see the ice is slowly thawing.

That's allowing the release of this numbered Soviet prisoner, Aleksandr Solzhenitsyn, who you see now portrayed almost as the lonely prophet, the Jeremiah of the Soviet regime in 1974, writing a gigantic book on the Gulag Archipelago, exposing the Soviet slave labor system, in which Solzhenitsyn had been a prisoner. But domestic concerns, domestic unease with this managed conflict regime, isn't the only problem. Another problem is that it's hard for them to really reduce the threat. For instance, the two sides have different kinds of military forces. In Europe, Soviet army is much larger. But then that's supposed to be offset by NATO advantages in technology, in nuclear weapons. But NATO's defense strategy means that if the Soviets successfully attack and are overrunning Western Europe, NATO has to be willing to be the first countries to use nuclear weapons. So that seems like a kind of unstable way of preserving the nuclear balance. Is the United States really willing to risk a global nuclear war, to sacrifice Chicago to save Hamburg? There's also a nuclear asymmetry since the arsenals of the two sides are different. The Soviets have a huge force of heavy land based missiles, highly accurate. The Americans rely much more on their bombers, on their submarines. So the Americans fear the Soviets have the temptation to strike first with their highly accurate missiles. The Soviets fear that the Americans will use their buildup at air and at sea to present them with a nuclear danger because after all, doesn't NATO threaten to start a nuclear war if there is a war in Europe? So my main point here is that the military balance might seem stable on the surface, but to people who are looking at it in the governments of the two sides, it didn't really seem all that stable. They still saw significant threats in the dynamic of military competition. A third obstacle to getting a real

relaxation of tension that could bring the Cold War to an end was the ongoing struggles in the Third World between the proxies of the two sides. Both sides complaining that the other was seeking unilateral advantage in the conflicts of the Middle East, between Arabs and Israelis. In Indochina, even after North Vietnam won its war and became the unified country of Vietnam, renaming Saigon into Ho Chi Minh City, Vietnam finds itself in a conflict with Chinese-dominated Cambodia. Vietnam even invades Cambodia, putting an end to the genocide being conducted by that communist regime. The Chinese, angrily, invade Vietnam from the north and fight a brief inconclusive struggle there in early 1979, so more fighting in Indochina. And Africa is becoming much more of a theater for Cold War proxy wars during the 1970s. In Southern Africa, there, for example, is a civil war in the new country of Angola. In that civil war, the United States secretly backs one side, the Soviets secretly back another. The Soviets escalate the play. Tens of thousands of regular Cuban troops are airlifted into Angola, in order to make sure their preferred side wins the civil war. In the Horn of Africa, which we see depicted up here, there's also a new Cold War contest. The ancient empire of Ethiopia had been supported by the West in the 1970s, early 1980s. The Soviets were supporting a military dictatorship here in Somalia, as the two sides were tussling over who would control this region. Oh, but wait. Socialists overthrow the emperor. There's a coup in which there's now a pro-socialist government in Ethiopia. The Soviets and their Cuban and East German allies switch sides. Thousands of Soviet and East European military advisers flow into Ethiopia, now helping them fight Somalia, and the Somalis are now getting help from the United

States. In Central America, a civil war inside Nicaragua also becomes a cold war proxy conflict: one side getting help from the Cubans, another side getting help from the Americans, and that civil struggle then extends to El Salvador as well and rebellions against the brutal right wing dictatorship in Guatemala long backed by the United States. And finally, the 1970s conclude with the Soviet invasion and occupation of the country of Afghanistan. You might ask yourself for a moment, why in the world would the Soviets want to invade and occupy Afghanistan? Soviet allies had been in charge in Afghanistan, but, for Afghan reasons, that had degenerated into a civil war. The Soviets feared, irrationally it seems, because there was no real factual basis for it, that the Americans would take advantage of that civil war and get involved in helping the other side in the Afghan war. To preempt that kind of American intervention, which hadn't even occurred, the Soviets decide that to defend themselves, they need to invade and occupy Afghanistan, beginning with a landing by Soviet paratroopers and the killing of the Afghan head of state. But to the Americans and to a lot of the world, the notion that the Soviets are doing this defensively, out of fear of an imaginary American intervention, doesn't seem to make sense. They have their interpretation, which is this is a part of an onward march of Soviet conquests that might even be headed towards taking advantage of the turmoil in Iran and even moving towards the Persian Gulf. So to take stock of this, the domestic economic models are sputtering, international tensions are getting a lot worse, and at home in these countries, East and West, conditions deteriorate even more

in the 1970s. Let's take a look at how postwar boom is turning into bust. Next time. [BLANK_AUDIO]