Commanding Heights
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Transcript of Commanding Heights
Commanding HeightsEpisode 1
What are the guiding principles that Keynes and Hayek describe in their theories?
Trace the changes in economic theory from 1900-1980.
What are the important questions we ask in our modern economies? (It is no longer one or the other…)
What principles guided the economic theories of the post Reagan/Bush years in the US? Clinton, Bush II, Obama
Important Ideas from Commanding Heights
Russian revolution Against the global economy End exploitation of man by man Promise of a more just society Markets need to be free from government
meddling. Markets work and governments won’t. ~von Mises
Hayek
Keynes – market won’t work, government must step in – ◦ Trade and expanding technology flow freely in
early 20th century until WWI
Hayek – the market will prevail if we are more patient◦ Disillusioned by WWI and vows to work for a
better world
Keynes vs. Hayek
Worked with west during WWI Against the huge reparations imposed on
Germany The Economic Consequences of the Peace Predicted a final war that would destroy
civilization if we kept Germany/Austria impoverished
Keynes and the west
Allows small farmer and businesses to function to improve local conditions but insists that the commanding heights will remain under the control of governments.
30% of world population follows Marxist – Leninism
Stalin manages the economy and forges ahead. Capitalism appears doomed.
Lenin and Russia
Printing more money results in hyper-inflation
The Nazi's are successful due to the support of disenfranchised middle class.
Hayek hates inflation and makes fighting it the cornerstone of his theory
Germany and Austria
Boom time Spending money on goods Buying stock Radio is the internet of the 1920’s Stock market crash brings depression of the
1930’s The government does nothing to intervene
US in the 1920’s and 1930’s
Same conditions as the US in England Italy and Germany turn to fascism Keynes writes a book explaining the
depression and its solution. Macroeconomics.
Governments can manage their economies. Spend against the wind.
Europe in the 1930’s
Government programs developed to spur economy and create jobs
Regulation of capitalism New Deal creates structure and eliminates
boom/bust cycles that deter economic growth
Harvard and Galbraith Live with a little inflation to keep
unemployment low Accumulation of debt is not important
Roosevelt in the 1930’s
Depression disappears due to war “Good may come out of evil” Hayek writes “The Road to Serfdom”
1940’s
Britain: Build a new society with no unemployment, fascism, or depression
Labor party wants to plan the peace Churchill opposes planning and controls Labor party wins and Britain goes socialist Private owners must sell their businesses Created nationalized industries: coal, rail,
steel Rebuilds Britain: welfare state, health care,
employment
WWII Ends
Stalin and socialism Industrial and military powerhouse 1/3 of world is socialist Cold war begins Hayek sees socialist ideals as a threat to the
global economy and freedom
WWII Ends: Russia
Germany is ruined and divided Economy is brought to a halt through wage
and price controls Black market forms using cigarettes, liquor New German currency formed Ehrhart: eliminated price controls and the
markets started working again Germany combines free markets with
welfare state, but NOT planned economy
Berlin 1947
Economic Ideal: Gandhi- simple self-sufficient villages
Nehru: State led model of industrial growth India becomes the model for newly
independent nations Socialism is the road out of poverty and into
modernization
India
University of Chicago is the center of economic intellectual thinking
The market is comprised of forces that can neither be controlled or ignored. Instead they must be harnessed.
Keynes remains highly influential: the economy is not a force, but a machine.
1950s - US
US economy fails: stagflation – inflation and unemployment
Nixon claims to be Keynesian Nixon imposes wage and price controls The economy spirals out of control Deregulation of airlines leads to competitive
pricing and deregulation of the entire US economy
1970s - US
Also experiences unemployment and inflation
Also uses wage and price controls to combat stagflation
Coal miners strike and oil crisis Conservatives voted out Keith Joseph jumps ship and begins
promoting the free market and capitalism Thatcher is a big fan Hayek wins the Nobel Prize
1970s - Britain
Thatcher is a proponent of Hayek and the free market
Thatcher wins in the Falklands Socialist miners fight to keep government
subsidies and go on strike Strike collapses, 70000 jobs lost Britain sells state-owned industries
1980s and Britain
No longer Socialism vs. Capitalism No longer Market vs. Government How to harness market forces What would we demand of governments in
the face of difficulties, war? Economics of the 90s and the new
millennium.
Debate
History matters, and so do ideas. ◦ Does anybody remember the stimulus?
“It’s the economy, stupid.” ◦ Arguably, all of history is economic history. Which
might just mean that all of everything is economic history…
What is the developing world, and why are we developing it?◦ Jeff Sachs: 200 years ago, we were all subsistence
farmers
Mr. Bahlke segment: Key Points
Vote for me for class president, I’ll make iPads only $1◦ Mia and Jake have a bunch of iPads, everyone else
wants them. What’s going to happen? Tie back to Germany, pre and post price
controls
The Parable of the iPad
Inflation - a general increase in prices and fall in the purchasing value of money ◦ When/why/for whom is inflation good?◦ When/why/for whom is inflation bad?
Discussion
Think about the coal miners in Great Britain as the movie presents them.
Think about the coal miners in Great Britain as if they were your parents. (Billy Elliot, anyone?)
Think of modern equivalents of coal miners: US labor movement, etc.
Coal Miners and the Human Side of Free Markets
When do markets work and governments not work?
When do governments work and markets not work?
Human Side of Free Markets c’td
Three students were having a discussion about democracy, one from China, one from America, and one from Denmark…
What is a “free” market? Discussion: If you have a democracy, will
you automatically have capitalism? If you have capitalism, are you necessarily in a democracy?
Democracy and Capitalism