Cold War 5 / Post Cold War 1 / Keynes

1. When an economy is in a depression, it can behave like an elevator: either going up, going down, or staying still.

2. With the decline of savings, there are fewer investments, and they are not encouraged. With-out savings, interest rates cannot be driven down. Investment will not be encouraged because the risks increase and the amount of return on investment dips.

3. If businesses do not have enough investments, then it is the government’s responsibility to stimulate the economy. Government influence could stimulate investment directly, but it is more likely to succeed by stimulating consumption. Governments should only invest enough to rebuild the economy.

4. Keynes constructed his ideology in response to the classical viewpoint. Keynes argues that the demand for goods is a more important factor than the level of employment, regarding the output of an economy. He believes that, when necessary, government should actively involve itself in the economy to influence the demand for goods when there is high unemployment. He argues that it is people’s income level, rather than interest rates, that determines how much they put into savings and investments. He believes that the costs of producing goods set the price of foods rather than the volume of money flowing in the economy.

5. Keynes defends demand-side economics by saying that demand for goods is a primary force determining whether or not goods are produced.


1. In 1990, the Soviet Union and Albania were the only countries in eastern Europe that did not have any anticommunist revolutions, as Armenians and Azerbaijanis fought and Baltic States declared their independence. The Great Russian masses became increasingly tense. In Febru-ary 1990, the Communist party was defeated in local elections throughout the country, as competing Russian politicians presented their programs and nationalists demanded autonomy or independence from the Soviet Union. After Gorbachev’s refusal to intervene in Lithuania lost him public support, he asked Soviet citizens to ratify a new constitution that formally ab-olished the Communist party’s monopoly of political power and expanded the power of the Congress of People’s Deputies. Gorbachev’s eroding power and his unwillingness to risk a uni-versal suffrage election paved the way for Boris Yeltsin, a radical reform communist who had been purged by party conservatives in 1987, to become leader of the Russian parliament in May 1990, while Gorbachev remained party secretary and president of the Soviet Union. Yelt-sin was a tough and crafty Siberian who had staged a comeback as the most prominent figure in the democratic movement in the Russian Federation. He announced that Russia would dec-lare its independence and put its laws and interests above those of the multinational Soviet Union. His declaration broadened the base of the anticommunist movement, joining the pa-triotism of ordinary Russians with the democratic aspirations of big-city intellectuals. Gorba-chev tried to save the Soviet Union with a new treaty that would link the member republic in a looser, freely accepted confederation. Nine republics agreed to join, but the Baltic States, Ar-menia, Georgia, and Moldova did not. After being defeated at the Communist party congress in July 1990, Gorbachev and his family were kidnapped by hard-line Communists, who then tried to seize the Soviet government in August 1991. The coup failed amidst massive popular resistance, led by recently elected president of the Russian Federation, Yeltsin. With the sup-port of the army, Yeltsin defeated the rebels and returned Gorbachev to power. An anticom-munist revolution swept the Russian Federation as Yeltsin and his supporters outlawed the Communist party and confiscated its property. They then declared Russia independent from the Soviet Union, which went into effect December 25, 1991. A loose confederation, the Commonwealth of Independent States, was established in the former Soviet countries in late 1991. Concerns that Russia would try to return the independent states of the commonwealth under Moscow’s control were dead by 1992.

