Let me acknowledge our partnership with the National History center and the american historical association. We are cosponsoring and coorganizing this seminar with. Let me acknowledgment our donors, the society of historians of American Foreign relations, the George WashingtonUniversity History department as well as a number , of individuals giving support for this series. We want to acknowledge roger lewis, the cochairman of the seminar. Hes here all the way from texas. I want to welcome all of you and say thank you especially to pete and amanda perry who do the heavy lifting in terms of getting us here and organized. We are very grateful to you. [applause] thank you. Will turn i think i it over to eric to introduce our speaker. Thank you. One last technical announcement, if you have one of these devices, and i suspect everyone in the room does. If you could just turn it to vibrate or silence, that will prevent embarrassment and interruption in the next hour and a half. With that, it is my pleasure to introduce this afternoons speaker, Marc Levinson, who is an independent historian and economist living in washington, d. C. Hes a former finance director and editor of the economist and a Senior Member of the council on foreign relations. His previous books include the box how the shipping container made the world smaller and the World Economy bigger, one of the bestknown Business Books in recent years. He received a doctorate in history from the City University of new york. And today, he will be speaking on his new book. Marc levinson thank you very much. Welcome, everyone. Im very honored to be asked to present here on my book and im pleased all of you came. People have looked at 1973 as a sort of turning point. Here is what it looked like. Before 1973, in all the advanced economies, Economic Growth had been rapid improvements in living standards. Around the world, the economy grew at an average rate of 4. 9 from 1951 to 1971. At that rate, and economy will double in size in 14 years and quadruple in size in about 28 years. This is a world in which people can feel themselves becoming better off the day, by the year. Then, where you see the vertical line on the graph, everything changed. In the quarter century after 1973, the World Economy grew just 3. 1 per year. The decline was even sharper in the advanced economies of western europe, north america , and japan. To a remarkable extent, the outlined,s are just extraordinarily strong Economic Growth during the Third Quarter of the 20th century, much more ordinary performance during the Fourth Quarter are ignored in , the many political, social and diplomatic histories of this time. So is the fact that these trends transcended international boundaries, affecting every wealthy country and many developing countries. What i was trying to do with an extraordinary time is resent a new history of the second half of the 20th century from a perspective historians have largely ignored. Its important to remember the starting point here. Obviously at the end of world war ii, millions of refugees in japan and across europe filled the roads, build transit camp needed relief. , there was widespread destruction of infrastructure and capacity. In north america, there was no destruction of infrastructure but we had plans converted to war production that took a prolonged conversion back to peacetime production. And everywhere, inflation was a problem. Because there was Strong Demand for goods that had not been available in some cases since the 1920s. Beyond that, the economies in the postwar era were far from modern. It is hard to take ourselves back to that time now. This is an age at the end of most firms inhen this country and other countries lacked electricity still. Many urban houses still had outhouses. For americans, the home phone was usually a party line. And in other parts of the world, getting a home phone could take years if you could take one at all. It was a luxury good. Here is a statistic for you. In 1945 at the end of the war, there were 3. 1 million mules on u. S. Farms. Farmers were more likely to own a mule than to own a tractor. It was not just material goods that were much less than they are today. It was Living Conditions in many other ways. A woman born in japan in 1947 could expect to live to age 54. A man born in italy could expect to live to about 60. The first couple of years after the war ended were an Economic Disaster and many of you know this story. In the United States and canada, this time was known for labor conflict. In europe and japan, there were no currency reserves so governments did not have the wherewithal to import the most a basic products people needed for survival. Power plants could not generate power because there was no cold. Tractors cannot plow fields because there was no diesel fuel. It was a chaotic time economically. In 1948, things began to change. There were three factors that caused this. One was a shift of u. S. Economic policies. In europe, the United States brought in the Marshall Plan which helped stabilize currencies and provide Foreign Exchange so countries could begin to import the necessities to restart production. Had ann in 1948, we Economic Policy that became known as the reverse course. That was the idea that instead of punishing japan to make it pay for causing the war, we ought to help the economy grow to stabilize japan as a bulwark against communism and create a trading partner for ourselves. U. S. Economic policy was part of the change that happened in 1948. Second, there was the currency reform in west germany which was not unrelated