Gavin Whitesitt

Professor Peterson
ECON 343
16 January 2017
Commanding Heights Episode 1 notes
the story of how the new global economy was born
New world economy is being driven by technological and political change
Documentary starts during WWII
Episode is titled the battle of ideas
John Maynard Keynes: favors government intervention in case of market failure
Friedrich von Hayek: believes market with eventually fix itself
After the start of WW1 it would take almost 80 years for a true global economy to
come back
Keynes made fortune in London stock market lost it and made it back again.
Keynes believed that the reparations that Germany was forced to pay were ill
advised and predicted that it would cause war in the future
Friedrich von Hayek at one point said he was a mild socialist
Von misses markets work, governments dont
Lenin believed that communism would free the people from chaos of market
economy
Under communism many died, certain free market controls were lifted
Joseph Stalin introduced centralized planning
Germany unable to pay war reparations began printing money. Hyperinflation
occurred
Hayek saw inflation as evil
NYSE becomes popular in America, stock bubble occurs beginning of the great
depression
Half of the banks in US close due to panic
Keynes writes book telling how the great depression started and how to prevent it
Keynes creates basic economic terms like rate of unemployment GDP and rate of
inflation. Terms that we take for granted today
FDR creates the new deal: deficit spending and tightens controls on free market

Airline industry is a good example of regulations working to stop vicious boom and
bust cycles
Keynes releases theory on how to manage economies and to prevent depressions
Keynes: in good times economies should reduce spending and build surplus and in
bad times to ramp up spending to maintain employment
Deficit spending is the policy during world war two
Hayek attacked growing popularity of Keynesian policies by writing road to serfdom
Hayek rejected any government intervention
World bank and international monetary fund created postwar
Brittan voted for Labor party in elections overwhelmingly postwar
Labor created mixed economy in which government owned certain industries but
also still allowed private enterprise other industries
Hayek saw socialism and planned economies as threats to freedom
Hayek assembled group of people who understood market economy and pitched
that freedom was under a great threat due to planning
Democracy is impossible without a free market
Hayek said that the great strength of socialists is that they had the courage to be
idealistic
Germany gave up all price controls against popular counsel
People stopped hoarding and Germanys economy started to recover
India celebrated independence and at the advice of world economists big industry
was put into the hands of the public center
In Chicago Milton Friedman becomes the spokesperson for the Chicago school of
economics Strong belief in minimal government and a emphasis in the free market
Keynesian economic policy is used for 30 years as economies prosper
Hayek feels isolated and his ideas are for the most part dismissed.
Stagflation occurs: high level of unemployment and stagnation in the economy with
inflation this is impossible under Keynesian theory
Nixons economic policy opted for wage a price controls this went against what he
ran on
Nixon is reelected in landslide, but economy struggles
Brittans mixed economy faces similar problems as the United States
Wage and Price controls are used to combat stagflation in Brittan as well.

Keith Joseph starts the rethink of conservative policy

Institute of Economic affairs is created
Keith Joseph attacks mixed economy preaches free market principles
Margret Thatcher is influenced heavily by Keith Joseph
Hayeks road to serfdom also heavily influences Thatcher
Hayek wins Nobel prize in 1974
Sam Peltzman believes that regulating industry can prevent competition which can
in turn raise prices
Justice Stephen Bryer heads investigation into airline industry
This leads to airline deregulation
Thatcher elected
Deregulation ensues
Austerity measures ensue
In the United States Carter is elected
Carters Keynesian policy isnt working
Paul Volker is elected as the federal reserve chairman
Volker tightens monetary policy
Ronald Reagan campaigns against Keynesian policy and runs under Hayeks policies
In 1980s interest rates are as high as 20%
In 1982 inflation goes down
Reagans policy: sound money, deregulation, modest tax rates, limited govt
spending
Lowering of tax rates lead to large deficit, but economy recovers
Thatcher re-elected due to victory on Falklands
Nationalized industries are ineffective and are subsidized largely by the government
Thatcher fights against coal miner unions
Coal miners strike for year and a half but ultimately stop.
Less than 3000 employed by coal industry in Brittan now.
Privatization of nationalized industries is policy by Margret Thatcher
Hayek lives to see his ideas widely accepted and implemented by most of the world
economy