The Fall of the Keynesian State - I

1
The Fall of the Keynesian State - I

• Internationally

2
Obvious Signs of Growing Difficulties

• Decline in US trade balance, trend from surplus
  to deficit, deficit emerged Spring 1971
• Persistent US balance of payments deficit, export
  of capital as US provided dollars to world
• End result abandonment of fixed exchange rates,
  August 15, 1971 ( unhooked from gold)

3
Less Obvious Worrisome Trends

• Shift from dollar scarcity to dollar glut
• Increasing speculation against fixed exchange
  rates
• Debate over future of international monetary
  system
• Growing conflict over US ownership/influence in
  Europe
• Discuss each in turn

4
Dollar Scarcity to Dollar Glut

• A shift in the nature of the international
  liquidity problem took place
• Dollar provided liquidity in early post-WWII, but
  ...
• Growth in European Japanese economies
• ? rapid growth in international trade
• ? increased need for dollars
• ? Dollar scarcity
• But ??in dollars gt ? trade ? intl inflation
• So Europeans had to use monetary policy to
  neutralize dollars

5
Increasing Speculation

• Speculation against exchange rate changes
• Result of rapid growth of Eurodollar market (and
  later Asian dollar market)
• Result of rapid growth of multinational
  corporations (MNCs), both industrial financial
• Result of conflicts between US Allies
• when conflict flared up, markets were
  destabilized
• with consistent conflict ? instability of
  expectations

6
Debate over Future of IMS

• French vs Americans
• Jacques Rueff wanted 3X ? gold price
• US opposed, would undercut allies
• Some economists proposed flexible rates
• supposedly automatic adjustment
• experience suggested increased instability
• Hybrid solutions
• crawling peg (small regular changes)
• creation of intl money (e.g., SDRs)

7
Growing Conflict US-EU

• Servan-Scribers book, The American Challenge
• Stanford School said differential liquidity
  preferences
• US less interested in liquidity, wants long term
  assets
• Europeans want more liquidity, e.g., dollars
• Vietnam War expenditures ? ? US dollars,
  ??inflation in world at large

8
Social Roots

• Behind these international problems and
  confrontations lay domestic social conflicts
  within each country
• Conflicts put constraints on foreign policy
• Conflicts pushed foreign policy in particular
  directions
• See next section, primary example will be US

9
--END--

10
The Fall of the Keynesian State - II

• National Level

11
Beneath the International Crises local economic
problems

• Beneath exchange rate instability
• we find rapid growth of Eurodollar holdings
• Beneath excessive liquidity
• we find chronic US bal of pay deficits caused by
  increased captial flows abroad and ? trade
  surplus
• Beneath increased capital investment abroad
• we find reluctance to invest at home
• Beneath declining trade surpluses
• we find accelerating US inflation

12
Beneath contd

• Beneath accelerating inflation we find
• an accomodating monetary policy
• a growing federal budget deficit
• wage growth outstripping productivity growth
• Beneath accomodating monetary policy budget
• we find Vietnam War War on Poverty
• Beneath wage ? gt productivity ?
• we find new labor militancy (auto, coal, public
  employ)

13
Beneath contd

• Beneath slowing productivity growth
• we find growing refusal to work
• increased alienation resistance to new
  technology
• shift from manufacturing to services
• linked to womens refusal of patriarchy, nuclear
  family
• Beneath the Vietnam war
• we find peasant refusal of development
• we find student refusal of sacrifice in
  suspicious cause
• linked to student refusal of discipline in
  education
• linked to refusal of patriarchy racism

14
Beneath contd

• Beneath the Great Society
• we find the urban uprisings of the mid-60s
• we find human capital investments
• Beneath the urban uprisings
• we find the Civil Rights Movement
• we find the Black Power Movement
• Beneath these movements
• we find the revolt against racism, unemployment,
  low wages, ghettoization of Keynesian period

15
Social Roots of Crisis - IViewed from Above

• Some have seen roots of inflation in crisis of
  democracy, but crisis excess for him
• Decline in formal voting, ? ticket splitting
• ? protests, demos, alternative forms of political
  action
• 1960s more demands for Govt benefits
• ? demands produced welfare shift, ?
  expenditures
• ? minus taxes deficit accom. policy
  inflation

16
Top Down Contd

• ? respect for govt, authority, wealth, hierachy
• function of change in values, fx demographic
  change
• Thus ? polarization, disintegration of governing
  coallition
• All produced decline in authority prestige of
  governing coalitions representative the
  president
• from Truman his Wall Street lawyers to
  Johnson/Nixon resignations
• Verdict behind inflation lies excess of democracy

17
Social Roots of Crisis - IIViewed from Below

• But analysis of these things can differ
• instead of demographics, one can see social
  conflict
• instead of excess of democracy, a cycle of
  struggle
• not just youth, but a recomposition of social
  forces which gained power to contest effectively
• not just simultaneity of demands, but circulation
  of struggle from sector to sector, unwaged to
  waged
• Blacks in streets to blacks whites in auto
  factories
• Refusal of patriarchy in home to refusal of
  authority in schools, etc

