Friday 23 February 2018

China not ready to fill void left by America

Daniel Akst

By Peter Temin and David Vines

Economics, like life, is a balancing act. And the trouble with the global economy is that it's badly out of balance.

That's the view of economists Peter Temin and David Vines in their new book, 'The Leaderless Economy'. They say the international co-operation needed to restore balance requires a hegemon – a farsighted, 800-pound gorilla of a nation with a good grasp of Keynesian economics.

Before you start chanting "USA", be forewarned: the authors consider the US a hegemon on the way out.

The result is a book that is remarkable by being scary, enlightening and just a little bit dull at the same time.

You can learn a lot by reading it, but you may not be convinced a single economic powerhouse is so necessary after all.

The notion that the world's economic woes – including, in the developed world, slow growth and heavy debts – are the result of global trade and financial imbalances isn't new.

The essential argument, as made by Temin and Vines, is that a nation's balance of payments is inextricably connected with whether it can maintain full employment and run on all economic cylinders.

What's needed, Temin and Vines argue, is a dominant global power to sustain an international approach to bringing the world's economies back into balance.

It's happened before – in 1944 at Bretton Woods, New Hampshire, where 44 nations agreed to a new world monetary order under the aegis of what really was the almighty dollar.

For a long time the US was the hegemon, albeit not always willingly or even consciously.

But the authors see the financial crisis of 2007-08 and its aftermath as a pivotal end-of-regime episode.

Now, they argue, the US, weakened by debt and political paralysis, is no longer unquestionably pre-eminent. China, if it is ever to assume the mantle of leadership, isn't ready yet.

'The Leaderless Economy' drags in places but has two great strengths. First, it recounts 20th-Century monetary history with a sharp eye for parallels to our own time.

Second, the book draws strong parallels between two profound imbalances that pose hazards to the world's economic health: the one between China and the US, and a similar lopsided situation between Germany and struggling members of the EU such as Greece and Spain.

The beginnings of a rebalancing may already be under way.

Whether it fully succeeds will depend on the politicians, who could do worse than to read this book.

Available with free P&P on or by calling 091-709350.

Irish Independent

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