Session 2: Stagflation and Globalization: The Crisis of the Keynesian Welfare State Model

I. The Advent of Stagflation

A. Critiques of Keynesianism (graphic)

1) The Monetarist Critique

2) The Philips Curve Problem (graphic)

3) Rational Expectations

B. Macroeconomic Indicators (graphic) (graphic)

C. Macropolitical Shifts (graphic)

D. Explanations for the Crisis

1) The Collapse of Bretton Woods and the Oil Price Shocks of 1973 and 1979 (graphic)

2) Social Rigidities and "Institutional Sclerosis"

3) Its "Globalization" Stupid! (graphic)

II. The Convergence Theory of Globalization

A. Definitions

B. Convergence vs. Interconnectedness (graphic)

C. Implications

III. Rebuttals to the Globalization Argument

A. The Crisis of Conservative Economics and the Rebirth of Keynes

B. The Empirical Limits of Globalization (graphic)

1) The Precedent of Interdependence in Trade

2) Globalization of Production

3) Distribution of Capital Flows

4) Mobility of Capital

C. Geoffrey Garrett's Rebuttal (graphic)

IV. Group Assessment of Rebuttals

Key Concepts: monetarism, “long and variable lags,” the Philips curve, stagflation, the neutrality of money, non-accelerating inflation rate of unemployment (NAIRU), rational expectations, oil price shocks, seignorage, Triffin’s dilemma, “closing the gold window,” petrodollars, Eurodollar markets, free-riding, n-person problem, rent-seeking, “institutional sclerosis,” the product cycle, post-Fordism, convergence theory, competition in laxity, “get the prices right,” homogenization/convergence vs. interconnectedness, “best practice” and ISO9000, commodity chains, “near rationality,” encompassing organizations, labor market institutions, “internalizing the costs of decentralized militancy.”

Key Individuals: Milton Friedman, A. W. Philips, Robert Lucas, Margaret Thatcher, Robert Triffin, Mancur Olson, Charles Sabel, Thomas Friedman, N. Gregory Mankiw and David Romer, Robert Barro, Geoffrey Garrett.