Losing our Marbles in the New Century? The Great Rebalancing in Historical Perspective
Great attention is now being paid to global imbalances, the growing U.S. current account deficit financed by growing surpluses in the rest of the world. How can the issue be understood in a more historical perspective? We seek a meaningful comparison between the two eras of globalization: "then" (the period 1870 to 1913) and "now" (the period since the 1970s). We look at the two hegemons in each era: Britain then, and the United States now. And adducing historical data to match what we know from the contemporary record, we proceed in the tradition of New Comparative Economic History to see what lessons the past might have for the present. We consider two of the most controversial and pressing questions in the current debate. First, are current imbalances being sustained, at least in part, by return differentials? And if so, is this reassuring? Second, how will adjustment take place? Will it be a hard or soft landing? Pessimistically, we find no historical evidence that return differentials last forever, even for hegemons. Optimistically, we find that adjustments to imbalances in the past have generally been smooth, even under a regime as hard as the gold standard.
Paper prepared for the session "Global Imbalances: Lessons from History," Federal Reserve Bank of Boston Conference, Chatham, Mass., June 2006. Taylor thanks the John Simon Guggenheim Memorial Foundation for its support. The paper was prepared whilst Taylor was a Visiting Professor at London Business School, and Taylor thanks LBS for its support. Meissner thanks the Bank of England staff for valuable conversations. We also thank Michael Bordo and Maurice Obstfeld for helpful discussions. Michael Edelstein, Niall Ferguson, Philip Lane, Gian Maria Milesi-Ferreti, and Helene Rey generously helped us with data. We have received helpful comments from Luis Catao, Michael Edelstein, Marcus Miller, Federico Sturzenegger, Gian Maria Milesi-Ferreti, seminar participants at the Bank of England, Birkbeck College, and many of the conference participants. In particular, we thank our discussants John Helliwell and Suzanne Berger for their thoughtful responses. The usual disclaimer applies. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Christopher M. Meissner & Alan M. Taylor, 2006. "Losing our marbles in the new century?: the great rebalancing in historical perspective," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 51. citation courtesy of