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 Garrett and Lange's and Pierson's Rebuttals

Handouts:

Paper 1 Instructions

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.

Study Questions:

(April 12, Monday):

How did the advent of economic crises lead to the decline of national wage bargains in the Low countries? Support your answer with a comparison of two of the country cases.

(April 14, Wednesday):

How does “globalization” challenge the class compromise of welfare state capitalism? List three major challenges.

(April 16, Friday):

How do “encompassing” labor market institutions provide left and center-left European states with the autonomy to pursue independent macroeconomic strategies that are not merely imposed by the global market? List four major functions of these institutions and explain how they work in at least one empirical country case.

How do the politics of welfare state “retrenchment” differ from the politics of welfare state expansion? List at least three differences.

What are the empirical indicators for welfare state retrenchment? How does Pierson compare these indicators across his country cases?

(April 19, Monday):

Based on the readings assess to what extent you believe the “globalization” trend will continue to challenge democratic corporatist states in the future. List three persisting challenges and two possible responses to these challenges.