The 'Global Imbalances' Myth

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As the economic crisis has eased in recent months, a questionable international consensus has emerged: The global economy needs to be rebalanced. "We cannot follow the same policies that led to such imbalanced growth," President Barack Obama said during his Asia trip last month. European Central Bank head Jean-Claude Trichet declared in September that "imbalances have been at the roots of the present difficulties. If we don't correct them, we'll have the recipe for the next major crisis."

These global "imbalances" supposedly include excessive American consumption, too much trade flowing from Asia to the West and not enough from the U.S. to Asia, and too much saving combined with insufficient spending by Chinese consumers. But what if the whole notion of global imbalances is a myth, and that policies to reverse them only make things worse?

The blunt fact is that at no point in the past century has there been anything resembling a global economic equilibrium...

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