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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.

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Bibliographic Info

Paper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 108-2013.

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Length: 33 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:imk:wpaper:108-2013

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Keywords: Revised Bretton Woods hypothesis; Structural Keynesian hypothesis; global imbalances; U.S. trade deficit;

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  1. Thomas I. Palley, 2011. "The Rise and Fall of Export-led Growth," Economics Working Paper Archive wp_675, Levy Economics Institute.
  2. Thomas I. Palley, 2011. "Explaining Global Financial Imbalances: A Critique of the Saving Glut and Reserve Currency Hypotheses," IMK Working Paper 13-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  3. Palley,Thomas I., 2012. "From Financial Crisis to Stagnation," Cambridge Books, Cambridge University Press, number 9781107016620, October.
  4. Thomas I. Palley, 2006. "The Fallacy of the Revised Bretton Woods Hypothesis: Why Today’s System is Unsustainable and Suggestions for a Replacement," Working Papers wp114, Political Economy Research Institute, University of Massachusetts at Amherst.
  5. Palley,Thomas I., 2013. "From Financial Crisis to Stagnation," Cambridge Books, Cambridge University Press, number 9781107612464, October.
  6. Ricardo J. Caballero, 2006. "On the Macroeconomics of Asset Shortages," NBER Working Papers 12753, National Bureau of Economic Research, Inc.
  7. Kalina Manova & Zhiwei Zhang, 2008. "China's exporters and importers: firms, products, and trade partners," Working Paper Series 2008-28, Federal Reserve Bank of San Francisco.
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