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A New Era of International Economic Policy

In: Saving and Investment in the Twenty-First Century

Author

Listed:
  • Carl Christian von Weizsäcker

    (Max Planck Institute for Research on Collective Goods)

  • Hagen M. Krämer

    (Karlsruhe University of Applied Sciences)

Abstract

We distinguish between a “Friedman worldFriedman world” and a “Keynes worldKeynes world,” the latter being characterized by the zero lower boundZero lower bound problem. With the natural rate of interestRate of interest, natural tending to fall over time, the Keynes worldKeynes world is becoming the norm. In the Keynes worldKeynes world, voters defend their interests as producers more than their interests as consumers. This strengthens protectionism at the ballot box. We are less and less able to rely on the USAUSA to serve as the engine of the global economy via its high current account deficits. In addition to the WTO rulesWTO rules, an international fiscal order is needed to rescueTrade, free free tradeFree trade: 1. At low real interest rates, countries with current account surpluses undertake to eliminate them by increasing government net borrowing. 2. At high real interest rates, countries with current account deficits undertake to eliminate them by cutting fiscal expenditure or raising taxes.

Suggested Citation

  • Carl Christian von Weizsäcker & Hagen M. Krämer, 2021. "A New Era of International Economic Policy," Springer Books, in: Saving and Investment in the Twenty-First Century, chapter 0, pages 261-274, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-75031-2_10
    DOI: 10.1007/978-3-030-75031-2_10
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