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Global imbalances and the Revised Bretton Woods hypothesis: Wrong before the crisis and wrong after

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  • Thomas I. Palley

Abstract

This paper explores and contrasts the revised Bretton Woods hypothesis (BW II) with the structural Keynesian hypothesis. Whereas the former sees the growing global imbalances of the three decades prior to the financial crisis of 2008 as beneficial, the latter sees them as problematic and destructive of shared prosperity in the United States. Moreover, the U.S. economic relationship with China is viewed as especially problematic as it involves the largest bi-lateral trade deficit, and because it has also been a major source of investment diversion and manufacturing job loss. The paper's conclusion is the BW II analogy between today's global financial system and the original Bretton Woods system is without foundation, but it survives because the hypothesis helps rationalize and justify large trade deficits and the process of corporate globalization.

Suggested Citation

  • Thomas I. Palley, 2013. "Global imbalances and the Revised Bretton Woods hypothesis: Wrong before the crisis and wrong after," IMK Working Paper 108-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:108-2013
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    References listed on IDEAS

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    1. Maurice Obstfeld & Kenneth Rogoff, 2007. "The Unsustainable US Current Account Position Revisited," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 339-376, National Bureau of Economic Research, Inc.
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    3. Palley, Thomas I., 2009. "America's exhausted paradigm: Macroeconomic causes of the financial crisis and great recession," IPE Working Papers 02/2009, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
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    6. Thomas I. Palley, 2006. "The Fallacy of the Revised Bretton Woods Hypothesis: Why TodayÕs International Financial System Is Unsustainable," Economics Public Policy Brief Archive ppb_85, Levy Economics Institute.
    7. C. Fred Bergsten, 2005. "The United States and the World Economy: Foreign Economic Policy for the Next Decade," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3802, April.
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    More about this item

    Keywords

    Revised Bretton Woods hypothesis; Structural Keynesian hypothesis; global imbalances; U.S. trade deficit;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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