The mercantilist threat to global rebalancing
My latest at Pieria:
"Bill Mitchell has been doing a series of posts on the circumstances leading to the UK's request for aid from the IMF in 1976. They give a fascinating insight into the economics of a time when trade balance and the international exchange value of the currency were the most important drivers of national economic policy. Since the great monetarist revolution of 1979 we have largely forgotten about this: nowadays it is fiscal, not trade, balance that concerns us, and we happily devalue our currencies and force down labour costs in search of elusive export-led growth. I believe we are chasing a dream.
For the last 40 years the world has been gradually rebalancing, as the West abandoned empire and colonialism in favour of free trade. Dismantling barriers to trade and freeing up world markets has not been easy, and it is fair to say that many Western countries have been more interested in ensuring that developing countries open their markets to imports than removing the tariffs and subsidies that protect their own precious industries. But the growth of supra-national companies, supported by (largely) free movement of capital around the world, has transformed the world economy. And from the point of view of the millions in developing nations who enjoy a standard of living of which their grandparents could only dream, this transformation has unquestionably been positive."
The remainder of the post can be read here.
"Bill Mitchell has been doing a series of posts on the circumstances leading to the UK's request for aid from the IMF in 1976. They give a fascinating insight into the economics of a time when trade balance and the international exchange value of the currency were the most important drivers of national economic policy. Since the great monetarist revolution of 1979 we have largely forgotten about this: nowadays it is fiscal, not trade, balance that concerns us, and we happily devalue our currencies and force down labour costs in search of elusive export-led growth. I believe we are chasing a dream.
For the last 40 years the world has been gradually rebalancing, as the West abandoned empire and colonialism in favour of free trade. Dismantling barriers to trade and freeing up world markets has not been easy, and it is fair to say that many Western countries have been more interested in ensuring that developing countries open their markets to imports than removing the tariffs and subsidies that protect their own precious industries. But the growth of supra-national companies, supported by (largely) free movement of capital around the world, has transformed the world economy. And from the point of view of the millions in developing nations who enjoy a standard of living of which their grandparents could only dream, this transformation has unquestionably been positive."
The remainder of the post can be read here.
Frances,
ReplyDeleteAs usual, have enjoyed reading your posts.
"the differences show up as falling wages in the excess labour country and rising wages in the labour deficit country".
But, Chinese "real" unemployment rate is higher than that of the US. And Chinese income distribution is much worse than almost all OECD nations. I don't think imbalance adjustment will complete soon. Not in decades or maybe never will. People in advanced world are trapped in a very miserable world in which adjustments are always part of the reality. This is why the issues raised in your last post are extremely important.
a reader from Asia
Free trade is a subtle form of Mercantilism as per Joan Robinson who coined "beggar-my-neighbour":-)
ReplyDelete"Free trade for others is in the interests of the strongest competitor in world markets, and a sufficiently strong competitor has no need for protection at home. Free trade doctrine, in practice, is a more subtle form of Mercantilism. When Britain was the workshop of the world, universal free trade suited her interests. When (with the aid of protection) rival industries developed in Germany and the United States, she was still able to preserve free trade for her own exports in the Empire. The historical tradition of attachment to free trade doctrine is so strong in England that even now, in her weakness, the idea of protectionism is considered shocking." - Joan Robinson
One way to rebalance is just to clear the debts from time to time. Done well, it can be good for everyone: net importers keep some stuff they don't pay for, and net exporters can indulge in their habit, which is probably a cultural thing. The trick is just finding a good/smooth debt reset (surplus recycling) mechanism. It's not trivial but it may be easier to do that than try and change the underlying cultural biases.
ReplyDeleteAh but one man's debt is another man's financial asset so clearing debt will destroy the asset. The western elite wants labor to adjust downward to rebalance but insists that the present value of capital assets be protected(monetized) by the Fed.
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Free trade for others is in the interests of the strongest competitor in world markets, and a sufficiently strong competitor has no need for protection at home. Free trade doctrine, in practice, is a more subtle form of Mercantilism. When Britain was the workshop of the world, universal free trade suited her interests. When (with the aid of protection) rival industries developed in Germany and the United States, she was still able to preserve free trade for her own exports in the Empire. The historical tradition of attachment to free trade doctrine is so strong in England that even now, in her weakness, the idea of protectionism is considered shocking sbobet
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