Where Has All the Demand Gone? Challenges to Growth in a “Neo-Mercantilist” Age

Extensive attention has been given to countries that run current account deficits, but little attention has been devoted to understanding why countries run large surpluses. This is surprising given that unsustainable international imbalances result from one as much as the other. We begin with a wideranging review of the literature to better understand the political and economic forces that lead to demand decreasing policies. We then demonstrate how the Systemic choices made within the Bretton Woods and Post Bretton Woods periods constrained and enabled the generation of large surpluses. Next, we examine imbalances at the global level to determine whether they are getting bigger rather than trending toward external balance. We find evidence that the trend towards imbalance is strengthening. We then analyze the patterns of these surpluses in four countries noting where government policies have most prominently contributed to the surpluses, pointing out the differing motivations for and implementations of these policies across countries. This leads us to ask, finally, what these trends portend and what can be done to mitigate or reverse them if they bode ill for global economic well-being.