Find it so strange. He seems so normal in contrast to our politicians today. We have a wonderful panel here, four really suburb original exciting papers that do fit together. Thats going to be my thought to talk about that a little bit. Each speaker will present for 13 to 15 minutes, 15 minutes maximum. I will cut them off at that point if that go beyond 15 minutes. Ill give comments for five, six minutes and then well open it up for discussion from the entire audience. We have a lot of experts in the audien audience. I will introduce the four panelists right now and well go in order from the program. Seated immediately to my right we have fritz bartel who is finishing as we speak his dissertation at cornell university. On the privatization of the cold war. And the role of foreign aid, Financial Investment and various other elements in the cold war. Fascinating important work. Hes presenting a piece of that project for us today. After fritz well go to david painter. My friend and fellow oslo buddy. We spent a wonderful summer in oslo. My kids think of david as uncle david. I told my kids, a wonderful paper by david. David will speak second. A professor at georgetown, university, trainer of many many distinguished graduate students, author of many groups. And one of his graduated students is kacar sarah snyder, frequent preventer at Clements Center events which im happy about. I have the joy of reading her work and learning from it and offering some babbling comments about it. Our final speaker will be christopher fuller who is a lecturer, a professor at the university of south hampton. Hes written about if origins of the drones. Well go in the order of the program. 15 minutes per person, then ill comment and have our discussion. Fritz, please kick us off. Sure. I wareally hope that graph is worth it to start off with some silence there. Thanks very much, jeremi and thanks to the organizers of this panel, this Conference Center is really a site to behold. Cornell has a lot of pride but we dont have Something Like that. And we have a hotel school to go with it. We have some things to learn. I think i assume and certainly from our first panel were first presentation, were going to be talking a lot over the next three days about the individuals of the Reagan Administration. And we certainly should. My paper is going to try and draw attention to some of the structural forces, in particular the structures of the Global Financial system in the 1980s that were working kind of in conjunction certainly with the individuals of the Reagan Administration. And were extremely favorable to the United States during this period. And i think as historians, any kind of a full evaluation of the hague en administration, the reagan period, any period for that mat eter certainly needs a balance of the structures and the agents involved. So im just going to try and lay that out a little bit. This graph presents one of those structural trends. And this in just a few minutes of economic language, this is current account balance as a percentage of u. S. Gdp. What it tracks is anything below the dark horizontal line is a significant import of foreign capital from abroad into the United States. And i hope what you can see from the graph is that 1980 or 198 is, 1982 mark as significant turning point. And after 1980, the United States became significantly and increasingly dependent on the import of foreign capital. This was one of the most unexpected developments of the 1980s. Ronald reagan who had riz on the the presidency to crying deficit spending and promising to balance the budget by 1984 instead oversaw an explosion of the federal budget deficit during his eight years in office. Additionally the u. S. Current account balance, whats measured here went from a slight surplus of 8. 5 billion in jimmy carters last year in office to unprecedented annual deficits of under 100 million under ronald reagan. The citizens of the United States wealthy allies in europe and japan covered these massive differences between National Income and expenditure during these years. Attracted to the u. S. By high real Interest Rates implemented by Federal Reserve chairman, foreign capital poured into the United States in the 1980s at rates previously unimaginable. Like a massive vacuum cleaner, the United States swallowed up the World Capital to serve the domestic and international purpose. Today i would like to argue that an immense reagan financial buildup underwrote the prosperity at home and projected abroad. Unlike its more famous counter part, the financial buildup was not an intentional strategy of reagan or his administration. Indeed at the turn of the 1980s nobody thought such a buildup was impossible. But in defines of expectations, it happened anyway and the ramifications of the buildup for the United States and the world were profound. Within the United States the financial buildup erased the traditional choice between guns and butter. Reagan was able to pursue the largest tax cuts and the largest peacetime military buildup in the nations history. Only through the Financial Support of foreigners. Abroad the financial buildup enhanced the projection of American Power by funding the military buildup. More than that it fundamentally. Capital scarcity during the 1980s. And in this way the reagan financial buildup proved to be the most powerful if also unintended tools of American Foreign policy under ronald