100:00:03,310 --> 00:00:04,630Hi, welcome back.Make yourself comfortable. In thispresentation, you'll see why the1970s was a tough time to be an authorityfigure.Let's look at the wary establishment bystarting off with the status quo.The status quo had these creaky managerialstates we'd been talking about.A sense among a lot of people thatsocialists, capitalists, they areall these bigministries, big bureaucratic entities,they're allengaged in this competition, militarycompetitionthat just feeds the governments, feeds thecorporations, they are all alike.Meanwhile, the economic models of socialdemocracy and socialism andthroughout the Third World were beginningto run into trouble.One of the first phenomena worth noticingiswhat economists call the Great Inflationof the 1970s.One way to visualize that Great Inflationis this chart prepared byeconomist Christina Romer and published inthe bulletin of the Federal Reserve Bankof St. Louis.If you just look at the 1970s, you can seethe levels ofinflation in five of the leading countriesall moving into the double digit realm.What's going on here?A couple of things are going on.First, the governments are just spending alot of money, printing money, in order totry to not only meet social servicesand maintain military spending, like theUnited Statesduring the Vietnam War, but also becausethey'retrying to combat increasing unemploymentwith government spending.They believe in a rigid relationshipbetween inflation and unemployment.They believe, because that was theconventional economic orthodoxy of thetime, thatif inflation goes up, unemployment isbound to come down, and vice versa.Since they want to combat unemployment,they tolerateincreased inflation, they think it's okayto spend

more money even if that devalues thecurrency.But it turns out that relationship isn'tas rigid as they thought.You can have both high inflation and highunemployment,and all these governments discover thatfact in the 1970s.Another factor that's leading to the greatinflation is aspike in oil prices in the early 1970s andthe late1970s, I'll touch on in a moment.But before we get to that, another keyfactor inthe economic breakdown is the end of theBretton Woods financial system.Just to remind you a bit of someof that international financial history wecovered, Ithink I talked a little bit about WorldMoney 1.0 as being a gold exchangestandard,especially between about 1870 and 1914,and then rebuilta little after World War I until itfinally 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, inwhich you both have gold asan anchor, but then you can print dollarsthat everyone can rely on.But the United States finds that itsoverseas spending, importing goodsfrom other countries, spending money tosustain its forces and commitmentsoverseas,they're having trouble maintaining thevalue of the dollar.They would have to do things like hikinginterest rates that they don'twant to do in order to maintain the valueof the dollar against gold.Finally, they just decide to break thegolddollar standard and the Bretton WoodsSystem in 1971.Okay, so then you might ask, well, whattakes its place?Answer for a while: nothing really takesits place.The currencies go into kind of a freefloat against each other, with no hardanchor.That too contributes to the greatinflation and a lotof uncertainties in international trade,

because currency values are fluctuatingmoreagainst each other.In 1973-74 comes the first oil shock.There's a relatively small number of oilproducingcountries as you can see from this map.In 1973, seizing on a political crisiswith another Arab-Israeli warin the Middle East, the oil producingcountries flex their muscles.They jack up the price of oil in a cartel.And that has reverberations,especially in the big oil importingcountries, but, by the way,will also affect all the countries in theless developed world too.At the end of the 1970s, again picking upoff a scare caused by the IranianRevolution of 1978 and 1979, oil pricesmake another big jump.That rise in the prices of a key commodityin the world economy also contributesto the Great Inflation.So it's worth taking a moment and justreflecting on what allthese sorts of problems would mean formodels of modernization like ISI.Remember, that was import-substitutionindustrialization, practiced by countrieslike Brazil.Or export-oriented industrialization,practiced by countrieslike Japan or South Korea. Or forthe more socialist models.Why would this be trouble for an ISI-typesystem?Well, you have to buy imports.You hope you can keep the amount of moneyyou need to buy imports down, but ifyou're importinga good amount of oil and the price ofoil triples, you need more money to buythat oil.Well, how are you going to get it?Because if the price of necessary importsgoes up, and import substitution approachdoesn't have strong export products,you've sheltered your own domesticindustries from foreign competition,they're not producing their goods at aprice orquality that has had to be competitive inforeign markets,so you can't rapidly ramp up your exportsin 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 moresubsidies, so

