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Commanding Heights

Commanding Heights. Episode 1. Important Ideas from Commanding Heights. What are the guiding principles that Keynes and Hayek describe in their theories? Trace the changes in economic theory from 1900-1980.

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Commanding Heights

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  1. Commanding Heights Episode 1

  2. Important Ideas from Commanding Heights • 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

  3. Hayek • 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

  4. Keynes vs. 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

  5. Keynes and the west • 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

  6. Lenin and Russia • 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.

  7. Germany and Austria • 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

  8. US in the 1920’s and 1930’s • 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

  9. Europe in the 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.

  10. Roosevelt 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

  11. 1940’s • Depression disappears due to war • “Good may come out of evil” • Hayek writes “The Road to Serfdom”

  12. WWII Ends • 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

  13. WWII Ends: Russia • 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

  14. Berlin 1947 • 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

  15. India • 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

  16. 1950s - US • 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.

  17. 1970s - 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

  18. 1970s - Britain • 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

  19. 1980s and 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

  20. Debate • 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.

  21. Mr. Bahlke segment: Key Points • 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

  22. The Parable of the iPad • 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

  23. Discussion • 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?

  24. Coal Miners and the Human Side of Free Markets • 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.

  25. Human Side of Free Markets c’td • When do markets work and governments not work? • When do governments work and markets not work?

  26. Democracy and Capitalism • 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?

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