reagan. Most of all the financial buildup signaled the new era of American Leadership in the world. The traditional direction of moern aid was inverted and the United States became what i would like to call a foreign aided empire, one no longer base odden the resources to other countries but rather on foreigners resources back to the United States. The economist has famously said, quote, once you run a current account deficit, you depend on the kindness of strangers. Since the 1980s, the american empire has relied on the kindness of foreigners, an imperial structure that originated with the reagan financial buildup. So the origins of the buildup lie in the corner stones of reagans domestic agenda. The taxes and defense buildup that define his 1980 campaign. It was always a puzzle during the 1980 campaign how reagan was going to cut taxes, increase defense spending and balance the budget all at the same time. His opponents railed against this as voodoo economics. But reagan and his budget director found ways to balance the nations books in their projections by relying on the power of inflation. In 1980 inflation was running at a rate of 12 and pushing americans into higher tax brackets which in turn was leading to dramatically higher projections of federal tax revenue. In 1981 Congress Passed the erta which included a 25 reduction in personal income taxes over three years, a significant cut in Capital Gains tax and an enormous reduction in corporate taxes through changes in depreciation rules. In retrospect, the reagan Economic Team would estimate that the erta reduced the effective tax rate on capital by 50 . And the office of management and budget would lit the revenue loss of the erta over the cost of the 1980s a 1980s at 1. 5 tr. This only became apparent as inflatiithe economy fell. While the reagan team was working to pass the tax cuts and the defense increases in the summer of 81, the inflation rate was falling faster than anyone thought possible. From a high of 12. 4 in 1980 to 3. 9 in 1982. As inflation declined and the economy ground to a halt in the fall of 1981, projections of the federal budget deficit exploded. Administration officials discovered to their surprise that the fiscal policied that had just enacted would produce in stockmans memorable formulation, deficits as far as the eye can see. The new projection wrs horrifying, he recalled. They showed cumulative red ink over five years of more than 700 billion. That was nearly as much National Debt as it had taken america 200 years to accumulate. It took your breath away. No Government Official had ever seen such a thing. In his diary reagan called the new projections a bomb. And in december of 1981 wrote, we who are going to balance the budget face the biggest budget deficits ever. The question on everyones mind at the end of 1981 was how to fund the deficits. Posited government deficits would harm the economy by crowding out private investment, driving up Interest Rates and killing off economic growth. Most people thought that difficult political decisions would have to be made to either raise taxes, cut defense spending or gut entitlement programs. Virtually no one thought the inflows of foreign capital would save the United States from making these difficult choices. A member of the reagan staff speculated to an audience in december of 1981 that the opportunity to import foreign capital might save the economy from the harm of the deficits. But he later recalled the audience rejected the plausibility of net capital inflows in any substantial magnitude. Events confounded everyones expectations. Americas allies, most prominently west germany and japan, generated enormous surpluses in the 1980s and the were invested in the United States at rates previously unheard of. The rates held the key to unlocking the surplus of foreign savings. Through much of the 1980s, the u. S. Dollars rates for 2 to 3 higher than Interest Rates in europe or japan and the Foreign Investors responded accordingly. 85 billion in foreign capital entered the United States in 1983, followed by 103 billion in 1984, 129 billion in 1985 and 221 billion in 1986. The federal budget deficit in these years ranged from 208 billion to 221 billion. So by the end of this period, 1986, foreign capital inflows were directly or indirectly covering all of the fed ram governments borrowing. In 1985 the magazine business week summed up the transformation in economic thinking and practice that had occurred since reagan took office. Quote, the nations Financial Foundation was supposed to shape when a growing economy collided with a huge budget deficit. Credit demand would sore driving Interest Rates into the stats fear. Instead the experience of the last two years has shown that the u. S. Does not have a closed system. Inflows of foreign call tall can sustain private and public buyer as like. The foreign aided empire had been born. Just because the wrus economy was not suffering from crowding out effects with, did not mean that crowding out was not happening. It only meant that it was not happening in the United States. As the Reagan Administration economist wrote in 1988, quote, there is evidence that government budget deficits have substantial crowding out effects enter in the world. That somewhere was the global south and the communist block. As the United States drained the world of much of its excess capital, there was little left ov over for nations