they can pay those higher oil priceswithout much domestic unrest.The answers are going to be, you'regoing tostart printing money to solve problemslike these.And the answer for a country like Brazilthen was increasingly endemicinflation leading to hyperinflation and abreakdown in the valueof Brazilian currency, and eventually, thebreakdown of Brazilian economic growth.Similar patterns were seen in othercountries that had followed models likethis.Okay.So why would these economic troubles be aproblem for an export-oriented economy?Remember, these are economies that havedepressed their domestic standard oflivingin order to keep their exports cheap,in order to enrich the people, thecompanies, thatare making these exports and their alliesin the government.But what if problems in importingcountries like the UnitedStates, like Western Europe, means theirdemand for import falls.Then you're, not only are you depressingthe living standards of yourown people, you're taking in less money asan offsetting compensation for that.Your political problems might geteven worse.You can imagine greater tensions betweenhistoric allies like the United States andJapan, the United States and South Korea,and that's definitely there during the1970s.So, lots of economic troubles, includinginternational economic tensions, what doesit mean?Fraying ties among allies, theroutinization of rivalries among enemies.Meanwhile in the early1970s, the United States suffers theappearance ofa catastrophic failure, a defeat, in theVietnam War.The United States had gotten its troopsout of Vietnam.It had helped sign a treaty at thebeginning of 1973, but the treaty breaksdown.Meanwhile, the fed up US Congress won'tsupport more military assistance to SouthVietnam.North Vietnam overruns South Vietnam.

The Vietnam War is over.It looks and feels like a huge Americandefeat.It feels like American power is inretreat, maybe in decline.The country is divided at home.Meanwhile, it looks to the outside worldlike the SovietUnion is just getting stronger andstronger in the 1970s.Although quietly, behind the scenes,socialismis having some serious economic problemsof its own.But, you might ask, isn't it a good thingthat thetensions between the Soviet Union and theUnited States have relaxed?Didn't people feel like with thisrelaxation oftensions, with detente, things were gettingmuch better?After all, the sides seemed to bepracticing a kind of peaceful coexistence.Here's Nixon and Brezhnev having regularsummit meetings, talking freelyabout each other's concerns.But what the world also has is a sense ofroutine, managed conflict.For a sense of the peculiar balance in thedetente of 1972 between theSoviet Union and the United States, take alook at this Time Magazine cover.This's 1972, so you have President RichardNixon on the right, Soviet leader LeonidBrezhnevon the left, and they're shaking hands.They're getting along, you see Nixon hasjust receiveda whole suitcase bulging with money andeven anolive branch representing peace becausethe Americans have justsold a whole lot of wheat to the hungryRussians.Commercial relationships and friendship.Now both men, asyou see, have something hidden behindtheir back.Just an armful of missiles and guns andarrows, all the implements of war.Right there too.But they're trying to manage theirconflict, routinize their conflict.That fellow you see in the far right,that's the Democratic senator HenryJackson, called Scoop Jackson.He doesn't think the United States and theSoviet Union should be getting alongso well.

He thinks the United States should beconfronting the Soviet Union a little bitmore.But, they're going ahead with trying tomanage all of this.Two great powers trying to routinize theirrivalry.And you see things aren't all dismal inthe world:Time Magazine is calling attention to abrand new invention, yousee there in the bottom right hand corner,these newfangled string bikinis.There are some obstacles to detente, to ahappy relaxation of tensions.Well, like what?They�ll have some real problems in domesticsupport for this.Well, why would that be a problem?Because the government is saying ineffect,well, you just need to be realistic.We're the two great powers.We need to just adjudicate these conflictsand disputes among us, that's therealistic path.But on theone hand, it seems like you're betrayingthe ideals that your country is standingfor.And on the other side, it might look like,yes,and you're making conflict and competitiona matter of accepted routine.And also the process and style in bothUnited States and Soviet Union of managingthese super power conflicts and havingquiet discussionsof how to sort things out, seemedincrediblysecretive, deceptive to the outside world.So there's a lot of domestic criticisms ofthat.And it does tend to reinforce the argumentthat, youknow what, the two big superpowers arekind of alike,and the rest of the world is trapped intheir rivalry and their little games.To give you some sense of the idealisticargument, noticethe way Time Magazine is calling attentionto the plight ofthese interesting Soviet intellectuals.Writers who are trying to expose the waySoviet totalitarian rule has worked.Here in this cover story of 1968 onRussia'sdissident intellectuals, you see the iceis slowly thawing.

