tdaxp

Cold War IPE
3 Functions of Breton Woods Systems
- reduce trade barriers
- control capital mobility
- maintain system of fixed (mutual pegged) exchange rates
The Trilemma ("choose 2 of the following 3)"
- exchange rate stability
- domestic autonomy
- capital mobility
Breton Woods system threw out capital mobility, in order to maximize exchange rate stability and domestic autonomy
The Failure of the Breton Woods System in the 1970s
- 1973 Oil Crisis
- stagflation
- high rates of international capital movements began to undermine the dollar
"closing of the gold window" as coup de grace...
... and opened the door to competing political outlooks for IPE
Gilpen: "every economic system rests on a political foundation"
"embedded liberalism" - have methods to deal with displacement costs of economic liberalism
Prof: "Breton Woods System (IMF/EBRD-WB/GATT-WTO) were a "solution to the nightmare of the 1930s."
- Breton Woods preperations began months after Pearl Harbor
- becaues there never was structural capital mobility, and exchange rate stability was gone, only "domestic autonomy" remained of the trilemma
- eventually, capital mobility supplanted the old exchange rate stability

Second Great Age of Capitalism
- symbolized by Reagan and Thatcher (Carter also important -- tdaxp)
- extensive freeing of market forces
- importance of air traffic controller strike breaking
- triumph of economic liberalism / individualism / democracy /growth
- (but trade-off with stability)
- corresponds with information technology revolution
- clustering: technological change not randomly distributed in time or space
- capita flows dwarf ($1500 tril/day to $25 bil/day) goods-services flows

European Integration
- goal of political integration with economic integration as mechanism
European Coal and Steel Community (Franco-German in 1951)
Treaty of Rome
- 1957
- started European Economic Community / Common Market
- France, FDR, Italy, Netherlands, Belgium, Luxembourg
Single Europe Act (1986: goal that by 1992 to have one common market)
Madrid Meeting - 1989, laid grown-work for...
Maastricht Treaty
- 1991
- switch from slow to fast union
- pushed by France-Germany
- failed to establish Federal System, but strived to ...
-- common economic and monetary union
-- try to form common foreign policy
-- harmonize domestic policies in immigration, &c
1994: European Monetary Institution guides government to adopt Europ in future
- European Central Bank
- 1998
- established, takes responsibilities for monetary issues in '99
- Germans wanted strong Euro, France wanted weak Euro
1999: Adoption of Euros, but no bills until January 1, 2002
4 Convergence Criterea for Euro
- maintain price stability (inflation)
- no gov deficit over 3%
- stable economy
- stable exchange rates
Benefits of the Euro
- maintain monetary stability
- lowering transaction costs
- encourages political integration (?)
- ecourages growth of large firms (economies of scale)
- economic growth through economic integration
Criticisms of the Euro
- focus on convergence criterea may short-change other issues (unemployment, etc)
- may be wasteful
- perhaps Euroland "not optimal currency areas," so perhaps hurting national economies
is Euro a "symbol of European sovereignty" ?
Prof: American support for European regional integration not always in American economic interests, but supported by Washingto to help fight Communism

East Asian Integration
focus on asian/pacific integration
- but region is very diverse politically, economically, agenda, etc
- no regional hegemon or hegemonic team (such as France/Germany)
- three major powers are USA/Japan/PRC
- backlash of American efforts, some desire of "native" free trade area? (esp by Malaysia - "caucus without caucasians")
- Japanese efforts to outsource production of goods to Pacific-Asia to Pacific-Asia ("Japan as brain, Asia-Pacific as brawn"; "japan as lead goose")
- Japanese ambitions challenges by emergence of China
-- but 3/4 of "Chinese" quarters are by international firms in China
- China joined WTO in 2001; more internationally integrated
- unlike Europe, Pacific-Asian integration entirely through economics without political union [alternative model than Europe -esp with TPMB's "inevitable" aborption of Taiwan by China? -- tdaxp]
but, would 1997 economic crisis been mitigated by regional supernational governance?
- Japan did propose Asian Monetary Fund, but shot down by US and IMF (see earlier notes)
- Prof: emphasis on Japanese agricultural protection during Uruguay Round sabotaged Japanese leadershp & economic growth
- Prof: APEC essentially abandoned as driving vehicle because Japan-USA joint opposition to reforms, different priorities, &c
- Prof: yet another problem: European physical contiguity, culturaly, politically similarity greater than in East Asian;
- Prof: Japanese firms "notoriously" less likely to share technology with international partner firms

American Economic Response
a new trilemma in American Politics?
1. Military Spending
2. Tax Cuts
3. Budget Discipline
US tired ot Japan's "infant industry" / Europe's "regional integration" as Europe, Japan "grew up"
In 1990s, US began "multi-track" policy which added unlitearlism, bilateralism, regionalism to multilateralism
- US switch to "results-oriented policy" whether than traditional liberal "rules-oriented policy"
- US-Canada lumber dispute, with conflicted NAFTA and WTO rulings, raises question of how to deal with overlapping trade associations

World Trade Organization
(rather biased presentation, arguable points at about 3/minute)
"killing of animals are not taken seriously" - but then how US dominated?"
human rights helped by banning?
non-democratic representation... so this discourages slow-growth strategies
"surplus capital" ... but PRC is biggest destination for foreign direct investment
"richer get richer" ... but, the poorest countries are those that aren't trading
"north/south tech transfer" -- but see earlier comments re PRC

Various Problems with the System
adjustment problem - (does US debtor status portent problems)
liquidity problems - there have to be cash reserves to meet deficits in the balance of payments (imagine problems if every state had own currency)
confidence problem - belief that the currency is meaningless, leads to loss of signorage
signorage = the benefits of a currency being the dominate international currency

Possible Solutions to the System
a world central bank?
monetary hegemony (Dollar-Euro-Yen trifecta?)
political-economic coordination of individual currencies / monetary policies