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

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

Hume: The Power of Abduction and Simple Observation in Economics

In Hume's epistemology, induction leads to discovery in matters of fact. However, because of the poor data Hume analyzes the balance of trade with a thought experiment, doing what Mill makes explicit afterwards: reason from assumptions, to reach conclusions which are true in the abstract. Hume's potential explanation, what Peirce later calls abduction, is backed by a case study, the price revolution of the 16th century, which supports half his abductive inference, when money supply is multiplied fivefold. Given that economics reasons abductively, Hume's attention to realistic hypotheses and the adjustment process matters

The Structure and Stability of John Law’s Early Land Bank Proposals

It has now been over two decades, yet Antoin Murphy’s discovery and publication of John Law’s hitherto unknown Essay on a Land Bank has elicited little attention. I examine the nature and stability of the banking proposals set out in that Essay. Two distinct models for the establishment of a land bank are proposed and Law attributes very different properties to them. The second proposal has important commonalties with financial developments in the USA prior to 2008 in as much as it seeks to transform a pool of mortgages into a divisible and highly liquid asset. Careful attention to the differences between these two proposals contained in the Essay sheds new light on Law’s well known Money and Trade Considered: With a Proposal for Supplying the Nation with Money which reproduces much that is said in the Essay, but does not carefully distinguish between the dynamic properties of different proposals. As a result contradictory statements appear right next to each other. Here Essay can serve as a key to understanding parts of Law’s logic in his published work, despite considerable theoretical distance between the works. Lastly the Essay suggests that Law’s conception of financial history may have misled him into thinking that he could target an unsustainably low interest rate in 1719-1720

Adam Smith and the Ambiguity of Nations

What is the status of the nation state in Adam Smith's much celebrated intellectual system, the “Science of the Legislator”? This paper argues that it was historically transitory. Two aspects of Smith's treatment of states and international relations are examined. The first aspect concerns Smith's conception of the gains from international trade and openness. The second concerns his understanding of the dynamics of international conflict. These two aspects of Smith's conception of international relations go some way towards revealing the bases of his (skeptical) advocacy of a dramatic transformation of the British polity. Indeed, while the jurisprudential component of Smith's projected science of the legislator was never completed, surviving early lecture notes suggest that he regarded the nation-state as a transitional form: one that had already begun to need replacement in his day.Adam Smith, nationalism, openness,

Interdependence and independence in Cantillon's Essai

Cantillon's contribution to economic thought is widely understood to lie in his systematic examination of economic interconnectedness. The model developed here brings profits fully into price determination, casts additional light on Cantillon's treatment of distribution, and provides the first extended analysis of the policy recommendations found in part one of his Essai. These anti-urban policies are examined in relation to French urbanization and William Petty's analysis of Irish economic development. Entrepreneurial risk-bearing is central to the Essai and this model, yet for Cantillon landlord tastes determine the economy's equilibrium position. This view is mirrored in his treatment of class mobility: only by becoming landed proprietors can entrepreneurs escape dependence and become independent or autonomous determiners of society. Indeed, social mobility actually accounts for the 'independence' of the landed proprietors as a group. Rent's special role stems not so much from the nature of land or agriculture�-�as Physiocracy would emphasize�-�as from the nature of the social forces determining its ownership.Cantillon, classical economics, income distribution, Petty, demography,

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

Retrospectives: An Early Supply-Side-Demand-Side Controversy: Petty, Law, Cantillon

Early modern Europe in the late seventeenth and early eighteenth centuries witnessed an unprecedented increase in the rate of economic growth, and governments entertained a wide range of proposals aimed at developing and harnessing foreign trade and emerging financial markets. In his magisterial survey of foreign trade doctrine titled Studies in the Theory of International Trade (1936), Jacob Viner pointed out that enlightened authors of that time were often nonbullionist mercantilists: they favored export promotion and import reduction not on the grounds that it would lead to an accumulation of gold, but on the grounds that it would increase trade and employment. My focus here is on how some key economists of this time period—William Petty, John Law, and Richard Cantillon—adumbrated disputes between supply-side and demand-side macroeconomics that have continued to the present day.

Developmental aspects of China’s trade pattern: The role of imported intermediate goods

intermediate goods, vertical specialization, total productivity growth, international linkages to development, F15, O19, F23, L60,