in this area of the world. Many were saddled with their debts when they borrowed in the 1970s. The United States forced them to pay back their debt through difficult changes in their own domestic policy. It is true in theory and roughly true in practice that the International Accounts must balance out. Every action produced an aek wall and opposite reaction. The lost decade of development in the global south. One surprising place where the effects of the u. S. Budget and current accounts deficit was felt was east germany. In the 1970s they borrowed to gunned domestic consumes and investment. This fundamentally funneled capital to the gdr. The president of the east german trade bank laid out the new International Financial environment for his partys leadership. Over the previous two years, he wrote, capitalist banks showed in readiness to increase to the gdr and he blamed u. S. Borrowing for the banks intransigence. The governments deficit in the United States amount to 207 billion, he said, and it is estimated to be about 200 billion for the next two years. Funding the u. S. Deficit would require to United States to borrow 660 billion in the years 1984 to 1986. The reagan financial buildup was in short crowding east germany out of Global Capital markets. In such an environment he told the leadership that it only had one option, quote, the long term high Interest Rate policy of the u. S. Makes it necessary to reduce the total borrowing of the gdr through the creation of export surpluses. Trying to achieve an export surplus may seem like an enoch louse. Export surpluses had to be achieved through drastic reductions in imports. On the orders of the International Monetary fund, such austerity programs occurred throughout the global south, most prominently in latin america during the 1980s. Political revolution followed in austeri austeritys wake. In his work latin americas cold war how brands concludes that it was quote a product of debt, end quote. And the austerity programs that arrived with the debt crisis. In my dissertation which im currently completing, i argue that a similar process unfolded in the eastern block and resulted in the revolutions of 1989. Deprived of Global Capital by the late 19 0s, poland and hungary implemented austerity programs and tried to legitimize them through round table demock try zags. Faring the consequences, the gdr sought to escape its own debt crisis by trying to ransom the opening of the berlin wall for billions of deutsch marks from west germany. This was also a product of debt. Debt is only a tool of power in International Relations when country has no new capital for which to service it. And it is here where the power of the reagan buildup applies. America borrowing subjected countries in these region to the stringent demands of their creditors. In this way the failure of the reagan revolution within the United States in the sense that it did not achieve a balanced budget contributed to the revolutions abroad during the 1980s. Many of these revolutions were extremely favorable to u. S. National interests and tissues the reagan financial buildup proved to be a powerful unintended source of american influence during the 1980s. Thanks very much. [ applause ] fritzs paper reminds us of the importance of debt and empire with the a the core of work of paul kennedy and others. You cant understand the british em prior if you dont understand capital markets. Uncle david. Let me see if i can get this power point up. Okay. Here we go. Get that bigger . Why dont you get started. Go ahead. First i would like to thank the conference organizers for the opportunity to participate in this. Second i began work on this topic when i was a Research Fellow at the Norwegian Nobel Institute along with jeremi and others. I want to thank the institute for their support. This is a revision of a presentation i made in zurich in 2015. I would like to thank for their help. It is considerably revised. This is zurich 8. Jeremi does a great first draft. Im up to eight, i think, on this. The end of the cold war was one of the most important events of the 20th century. And understands why it ended and how it ended is deeply intertwined with understandsiin the nature and die nams of and the wisdom and effectiveness of u. S. Policies toward the soviet union. Most studies focus on the arms race, computation in the third world and the ideological and the economic rivalry. Very few examine the role and energy and oil. I think this is surprising because Energy Resources were potentially an important element in the power position of the soviet yuan wounion. In the 1980s they were the leading produce ner the world of natural gas. And oil and gas exports counted for 80 of the soviet unions hard currency earnings. And the drop in world prices in twothirds in real terms between 1980 and 1986 and decline in soviet production later on in the decade played an Important Role in the collapse of the soviet economic system. One of the few writers who deal with it, peter schweitzer, he claims that the agen administration orchestrated this price collapse and that the Economic Warfare against the soviet union. Trying to limit them to western credits, technology and equipment hindered oil and gas exports costing the soviets billions of dollars. This is mainly based on interviews with former Reagan Administration officials and quotations from documents unavailable to other scholars. My