Summary of Commanding Heights – Chapter 5
CRISIS OF CONFIDENCE
“[The shift of the pendulum] in idea converged with the experience and learning of the preceding decades. Confidence in market [economy] rather than government [intervention] formed the foundation of the global critique.” The Global Critique
1. The pendulum swung back to the market –Hayek’s award of the Nobel Prize in 1974 shifted intellectual center ( Friedrich von Hayek and “Battle of Ideas”, the Road to Serfdom, Chicago School & Grudging Respect) * Friedrich von Hayek – Hayek believed that Keynesianism would not solve the slump but would institutionalize inflation. He asserted that governments should exist to ensure the development and maintenance of the institutions such as the laws and rules. In his book the Road to Serfdom, he prepared a full-scale view on market-oriented economy in which Margaret Roberts, later named Margaret Thatcher was influenced. * Chicago School (Milton Friedman) – Chicago school, partly driven by Milton Friedman, emphasized free markets and argued against government intervention. They believed markets produce the best outcomes and allocate resources to the utmost. After retirement from teaching, Milton Friedman became an advisor to Ronal Regan and his advisors. * Jeffrey Sachs – During the mid-1980s, he was at the center of economic reform around the world. Keynesian-educated Sachs gradually disapproved the ability of governments and came to believe in the competitiveness of the market. 2. Lost confidence in the government control economy –The collapse of the Berlin Wall, what had symbolized between communism and capitalism gave the victory to capitalism A) Falling confidence in industrial world - Crisis of confidence (1970 ~ 1980) * From the end of the World War II till oil crises in the 1970s, industrial world enjoyed three decades of prosperity. However, people started to realize the limits of government knowledge and its ability to run...
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