European Journal of Economics and Economic Policies: Intervention

Global imbalances: benign by-product of global development or toxic consequence of corporate globalization?

Thomas I. Palley *

Keywords: revised Bretton Woods hypothesis, structural Keynesian hypothesis, global imbalances, US trade deficit


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 3 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 US 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 concludes that the BW II analogy between today's global financial system and the original Bretton Woods system is without foundation, but that it survives because the hypothesis helps rationalize and justify large trade deficits and the process of corporate globalization.

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