Topic 24 Discussion 121: Collapse and Recovery of the Global Economy: The 1970s and 1980s

1. Post WWII economic boom was winding down

a. OPEC and energy prices contributed to the economic downturn

b. Arab – Israeli War

c. Iran – Iraq War

d. Persian Gulf War I

2. Stagnation and Inflation = Stagflation

a. High unemployment coupled with high inflation

b. Solutions

i. Downsizing business and government

ii. Moving jobs from the industrial sector to the service sector

1. Curtailing unions

2. Jobs became unprotected

3. Huge investments in technology

iii. Reduced social spending and moving away from Keynes

1. “Compassionate conservativism”

2. Thatcher and Reagan

a. Trickle Down (Supply Side Economics)

c. Stimulus of privatization and deregulation had limited effect

i. Labor made gains and Blair replaced Major

ii. Mitterrand replaced de Gaulle

iii. Clinton replaced Bush I

d. France liberalized its policies

i. Nationalized its banks and major industries

ii. Capital from abroad dried up

iii. French economy sagged

iv. Cohabitation developed

1. President in charge of foreign affairs

2. Prime minister in charge of domestic affairs

v. Jacques Chirac replaced Mitterrand

1. Chirac then became president

2. Lionel Jospin became PM (Socialist)

e. American economy

i. 1987 market crash

ii. Saving and loans scandal

iii. Devaluing the dollar spurred foreign investments

iv. End of the Cold War led to a peace dividend

v. US economy went on a unprecedented 10 year run

vi. Bubble burst in 1999 – 2000

1. Over production related Y2K

2. Valuations based on potential growth

3. Excess capital related to “Wealth Effect”

4. Increased competition from emerging tech nations

vii. Mutual interdependence of the global economy grew

viii. European Community grew

1. England entered

a. Objected to large agricultural subsidies

2. Former eastern block nations

3. Single European Act (1987)

a. Removed numerous economic barriers

i. Tax rates

ii. Licensing

iii. Euro

b. European Union became the largest trading block in the world and the largest collective economy

4. US responded with NAFTA