That's allowing the release ofthis numbered Soviet prisoner, AleksandrSolzhenitsyn,who you see now portrayed almost as thelonely prophet, the Jeremiah of the Sovietregime in 1974, writing a gigantic book onthe Gulag Archipelago, exposing the Sovietslave laborsystem, in which Solzhenitsyn had been aprisoner.But domestic concerns, domestic uneasewith thismanaged conflict regime, isn't the onlyproblem.Another problem is that it's hard for themto really reduce the threat.For instance, the two sides have differentkinds of military forces.In Europe, Soviet army is much larger.But then that's supposed to be offset byNATOadvantages in technology, in nuclearweapons.But NATO's defense strategy means that ifthe Soviets successfully attack and areoverrunning WesternEurope, NATO has to be willing to be thefirst countries to use nuclear weapons.So that seems like a kind of unstable wayof preserving the nuclear balance.Is the United States really willing torisk a global nuclear war,to sacrifice Chicago to save Hamburg?There's also a nuclear asymmetry since thearsenals of the two sides are different.The Soviets have a huge force of heavyland based missiles, highly accurate.The Americans rely much more on theirbombers, on their submarines.So the Americans fear the Soviets havethe temptation to strike first with theirhighlyaccurate missiles.The Soviets fear that the Americans willuse their buildupat air and at sea to present them witha nuclear danger because after all,doesn't NATO threaten tostart a nuclear war if there is a war inEurope?So my main point here is that themilitary balance might seem stable on thesurface, butto people who are looking at it in thegovernments of the two sides, it didn'treally seemall that stable.They still saw significant threats in thedynamic of military competition.A third obstacle to getting a real

relaxationof tension that could bring the Cold Wartoan end was the ongoing struggles in theThird World between the proxies of the twosides.Both sides complaining that the other wasseeking unilateral advantagein the conflicts of the Middle East,between Arabs and Israelis.In Indochina, even after North Vietnam wonits war and became the unified countryof Vietnam, renaming Saigon into Ho ChiMinh City, Vietnamfinds itself in a conflict withChinese-dominated Cambodia.Vietnam even invades Cambodia, putting anend tothe genocide being conducted by thatcommunist regime.The Chinese, angrily, invade Vietnam fromthe north andfight a brief inconclusive struggle therein early 1979,so more fighting in Indochina.And Africa isbecoming much more of a theater for ColdWar proxy wars during the 1970s.In Southern Africa, there, for example, isa civil war in the new country of Angola.In that civil war, the United States secretlybacks one side, the Soviets secretly backanother.The Soviets escalate the play.Tens of thousands of regular Cuban troopsare airlifted into Angola,in order to make sure their preferred sidewins the civil war.In the Horn of Africa, which we seedepictedup here, there's also a new Cold Warcontest.The ancient empire of Ethiopia had beensupported by the Westin the 1970s, early 1980s. The Sovietswere supporting a military dictatorshiphere in Somalia,as the two sides were tussling over whowould control this region.Oh, but wait.Socialists overthrow the emperor.There's a coup in which there's now apro-socialist government in Ethiopia.The Soviets and their Cuban and EastGerman allies switch sides.Thousands of Soviet and East Europeanmilitary advisers flow into Ethiopia,now helping them fight Somalia, and theSomalisare now getting help from the United

States.In Central America, a civil war insideNicaragua also becomes a cold war proxyconflict:one side getting help from the Cubans,another side getting help fromthe Americans, and that civil strugglethen extends to El Salvador as welland rebellions against the brutal rightwing dictatorship inGuatemala long backed by the UnitedStates.And finally, the 1970s conclude with theSovietinvasion and occupation of the country ofAfghanistan.You might ask yourself for a moment, whyin theworld would the Soviets want to invade andoccupy Afghanistan?Soviet allies had been in charge inAfghanistan,but, for Afghan reasons, that haddegenerated into acivil war.The Soviets feared, irrationally it seems,because there wasno real factual basis for it, that theAmericanswould take advantage of that civil war andgetinvolved in helping the other side in theAfghan war.To preempt that kind of Americanintervention,which hadn't even occurred, the Sovietsdecidethat to defend themselves, they need toinvade and occupy Afghanistan, beginningwith a landingby Soviet paratroopers and the killing ofthe Afghan head of state.But to the Americans and to a lot of theworld, the notion that the Sovietsare doing this defensively, out of fear ofan imaginary American intervention,doesn't seem to make sense.They have their interpretation, which isthis isa part of an onward march of Sovietconquests that might even be headedtowards takingadvantage of the turmoil in Iran and evenmoving towards the Persian Gulf.So to take stock of this, the domesticeconomic models are sputtering,international tensions are getting alot worse, and at home in these countries,Eastand West, conditions deteriorate even more

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