2. The revolutions of 1989 triggered a domino effect in which people tore down walls and put in elected officials. The liberation of eastern Europe hinted at the end to the Cold War, which had started with Stalin’s imposition of Soviet rule in eastern Europe after World War II. When communism died in East Germany in 1989, the German question began again. Supported by leading East German intellectuals and former dissidents, East German reform communists took power in October 1989 and wanted to preserve socialism by making it democratic and responsive to the needs of the people. They sought a middle path between Stalinism and capi-talism, and supported closer ties with West Germany but feared unification because it would weaken the East German identity. These efforts failed within a few months due to three fac-tors. First, in the first week after the Berlin Wall was opened, 9 million East Germans moved into West Germany, where they met long-lost friends and shopped at well-stocked stores. Second, West German chancellor Helmut Kohl and his closest advisors exploited the historic opportunity by declaring in November 1989 a ten-point plan for a step-by-step unification in cooperation with East Germany and the international community. Kohl denounced fears of a dangerous greater Germany and promised the ordinary citizens of East Germany a one-for-one exchange of all East German marks in savings accounts and pensions into much more val-uable West German marks. This helped a well-financed conservative-liberal “Alliance for Ger-many” to overwhelm those who argued for the preservation of some kind of independent so-cialist society in East Germany. In March 1990, the Alliance won almost 50% of the votes in an East German parliamentary election. The Alliance quickly negotiated an economic union on favorable terms with Kohl, who wanted to complete the unification of the two Germanys as soon as possible. By the summer of 1990, German unification was successfully resolved amongst the international community. Though unification would make Germany the strongest state in central Europe and would affect the security of the Soviet Union and the general Eu-ropean balance of power, Gorbachev accepted the deal, as Germany agreed in July 1990 that it was peaceful and would never develop nuclear, biological, or chemical weapons. Germany allowed the Soviet forces in East Germany to withdraw gradually and with dignity, and prom-ised to make enormous loans to the Soviet Union. On October 3, 1990, East Germany merged with West Germany. The reunification accelerated the pace of agreements to reduce arma-ments and end the Cold War. With the Soviet Union’s budget deficit rising in 1990, Gorbachev sought arrangements to justify massive cuts in military spending, which was confirmed among twenty-two European countries, the United States, and the Soviet Union in Paris in November 1990. The delegates also affirmed all existing borders in Europe to be legal and valid.

1. After the Cold War, there were three important trends in Europe: the pressure on national economies increasingly caught up in global capitalism, the defense of social achievements un-der attack, and a resurgence of nationalism and ethnic conflict. European leaders embraced or accepted a large part of the neoliberal, free-market vision of capitalist development, which was especially strong in eastern Europe where states implemented market reforms. Post-communist governments in eastern Europe freed prices, turned state enterprises over to pri-vate owners, and sough to move toward strong currencies and balanced budgets, with western Europe somewhat following suit. Two factors accounted for the shift from welfare state activism to strict capitalism. First, Europeans were only following practices and ideologies in the United States and Great Britain. Western Europeans especially looked to America because it had won the Cold War and its economy continued to outperform its western European counterparts. Second, the deregulation of markets and the privatization of state-controlled enterprises were part of a trend toward an open, wheeler-dealer global economy. The rules of the global economy, which were laid down by Western governments, multinational corpora-tions, and international financial organizations such as the International Monetary Fund called for the free movement of capital, goods, and services, as well as low inflation and limited gov-ernment deficits. The computer and electronics revolution strengthened globalization because it thrived on the diffusion of computational and informational capacity to small research groups and private businesses. The computer revolution reduced the costs of distance, speed-ing up communications and helping businesses tap cheaper labor overseas. Millions of ordi-nary citizens in western Europe believed that global capitalism and freer markets were un-dermining hard-won social achievements. The public in many countries associated globaliza-tion with the increased unemployment that accompanied corporate downsizing, the efforts to reduce the power of labor unions, and government plans to reduce social benefits. A counte-rattack occurred to global capitalism in the late 1990s, spearheaded by financial crises in Asia’s smaller economies. Many critics argued that globalization damaged poor and wealthy countries, as well as the world’s poor because multinational corporations destroyed local industries and paid low wages. The end of European communism brought liberal democracy everywhere, as all countries embraced electoral competition, with elected presidents and legislatures and the outward manifestations of representative liberal governments. Countries also guaranteed many basic civil liberties. The resurgence of nationalism in the 1990s led to tragedy and bloodshed in eastern Europe, Africa, and Asia. The civil wars in Yugoslavia caused some people to fear national and ethnic hatreds would spread throughout eastern Europe, but this was not true. The desire to be accepted as full-fledged members of the European society of nations, the European Community (renamed the European Union in 1993), led countries to be peaceful. States that embraced national hatred and ethnic warfare were boycotted and isolated by the European Union and the international community.