Re: Danby seminar -- forwarded msg re Thirlwall

[Colin Danby <danbyc@xxxxxxx>]

I received the following msg from from Hubert Hieke on
Thirlwall and I thought it was interesting and deserved
to be posted to the list.  Hubert said OK but with the
caveat that it is a private message written hurriedly.
Hubert can be e-mailed at HIEKE@xxxxxxxxxxxxxxxxxxxxxxxx
Colin


Dear Dr. Danby and dear Bruce,

Please allow me some brief comment on your current, interesting
discussion
related to Thirlwall's Law.
The Law must be considered within the existing payments regime!
 Professor Davidson's proposals for a new
international monetary order in the spirit od Keynes (JPKE), e.g.,
would certainly prevent some of the dire financial consequences and
instabilities for LDCs (as well as the DCs).
Although Thirlwall's Law appears to imply the strategies you both
correctly point out, the suggestions should not be misinterpreted (I
do not suggest that you do, but it is very important in my view to
stres this point very clearly!). An
export led growth strategy in Thirlwall's sense, applied by countries
such as Japan and Germany can only make things worse from an
international perspective under the current flexible exchange rate
regime. Ironically this has happened in the past. Instead of stimulating
domestic
 growth, there has been a debate here in Germany, e.g., about "a lack of
 international competitiveness" last year, which became almost absurd.
 It appeared that some economists, not realizing that trade depends on
comparative, but not absolute advantages, some people seemed to believe
that
Germany should basically be competitive in all products(!).

Wrt. Thirlwall's Law it should always be stressed that
the Law is a long term approach! It can have dire consequences within
a belt-tightening, beggar-my-neighbor international context.
Unfortunately, at
least in Germany, it is currently used in that way (I assume partly
to promote an ill-fated wage-reduction policy).
A world wide focus on a policy of "competitive international
restructuring"
 among  economies towards exports products
 with higher income elasticities must end in an at best "zero-sum
income-redistribution" "game"  (or worse),
if it is considered as a substitute for  expansionary domestic
policies during times of unprecedented unemployment. The current
exchange rate system, however,  which imposes all
adjustments on the deficit nation (except the U.S.)  is reinforcing
this development. It is an irony that trade-surplus DCs such as Japan
and
Germany with an export structure, still based on products with
relatively high export demand elasticities are among those, most
concerned
about there "international competitiveness".
In sum, the suggestions implied by Thirlwall's Law:
-must clearly be seen within the existing international montary regime.
-are self defeating at an international scale in my view when applied
as a (non-inflationary) policy strategy (on part of surplus
nations). But currently, no international agreement/arrangement)
prevents this from happening (Professor Davidson has developed a
model about this issue in a somewhat different context.

Yours
Hubert Hieke
University of Mannheim
Germany