Great attention is now being paid to global imbalances, the growing U.S. current account deficit financed by growing surpluses in the rest of the world. How can the issue be understood in a more historical perspective? We seek a meaningful comparison between the two eras of globalization: “then” (the period 1870 to 1913) and “now” (the period since the 1970s). We look at the two hegemons in each era: Britain then, and the United States now. And adducing historical data to match what we know from the contemporary record, we proceed in the tradition of New Comparative Economic History to see what lessons the past might have for the present. We consider two of the most controversial and pressing questions in the current debate. First, are current imbalances being sustained, at least in part, by return differentials? And if so, is this reassuring? Second, how will adjustment take place? Will it be a hard or soft landing? Pessimistically, we find no historical evidence that return differentials last forever, even for hegemons. Optimistically, we find that adjustments to imbalances in the past have generally been smooth, even under a regime as hard as the gold standard.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
5917.
Find related papers by JEL classification: F20 - International Economics - - International Factor Movements and International Business - - - General F30 - International Economics - - International Finance - - - General F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General F50 - International Economics - - International Relations and International Political Economy - - - General N10 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - General, International, or Comparative N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
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