The New American State

Problems following WWII

• unstable monetary system

• trade barriers

The emerging world monetary system

• gold standard before 1930's

• failure of gold standard following depression

• Breton Woods agreement (1941)

  • established dollar as world currency

  • dollar convertible into gold - $35/ounce

  • International Monetary Fund - loans and exchange rates

  • World Bank - loans

Trade and Tariffs

• General Agreement on Trades and Tariffs

  • stop preferential trading blocks

  • reduce trade barriers - most favored nation principle

  • reduce tariffs overall

Impacts of GATT

• GATT reduced tariff barriers

• positive impact on US and industrial economies by opening markets

  • advantage lost with emergence of Europe and Japan

• negative impact on less developed countries

  US as the world banker

  • World Bank and IMF funds insufficient

  • Marshall plan/Truman plan - US assistance to rebuild

  The economy following WWI

  • international agreements on trade and monetary relations

    • G-10 top industrial powers

  • stability in labor relations

  • stability in business cycles - Keynesian economics

  Economic Theories - Neoclassical and Keynesian

  Neoclassical Economic Theory

  • markets are self-clearing

  • existing distribution of power is accepted

  Keynesian Economic Theory

  • markets are not self clearing - labor market not self adjusting

    • if aggregate demand is too low economy moves to depression

  • expand government spending or decreases taxes to stimulate demand during recession

  • reduce government spending or increase taxes to decrease demand during expansion

  • stabilization role for government

  The Phillips curve

  • an inverse relationship between inflation and unemployment

  • to lower inflation means higher unemployment

  • to raise employment means higher spending and inflation

  Significance changes in the American State

  • U.S. forced to compete internationally

  • existing capital stock out-dated

  • decline of support of Keynesian economics - stagflation - 1970's

  • increased deficits

  • emergence of collective bargaining

  • multi-year labor agreements

  • inflation indexed social benefits

  • government regulation to preserve profits of industry

  • emergence of economy dominated by corporations - centralization of power

  What we have learned about political-economy

  • markets are the product of multiple state decisions

    • property rights

    • redistribution of wealth

    • legal right of contract

    • protection from injury - domestic and international

  • the concentration of economic power can be encouraged or controlled by the state

    • the concentration of economic power adversely affects the market

    • the concentration of economic power can produce a concentration of market power

    • there is an increasing concentration of economic power in the US

  • the market produces externalities (positive or negative spillovers) which may justify intervention by the state

    • education is an example of a good with positive spillovers

    • pollution is a negative spillover produced by driving a car

  • government policies produce externalities (positive or negative spillovers) which may outweigh their direct benefits or costs

    • tariffs for industry produces significant negative spillovers for consumers

    • environmental protection produces significant positive spillovers for consumers

  • the economy is always a combination of market and state

    • there are no pure market economies, or pure controlled economies either

    • the political question seems to be "how much government is too much"

    • the political-economy question is "how much government involvement is necessary to produce desired economic results"

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