paper draws on recently declassified documents from the reagan library, the Central Intelligence agency and documents published in the foreign relations, the wonderful volu volume that james wilson edited. Reagan Administration Efforts to use u. S. Come nents in Oil Technology as a mean too weaken the soviet union. My paper argues that the Reagan Administrations efforts for the construction of a natural gas pipeline from western siberia to europe failed. These failed because the soviets were able to acquire the equipment, technology and credits they needed from other western countries. I also argue that the decision by saudi arabia to increase Oil Production in the fall of 1985, this decision led to the Oil Price Collapse was not dao due to u. S. They cut production the maintain prices was not working. It was costing them billions of dollar in revenue. Resulting collapse in oil prices did have a devastating impact on the soviet economy and contributed significantly to the demise of the soviet system. But this outcome stemmed from changes in Global Oil Markets and the soviet unions ongoing crisis not from u. S. Economic warfare. For a brief period in the 70s and early 80s it looks like it might enable them to modernize their company. Large amounts of western grain and machinery, the windfall revenues gave the illusion of viability to a system that was very in serious trouble and diverted the attention from the need to reform. Ironically when the soviet union had a government interested in reform, oil prices collapses and the revenue declined depriving gorbachev of the resources that might have made a reform possible. What role if any did the u. S. Policy play in this. Despite claims by reagan victory school, the people who claim that reagan policies won the cold war, the u. S. Efforts to block the siberian gas pipeline did not have a significant impact. The u. S. Policies caused minor delays and imposed some cause but natural gas sales became a major source of Foreign Exchange earnings. Compared actual volumes and revenues to their earlier exaggerated projections about the pipeline. They also attribute the outcome to u. S. Policies and ignored changes in economic conditions. Now the collapse of oil prices in the mid 1980s did have a devastating impact on the soviet economy but it was the result of long term changes in the world, most of which took place or began before reagan took office. Another slide up here. Yes. During the 70s Oil Prices Skyrocket from 1. 80 in 1970 this is in dollars of the time within not in todays dollars. And over time these higher prices led to increases in supply, decreases in demand. I think reagan would call that the magic of the marketplace. In addition after the First Oil Shock in 1973 74, the oecd nations launched a coordinated campaign to protect themselves from further disruptions. They focused on reducing oil consumption, greater efficiency and conservation, replacing oil with other Energy Sources and reducing oil imports from the members of the organization of Petroleum Exporting countries by increasing production elsewhere. And this worked. Took a while between 74 and 78 oil prices actually declined in real terms. But with the second shock in 79, 80 consumption fell five Million Barrels a day and the Oil Production went up five Million Barrels a day. 0 pack loss, demand for over 10 Million Barrels a day. This put enormous pressure on the producers. Prices peaked at 38. 60 per barrel in 1980 and fell to 27 a barrel in 1984, 1985. Sorry about that. Oil prices this is from bp, they call it money of the day. But saudi arabia was particularly hart hit. They had tried to keep prices around 29 a barrel by cutting back their production but other people didnt go along and their production fell from over 10 Million Barrels a day to 2. 2 Million Barrels a day in august of 1985. And their revenues fell from 113 billion to 25, almost 26 billion in 1985 and this put a lot of pressure. They had to cut back programs. They had to draw down their Foreign Exchange. They couldnt run their petro chemical entry because they werent getting enough natural gas production. Seven minutes so far. September 85 the sof yets decided to gain their position as a leading producer and ensure a long term market. This is what they did in 2014 if you might remember. Back to the future. Rather than selling oil at a fixed price, they would be paid based on what Refined Products sold for in the marketplace minus the fixed problem. This was a premium on volume rather than price and led to the collapse of the World Oil Prices which fell to 17 a barrel in 1986 to 111 a barrel in the soaked quarter. This decimated soviet hard currency earnings. Remember i said the soviets were getting 70 of their hard currency revenues from the oil and gas. This is from an cia report in 1990. You can see the revenues, what happens to the revenues. The hard currency export earnings for oil drop dramatically and so do gas, even though gas export volumes go up. And this put a lot of pressure on gorbachev. Gorbachev had planned to hold Energy Investment steady and use oil and gas earnings to finance the modernization and improve living standards. He had to increase investment. He had to cut imports of machinery in other industries. And he had to develop additional domestic resource to oil rather than to reform efforts. There was no easy way out
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