Stagflation and the Rise of Neoliberalism

What made the US Dollar the reserve currency?

All currencies were pegged against the US dollar

What was the Impact of the US having a trade deficit ?

Exchanging its US dollar for Gold- Decline in American Gold Reserves.

What was increasing in the US and why?

Government deficit and debt increasing- Cold War, War in Vietnam, Arms race with Soviet Union.

What did the government do after WWII?

Cut government spending.

What is Federal deficit?

The amount by which federal spending exceeds revenues.

What is national debt?

The sum of federal deficits over time.

what places pressure on the US dollar?

• Increasing debt

• Stress of the Gold reserves

What did OPEC impose in 1973?

Imposed an imbargo on oil exports in response to their support for Israel in the Arab-Israeli war.

What did increase in oil prices lead to?

Increase in inflation globally.

What impact did inflation and economic issues caused by oil issues have?

Opened up to the policy of monetarism and neo-liberalism.

What is monetarism?

A critique to Keynesianism as it was “Demand side economics”- believed we should be worried about the supply side not the demand.

Inflation rather than unemployment is the threat of the economy.

What do monetarists believe should govern the economy

• The markets- not the state

What does monetarism and neo-liberalism advocate for?

Decrease in taxes

What do monetarists and neo-liberalism base their beliefs on tax on?

The Laffer Curve.

What does the Laffer Curve argue?

Lowering tax rate can increase revenue- people keep more money and are there is therefore more incentive for people to work more- if their money is being taken- they are less likely to work.

Who called the Laffer Curve “Voodoo economics”?

George Bush.

Who influenced Thatcher and Reagan ?

Pinochet in Chile

What was the impact of economic crises in Asia, Mexico, Argentina etc?

Questions the ability of neo-liberalism to manage crises and regulate the economy.

What ultimately saw the end to neo-liberalism as the dominant economic ideology?

The 2007-2008 financial crash