to the fall of the iron curtain across europe in that year. Receipt of events had some important effects. It created a Stable Currency in west germany and allowed for the fundamentals of the market economy to begin. Until then, a lot of the Economic Exchange had been to through barter because there was no faith in the currency which was deliberately kept unstable by the russians who shared authority over it. The fall of the iron curtain over Eastern Europe turned to be positive for Economic Growth in the west. You can think of this as the russians walling themselves off. Then they had been , meddling endlessly in affairs in the west and other western European Countries. The iron curtain was a bit of a withdrawal. It separated east from west and made it possible for the west to grow. Then there was in 1948 the beginning of trade liberalization, the foundation of the general agreement on tariffs and trade and what became the common market. From those reforms, those firmer foundations, many countries began to grow. 1948 was the first year of growth. Many countries would grow economically straight through until 1973. There were literally countries that went more than a quartercentury without a recession. The west germans called this the economic miracle. The italians talked of the miracle. The french name for this time is the 30 glorious years. The japanese are more modest and talk about the era of strong Economic Growth. [laughter] levinson we tend to call it the golden age. The golden age was the heyday of economic planning. Economists had new ideas and built upon the work of John Maynard Keynes and some of the experience of the war about how to use the powers of government to provide full employment and steady Economic Growth. And naturally, perhaps, as economies around the world grew well in the 1950s as peoples incomes rose and unemployment stayed generally low, the economists claimed credit. One of these was walter heller, some of you may remember him as the chief Economic Advisor to president kennedy and president johnson. Shortly after leaving office, he gave a famous lecture at harvard in 1965 in which he claimed so far that the government knew how to adjust spending and taxes to maintain full employment without pushing up inflation. As he put it economics had , replaced emotion with reason. This notion that the economy was reasonable got a lot of traction. Emblemizedyzed this more than Carl Schiller. Hes shown here as the leader of the christian socialists in germany. He was a trained economist. He had eight doctorate in doctorate he had a in economics from before the war. His notion was that it was possible to maintain an equilibrium, steady Economic Growth, full employment, low inflation, and international balance. He referred to this ideal outcome as the magic square. Youve heard the four corners of it. His idea was that by adjusting macroeconomic variables properly, the government could achieve this magic square, could keep the economy in balance. Put schiller also understood in a market economy, the government could not achieve the magic square itself. There are seats over here if you would like. When he became west germanys economy minister in the Coalition Government that was formed in 1966, his experts produced fiveyear goals for each of the legs of the magic square. They had computing power, they had data and they spent a lot of time crunching numbers to figure out the optimal course for the German Economy over the next five years. And then, they brought together the captains of industry, the heads of the great labor unions, the heads of the trade associations. Board members of the central bank and ministers from the cabinet. In a room much like this they , sat around tables and Karl Schiller would advise them what they needed to do in order to make the magic square a reality. He would tell them if the unions would hold their wage increases x percent, if business would increase investment, if the finance ministry would raise taxes slightly on consumption and lower it on it investment, the economy would remain in perfect balance, everyone would have a job, growth will be strong west germans would be , happy. As you might expect, this promoted the general idea that the government had the power to assure prosperity for everyone. Unfortunately, this structure did not work out terribly well. The German Economy never did manage to perform according to the forecast of schiller and his staff of experts, but he tried. He was convinced the economy could be treated as a rational and could be made to act in an orderly way without the disturbances that interrupt life in unpleasant ways. Around the world, the good times continued to roll through 1973. 1973 was the peak year. The World Economy grew 6. 3 , 6. 6 , probably the fastest global Economic Growth recorded in a single year of all of human history. The average Unemployment Rate across 28 advanced economies was just 3. 