18
Historical Sketch - I

• Labor resistance to productivity deals in 50s
• Growing black resistance Civil Rights, then
  Black Power Central City Riots Welfare Rights
• Great Society programs aimed at unionizing and
  stabilizing ghettos
• But Federal programs financed struggle instead of
  control
• Welfare struggles, like riots, sought
  decoupling of wage from work
• Refusal of work can be seen to follow from rising
  real wages because real w and leisure time are
  complements

19
Historical Sketch - II

• New waves of struggle appropriated old themes
  culture of insubordination and freedom from
  exploitation
• Examples can be found in music
• E.g., the song Which Side Are you On

20
Capitalist Response

• Counterattack National
• Nixons wage-price freeze
• Pay board (w/ unions in the state)
• Labor-Management Committees
• Industrial restructuring
• at international level
• End of Bretton Woods
• Food oil price attacks on real wages
• etc (rest of this course deals with what follows)

21
--END--

22
The Fall of the Keynesian State - II

• National Level

23
Focus of Discussion

• Focus on underlying social/national dimensions of
  the crisis of the Keynesian state
• Reading S. Huntingtons essay on the Crisis of
  Democracy (mainstream political scientist, TC)
• Reading P. Carpignano, Class composition in the
  1960s (Italian radical sociologist)
• Reading G. Caffentzis, Throwing Away the
  Ladder (Professor of Philosophy, Univ of
  Southern Maine)
• Reading M. Montano Notes on the International
  Crisis(student radical, whereabouts unknown)

24
Beneath the International Crises local economic
problems

• Beneath exchange rate instability
• we find rapid growth of Eurodollar holdings
• Beneath excessive liquidity
• we find chronic US bal of pay deficits caused by
  increased captial flows abroad and ? trade
  surplus
• Beneath increased capital investment abroad
• we find reluctance to invest at home
• Beneath declining trade surpluses
• we find accelerating US inflation

25
Beneath contd

• Beneath accelerating inflation we find
• an accomodating monetary policy
• a growing federal budget deficit
• wage growth outstripping productivity growth
• Beneath accomodating monetary policy budget
• we find Vietnam War War on Poverty
• Beneath wage ? gt productivity ?
• we find new labor militancy (auto, coal, public
  employ)

26
Beneath contd

• Beneath slowing productivity growth
• we find growing refusal to work
• increased alienation resistance to new
  technology
• shift from manufacturing to services
• linked to womens refusal of patriarchy, nuclear
  family
• Beneath the Vietnam war
• we find peasant refusal of development
• we find student refusal of sacrifice in
  suspicious cause
• linked to student refusal of discipline in
  education
• linked to refusal of patriarchy racism

27
Beneath contd

• Beneath the Great Society
• we find the urban uprisings of the mid-60s
• we find human capital investments
• Beneath the urban uprisings
• we find the Civil Rights Movement
• we find the Black Power Movement
• Beneath these movements
• we find the revolt against racism, unemployment,
  low wages, ghettoization of Keynesian period

28
Social Roots of Crisis - IViewed from Above

• Huntington sees roots of inflation in crisis of
  democracy, but crisis excess for him
• Decline in formal voting, ? ticket splitting
• ? protests, demos, alternative forms of political
  action
• Huntington evokes James Madison on need for
  balance between governability democracy
• 1960s more demands for Govt benefits
• ? demands produced welfare shift, ?
  expenditures
• ? minus taxes deficit accom. policy
  inflation

29
Top Down Contd

• ? respect for govt, authority, wealth, hierachy
• function of change in values, fx demographic
  change
• Thus ? polarization, disintegration of governing
  coallition
• All produced decline in authority prestige of
  governing coalitions representative the
  president
• from Truman his Wall Street lawyers to
  Johnson/Nixon resignations
• Verdict behind inflation lies excess of democracy

30
Social Roots of Crisis - IIViewed from Below

• Three articles from Zerowork express radical
  perspective from the core of what Huntington
  calls an excess of democracy
• Yet there is a parallelism to the analyses
• both recognize politics behind economics
• both attribute the crisis to upsurge in
  grassroots struggle
• both recognize existence of permanant anatagonism

31
Differences

• But analysis of these things differ
• instead of demographics, ZW authors see class
  struggle
• instead of excess of democracy, a cycle of
  struggle
• not just youth, but a recomposition of the
  whole class which gained power to contest
  effectively
• not just simultaneity of demands, but circulation
  of struggle from sector to sector, unwaged to
  waged
• Blacks in streets to blacks whites in auto
  factories
• Refusal of patriarchy in home to refusal of
  authority in schools, etc

32
Historical Sketch - I

• Labor resistance to productivity deals in 50s
• Growing black resistance Civil Rights, then
  Black Power Central City Riots Welfare Rights
• Great Society programs aimed at unionizing and
  stabilizing ghettos
• But Federal programs financed struggle instead of
  control
• Welfare struggles, like riots, sought
  decoupling of wage from work
• Refusal of work can be seen to follow from rising
  real wages because real w and leisure time are
  complements

33
Historical Sketch - II

• New waves of struggle appropriated old themes
  culture of insubordination and freedom from
  exploitation
• Examples can be found in music
• E.g., the song Which Side Are you On

34
Capitalist Response

• Counterattack National
• Nixons wage-price freeze
• Pay board (w/ unions in the state)
• Labor-Management Committees
• Industrial restructuring
• at international level
• End of Bretton Woods
• Food oil price attacks on real wages
• etc (rest of this course deals with what follows)

35