New Paper from Wynne Godley Jude Wanniski July 27, 2004

From:Jude Wanniski jwanniski@polyconomics.com
To: James K. Galbraith <galbraith@* * * * *.edu>
Re: New Paper from Wynne Godley

9:00 am 7/27/04

To a considerable degree, we do control the growth rates of the rest of the world, via IMF/World Bank conditionality on loan packages, and via the Fed's management of the dollar, which heightens the risk of doing business in other countries that key on the dollar, especially those countries that are commodity producers.  If we took the risk out of the dollar inflation/deflation swings with a new, better designed Bretton Woods, the ROW would instantly have a higher growth rate than the U.S., and become net importers of capital from the U.S. If they then also reformed their tax systems to invite even more rapid growth, they would import more capital from the U.S. This way is much more pleasant, with everyone growing faster without inflation, relative to Godley's solution, with the U.S. driving its growth rate below the ROW's with growth-killing tax rates. Don't you think?  JW

At 11:14 PM 7/26/2004, you wrote:

This is true, but we don't control the growth rate of the rest of the world.  At least, not with the instruments at hand.  Unfortunately.  J

On Mon, 26 Jul 2004 11:32:54 -0400, Jude Wanniski <jwanniski@polyconomics.com> wrote:

The fellow is wrong when he says net exports can only increase by the US buying less from abroad. We can also sell more while buying the same, but that requires the rest of the world improving its growth rate to a point where it is importing more capital than we are. China is now running a trade deficit with the ROW, for example. Of course, once we run a trade surplus with China by exporting capital, economists and politicians will gripe that we are exporting our badly needed capital. This is what happened in the 1950s vis a vis Japan, when Japan was running big trade deficits as it imported capital.  JW