Vorlesung Teil 4: WW2 (1933-45) - Oil Price Shock (1973)

Question 1

After WW2 (1933 - 1945)

Answer 1

• China and Japan suffered slightly
• USSR suffered the most
• > a lot of human capital was destroyed
• > smaller workforce
• USA peaked during war
• > could stay on a high level after war (still is on a long run growth trend)
• AFTER WAR GROWTH RATES DIVERGED
• Europe became divided:
  
  • WE: Market Economies
  • **EE: Planned Economis
• > Communism vs capitalism**
• Sweden turned into “half-planned” economies -> social system that were ruled by the government

Factors explaining growth after WW2 in Wester Europe:

Growth in the 1950s was mainly “catching-up growth”

The term “catching-up growth” describes the scenario when a country is below its steady state growth rate and converges back to it. One could observe it in Germany in the years after WWII, in Japan in the 70s and 80s and nowadays in China.

• The technological frontier was accessible for most western European countries (not for eastern european countries though -> Communism and the “iron curtain”)
• Human Capital was not completely destroyed but was decreased; many scientists emigrated to the US and did not return to their European native country, particularly affected were Germany, Austria and Italy
• Institutions
• Germany, Austria: Social Market Economy
• France: From Liberalism to “Planicfication” (mixed enterprises with private and public capital)
• Italy: Corporatist structures remained, although monarchy ended in 1946, decision by northern Italy against the south, which remained monarchist
• (corporatism = organization of society by corporate groups, such as agricultural, labour, military, scientific, or guild associations on the basis of their common interests.)*
• GB: Communization of primary industries (coal, steel, railways, national health service | from 1979 - 1990 privatizations and deregulations under M. Thatcher (the Iron Lady))
• After WW2 european countries recovered
• Italy and France “jumped” on a higher growth path (“catching up growth”)
• Germany too:
• 1950 - 1954: g(Y) = ca. 0.084
• 1955 - 1959: g(Y) = ca. 0.061
• 1960 - 1964: g(Y) = ca. 0.043
• 1965 - 1969: g(Y) = ca. 0.083

Question 2

Vietnam War (1955-75) and its contribution to the Oil Crisis

Answer 2

• The costs of the Vietnam war of the USA were approx. 1.500 Mrd. = 1.5 Billion US-$ (billion = mrd.?, aus Folie übernommen) -> Budget deficit?
• In 1968 US inflation increased from 2.7% to 4%
• Oil and gas consumption of the US army per day: 1 Mill. Barrel!
• Serious Contribution to the Oil Crisis in 1973

Question 3

Oil Price Shock (1973)

Answer 3

• Disaster for most industrialzed countries
• First shock in 1973, the second one int 1981/82
• Today oil price is not a shock, because we don’t need it as much
  (better technology -> more energy efficiency)
  
  • Oil consumption is not parallel to the growth of GDP anymore
• Rate of inflation was rising dramatically, because both oil shocks caused a long-term price increase in different industries since costs for every step of production were rising
• Most of the times policy did not consicer supply shocks, because they believed in Keynesianism and answered to them by increasing demand with higher wages
  -> higher unemployment
• Economy stagnated
  -> GDP declined
  -> Inflation increased
  -> STAGFLATION
• For the first time ever in History, nobody knew what to do
• Negative g(Y) in Germany and other countries
• Regression in France was stronger than in US
• Regression in UK was very strong because of socialism (communization)
  
  • resulted in a change in the economy system, due to Thatcher
• In the 1980s there was a conservative revolution in most of the countries
  -> change from social and liberal regimes to more conservative and liberal regimes
  -> changes to a “supply side economy”
• Thatcher changed the economy to a growing economy
  -> privatizing
  -> deregulation
  -> not lowering taxes
• Reagan did not need to deregulate, because there was not a lot of regulation
  -> increased Government spending
  -> lowered taxes
  = Budget deficit
• Kohl announced the “geistig-moralische Wende” (change of mind)
  -> reward those who work hard
  -> lower bureaucracy
• Inflation rose again after the unification of Germany and g_y went down
  -> infrastructure was reorganized, which cost a lot of money
  -> government consumption was increased -> higher demand
  -> no supply, so price level rose
  -> no inflation because of recovreing, prodcution was simply increased