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large bureaucracies produced by the Cold War began show signs of inefficiencies

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socialist economy models were beginning to show signs of erosian

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the feeling that both socialist and capitalist governments were become too big, bureaucratic entities engaged in a military competition

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the inflation of 1970s

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governments are spending and printing too of money

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common economic belief that if inflation goes up, unemployment would come down

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even if it devalues the currency

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but governments discovered that you can indeed have high inflation and high unemployment

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end of the Bretton Woods financial system

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1870s: World Money 1.0

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gold exchange

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1944: World Money 2.0

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the Bretton Woods system

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gold dollar standard

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gold as anchor but print dollars

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trouble maintaining the value of the dollar

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established the International Monetary Fund (IMF)

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1971: broke this system

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nothing really took this place

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currencies go into a free float against each other

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1973: first oil shock spike in oil prices

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oil producing countries raise price of oil

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1978: another price jump because of Iranian revolution

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how do these problems affect each economic model:

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ISI: Import, Sustitute, Industrialize (e.g. Brazil: trade low, support local)

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any oil you import becomes more expense

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you have few exports so it is hard to compensate

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you may even have to pay more subsidies to further protect your industries

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you'll start printing money

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creates endemic and hyper inflation

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EOI: Export Oriented Industrialization

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Japan, South Korea

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depressed their domestic standard of living in order to compete internationally

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as economy worsens globally, you are not able to export as much

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United States suffers a defeat in the Vietnam War

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1973 troops out, signs treaty

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treaty breaks down

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North Vietnam overruns South Vietnam

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it feels like the expansion of American power is in retreat

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it looks in ways that the USSR is getting stronger during the 70s but socialisms were having economic troubles

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obstacles to reducing the peaceful coexistence

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1. exposed realities such as Alexandr Solzhenitsyn

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exposes Soviet Union's slave labor system

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2. each superpower has different forces

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Soviet army much larger

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NATO forces more advanced

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but this means that if Soviet force overrun Europe, NATO countries have to be the first to use nuclear weapons

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i.e. will the United States sacrifice Chicago to save Hamburg?

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3. Nuclear asymmetry

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Soviets have huge force of heavy land-based missiles

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USA has longer missiles and submarines

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USA feels Soviets would tend to strike first

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Soviets fear that USA will build up too much power and offset the balance

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4. ongoing struggles in Third World

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each was seeking unilateral advantage

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Vietnam finds itself at odds with Chinese dominated Cambodia

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Vietnam invades Cambodia putting an end to the genocide being conducted by that communist regime

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Angola being secretly backed by each superpower

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Somalia, Soviets supporting military dictator, sides get help from each superpower

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El Salvador, Guatemala

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5. Afghanistan invasion

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Soviets feared that the Americans would get involved, but this move seen largely as SovietSoviet aggression

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military balance looked stable on the surface but not when you looked deeper