The Economic Schism of the West
The Cold War, with its heavy-handed Soviet threat, kept the United States and most of Western Europe in a tight geopolitical and military alliance for 40 years. Even so, economic relations among Western capitalist countries, and especially monetary relations, were frequently tense and conflicted. The disputes among governments often mirrored academic disagreements among their economists. The linkage is hardly surprising. Leading economists have long been closely involved in shaping and implementing national policies. And while economists are jealous defenders of their intellectual independence, their ideas often commingle with broader views of national interest that dominate policymaking.
The end of the Cold War has intensified the economic differences among Western countries. Current disagreements are frequently over how to respond to the recent financial crisis and recession. These debates usually juxtapose two contending schools: fiscal and monetary conservatives, and neo-Keynesians. Beyond their arguments over the contemporary crisis are more fundamental philosophical differences that amount to distinct world views. These feature bundles of ideas and assumptions deeply implanted in political and economic culture. Each carries its own prejudices. When these are not recognised and debated rationally, they become submerged icebergs threatening fatal collisions.