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Germany and China Have Savings Gluts, the USA Is a Sump: So What?

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  • Lance Taylor

    (New School for Social Research)

Abstract

A `global saving glut` was invented by Ben Bernanke in 2005 as a label for positive net lending (imports exceeding exports) to the American economy by the rest of the world. This trading situation had already emerged around 1980, and led to the Plaza Accord in 1985. One common explanation is based on the Mundell-Fleming IS/LM/BP model. But this model cannot be valid, since the `BP` equation is not independent of `IS`. Other champions of this saving glut hypothesis rely on loanable funds theory, which is institutionally inadequate. More plausible analyses of the persistent trade imbalance can be derived from a two-country IS/LM set-up devised by Wynne Godley, a Kaleckian description of the political economy of East Asia and the United States, and dissection of the terms of trade due to W. Arthur Lewis and Luigi Pasinetti.

Suggested Citation

  • Lance Taylor, 2020. "Germany and China Have Savings Gluts, the USA Is a Sump: So What?," Working Papers Series inetwp132, Institute for New Economic Thinking.
    • Handle: RePEc:thk:wpaper:inetwp132
    DOI: 10.36687/inetwp132
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    File URL: https://doi.org/10.36687/inetwp132
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    Cited by:

    1. Satya Prasad Padhi, 2024. "Indian Experience of Managing Impossible Trinity, Growth and Possible Tradeoff Between FDI and FIIs: Nature of Capital Inflows Matter," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 16(1), pages 44-63, January.

    More about this item

    Keywords

    Saving glut; net lending; IS/LM/BP; Mundell-Fleming; productivity growth; terms of trade. China; Japan;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E16 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Social Accounting Matrix
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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