For years, the world economy has been wildly lopsided: China and some other countries ran big trade surpluses; the United States was perennially in massive deficit. Similar imbalances existed in Europe. Now, slumps have dampened the American and European appetite for imports. The upshot is that "China and others are recalibrating their export-led economic strategies" to focus more on domestic demand, argues economist Fred Bergsten of the Peterson Institute. That's good, he says; the world economy will be more balanced. Likewise, erratic capital flows have triggered past financial crises. Slower flows may promote stability.
Not everyone is so optimistic. Smick of The International Economy sees globalization as "the proverbial goose that laid the golden eggs." The search for larger markets and lower costs drove investment, trade, economic growth and job creation around the world. That's weakened, and there's "no new model to replace it." Domestic demand will prove an inadequate substitute. Central banks (the Federal Reserve, the European Central Bank, the Bank of Japan) have tried to fill the void with hyper-easy money policies. Smick fears damaging outcomes: currency wars as countries strive to capture greater shares of stagnant export markets; and burst "asset bubbles" caused by easy money.
These visions clash. In 2013, we may learn which is right.
Robert J. Samuelson is a Washington Post columnist.
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