The Mismanagement of Global Imbalances: Why Did Multilateralism Fail?

Abstract

After all major financial crises, debates about their causes generally continue without resolution for years and even decades. The aftermath of the global financial crisis of 2008–2009 is unlikely to be an exception to this rule. As one example, the debate over whether and how much persistent, large imbalances in international trade and financial flows contributed to the unsustainable boom that preceded the crisis continues.¹ In this chapter, I largely leave aside the question of whether global imbalances were an important cause of the crisis, although I argue that the lack of agreement on this issue is one factor — but not the most important — contributing to the continuing inability of governments to take measures that would substantially reduce them. One reason for setting aside the debate about the role of global imbalances in causing the crisis is that even if one took the view that they played little role in producing the crisis, there are a variety of other reasons why they should remain high on the agenda of global economic governance. Not least, continuing large payments imbalances raise concerns about the consequences of the growing net indebtedness of the United States and of the continued accumulation of US dollar-denominated government debt by China, and further complicate the already problematic relationship between Washington and Beijing.²