Reading 2.3 Flashcards
The major political and geopolitical observations in 1945-1961
Remembering the Great Depression U.S. policy makers responded quickly to
the four recessions after the war, using private sector re-levering to spur the economy. This was the beginning of the debt supercycle that only ended in 2008.
The major political and geopolitical observations in 1960s
After successfully emerging from the post-World War II debt pile, the economy slowed down in the 1960s and entered a secular stagnation period similar to the 2010s.
With inflation not reacting to low unemployment, policy makers became complacent and pursued fiscally stimulative policies that may otherwise have been considered excessive (e.g., enlistment expansion and the Vietnam War).
Many social policies aimed to ease rising domestic concern
over civil rights, social justice, and race relations.
The major political and geopolitical observations in 1970s
Political and geopolitical demand-driven policies of the 1960s led to stagflation in the
turbulent 1970s.
The 1973 oil crisis due to hikes in oil prices contributed to inflation. In deflationary environments, these price hikes generally have a short-term effect.
The major political and geopolitical observations in 1980s
The developed world, particularly the U.S. and UK, revolted against the demand-side policies. This led to Thatcher in the UK and Reagan in the U.S. pursuing painful structural reform (e.g.,
deregulation, privatization, countercyclical fiscal policy, free trade, and independent central banking).
Central banks had a mandate and the political capital to squash inflation.
The major political and geopolitical observations in 1990s
Domestic political revolt against demand-side policies and the collapse of the Soviet Union were two tailwinds of globalization and American hegemony that tamed inflation and changed the political power balance between labor and capital.
Policies from the Thatcher-Reagan revolution, referred to as the Washington Consensus, were exported globally to newly democratized states.
Productivity soared due to the technological revolution, a by-product of the 40-year Cold War;
and inflation was tamed by the opening of Chinese and Eastern European labor markets to the global supply chain (the greatest supply-side revolution).
Washington Consensus consisted of 10 recommended policy reforms presented by economist John
Williamson in 1989.
- Fiscal discipline (i.e., reduce national budget deficits)
- Redirecting public expenditure
- Tax reform
- Financial liberalization (i.e., market-determined interest rates)
- Single, competitive exchange rate
- Trade liberalization (i.e.,
reduce restrictions) - Elimination of barriers to foreign direct investment
- Privatization of state-owned enterprises
- Deregulation (e.g., abolishing policies that restrict competition)
- Secure, affordable property rights
The major political and geopolitical observations in 2000s
The 2001 recession did not change the globalization and Washington Consensus tailwinds. Policy makers still embraces the debt supercycle, especially in the U.S. after the 9/11 attacks, which likely kept interest rates low for longer than ideal.
However, expansion of the global supply chain led to:
- stagnation of real wage growth in most developed countries
- which resulted in leveraging of U.S. households, especially given higher cost of middle-class goods.
The major political and geopolitical observations in 2010s
The debt supercycle finally ended. Policy makers in developed regions, still adhering to the Washington Consensus, refused to reflate via fiscal policy, which deepened concern and
spurred the rise of populist policy makers.
U.S. hegemony, which provided the expensive
global public goods needed for globalization, weakened; and, by the end of the decade, the U.S. hoped to reverse the globalized system it had created.
reflate refers to
expanding output, which stimulates spending and curbs the effects of deflation (i.e., general decline in prices).
THREE POTENTIAL STARTING SYSTEMS OF GEOPOLITICS
i. Unipolarity (i.e., one dominant power)
ii. Bipolarity (i.e., two great powers)
iii. Multipolarity (i.e., three or more great powers
THREE POTENTIAL STARTING SYSTEMS FOR POLITICS
i. Laissez-faire
ii. Dirigisme
iii. Populism
Laissez-faire system description
This system is a hands-off approach to policy coordination and applies the
tenets of the Washington Consensus; government is not involved in the economy. Laissezfaire
capitalism likely has a dampening effect on inflation and a mildly positive effect on
long-term growth.
Dirigisme political system
This system entails the government more directly involved in the economy in
terms of regulatory, trade, and fiscal policy. Compared to laissez-faire, dirigisme may have a slightly greater effect on inflation and similar growth outcomes.
Populism political system
This system aims to create positive short-term nominal growth outcomes, but
creates considerable long-term inefficiencies, which results in higher inflation and lower growth outcomes.
Why is Multipolar Distribution to greater volatility? What is the impact on inflation and growth?
Its leads to considerable macro and investment volatility due to numerous power conflicts and proxy warfare.
Because no one party is able to enforce the rules, allies start to cheat and trade with rivals => encourages open trade and growth
