Germany and China Have Savings Gluts, the USA is a Sump: So What?

30 Pages Posted: 17 Aug 2020

See all articles by Lance Taylor

Lance Taylor

The New School - Bernard Schwartz Center for Economic Policy Analysis (CEPA)

Date Written: August 5, 2020

Abstract

A “global saving glut” was invented by Ben Bernanke in 2005 as a label for positive net lending (imports exceeding exports) to the American economy by the rest of the world. This trading situation had already emerged around 1980, and led to the Plaza Accord in 1985. One common explanation is based on the Mundell-Fleming IS/LM/BP model. But this model cannot be valid, since the “BP” equation is not independent of “IS.” Other champions of this saving glut hypothesis rely on loanable funds theory, which is institutionally inadequate. More plausible analyses of the persistent trade imbalance can be derived from a two-country IS/LM set-up devised by Wynne Godley, a Kaleckian description of the political economy of East Asia and the United States, and dissection of the terms of trade due to W. Arthur Lewis and Luigi Pasinetti.

Keywords: Saving glut, net lending, IS/LM/BP, Mundell-Fleming, productivity growth, terms of trade, China, Japan

JEL Classification: E12, E16, F32, F41

Suggested Citation

Taylor, Lance, Germany and China Have Savings Gluts, the USA is a Sump: So What? (August 5, 2020). Institute for New Economic Thinking Working Paper Series No. 132
https://doi.org/10.36687/inetwp132 , Available at SSRN: https://ssrn.com/abstract=3671776

Lance Taylor (Contact Author)

The New School - Bernard Schwartz Center for Economic Policy Analysis (CEPA) ( email )

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