2 . As the world headed toward the second half of 1973, the forecasts for 1974 were just as rosy. Inflation was a little bit of a problem, people said, but its not going to be a serious problem. We will have another year of strong growth. If you went into the minutes of the Monetary Policy of the bank of england or the federal open market committee, there were complaints everywhere about shortages, the lack of manpower, the lack of resources. The economy was going full steam and in the autumn fell the economy is going full steam. And then the bottom fell out. In egyptian and syrian armies october 1973, attacked israel. To raiseucers braced the price of oil and embargoed shipments to several countries including the United States and the netherlands. Initially, this did not seem like a very serious development. Governments and Central Banks in several countries actually raised their forecast for Economic Growth after the embargo was announced. But then, it became serious. This is a picture that talks of the end of this europe. This is a picture to me that talks of the end of this era. 1973, a in november of number of western European Countries imposed a sunday driving ban due to the scarcity of motor fuel. Everyone took this as a bit of a lark. This occurred in the netherlands, belgium, italy and switzerland, germany and a few other places. And it was great. Students went out and had a picnic on the motorway. You can find photographs of kids rollerskating down the motorway. People left their cars at home. It was a real adventure. This was at a time when it was not quite accepted that this was in fact an economic turning point. Within two weeks of this event, this was early november of 1973, within two weeks, the mood changed rapidly. Motorists around the world began to queue for gasoline supplies ran low. You canin the u. K. , but see similar photos anyplace in europe or north america. The panic spread to japan with a forgotten crisis. The toilet paper crisis. Rumors went around there was a shortage of toilet paper in osaka and there was panic buying. There were people actually injured because the japanese were so desperate to get toilet paper before supplies ran out. The ministry of International Trade and industry had to order that the warehouses be emptied the stores be supplied with all the toilet paper people can use in order to quell this type of panic. In italy, the crisis in the fishing industry. Fishermen went on strike to protest against the high cost of diesel fuel. At the beginning of november, there was still an optimism at 197 about the situation. By the end of the month, a feeling of crisis. We are moving into a new time, a new era, and all of a sudden, the Central Banks started downgrading their forecasts for 1974. The oil crisis itself was over fairly quickly. By the spring of 1974, supplies back to normal and prices receded. But surprisingly, the economic turmoil did not go away. A few figures here will tell a tale. From 1968 to 1973, income per worker rose at a 3. 4 annual rate in the 28 wealthy economies. 3. 4 a year. From 1973 to 1979, it grew by only half that. Average unemployment in the market economies topped 5 in 1975 for the First Time Since the war and refused to go back down. People assumed this was perhaps a cyclical thing, unemployment would go up and then go back down. And it did not come back down. Meanwhile, inflation soared. The u. S. Consumer price index rose 70 between 1973 and 1980. , in italy, in the united kingdom, Consumer Prices doubled over that same time. These were not happy times. The economists who had been so eager to tout their ability to maintain steady growth and full employment suddenly seemed helpless. They described the new situation with a new word stagflation. As if the world were afflicted by some unusual disease. I think it is helpful today to recall the way inflation was understood in those days because the understanding of inflation in the 1970s would strike us as bizarre. There were different types of inflation, this is what was said in the public discussion. There was something called cost push inflation caused by unions forcing up wages and employers raising prices. Recommended care was price controls. President s johnson, nixon and , carter altright controls as did government in great britain, spain, belgium and many other countries. Price controls were typically greeted very warmly by the public. They were going to solve the inflation problem. And the editorials of the newspapers were overwhelmingly positive. Normally, this enthusiasm lasted about two months and people began to see price controls were not all they were billed to be and caused severe economic dislocations. Alongside cost push inflation, there was something called demand pull inflation. That means people were trying to buy too much stuff. One cure for that was credit controls. So that households and soinesses could not borrow easily, so they couldnt buy so much. We had credit controls in this country. President carter tried them and they were used in the number of other countries. Economists and politicians overwhelmingly believed there was a permanent tradeoff between unemployment and inflation. This was best described in 1978 by president carters chief Economic Advisor who died just last year. He said we know how to get to full employment. Thats not the problem. We know how to do it with the old standard tried and true techniques tax cuts, easy money, putting more money into certain government programs. But, when we do that, we set off the inflation. And so, the government itself was helpless against inflation or so it believed. No one believed it more prominently than arthur burns. Arthur burns is here, second from the right between gerald ford and richard nixon. Next to nixon on the other side is Milton Friedman. Burns was the most prominent economist in the United States. He was the chairman of the Federal Reserve board from 197078 and he did not believe Central Banks could do much about inflation. As i said, you have to put yourself in the mindset of the 1970s to think about how the economy was being run, with the central banker saying inflation is not my problem. In burns view the way to fight , inflation was to deal with what he called the public psychology.