The theory of global imbalances: mainstream economics vs. structural Keynesianism


Prior to the 2008 financial crisis there was much debate about global trade imbalances. Prima
facie, the imbalances seem a significant problem. However, acknowledging that would question
mainstream economics’ celebratory stance toward globalization. That tension prompted an array
of theories which explained the imbalances while retaining the claim that globalization is
economically beneficial. This paper surveys those new theories. It contrasts them with the
structural Keynesian explanation that views the imbalances as an inevitable consequence of
neoliberal globalization. The paper also describes how globalization created a political economy
that supported the system despite its proclivity to generate trade imbalances.

theory_of_global_imbalances.pdf104.87 KB
Thomas Palley

Thomas Palley is Schwartz economic growth fellow at the New America Foundation; Senior Economic Policy Adviser, AFL-CIO. His most recent book “From Financial Crisis to Stagnation” has just been released in paperback by Cambridge University Press (February 2013).

Member of Insight Editorial board.