The Leaderless Economy: Why the World Economic System Fell Apart and How to Fix It

329 Pages·2013·0.97 MB·English

by  Peter Temin

The Leaderless Economy

The
Leaderless
Economy
Why the World Economic System Fell Apart
and How to Fix It
PETER TEMIN and DAVID VINES
PRINCETON UNIVERSITY PRESS
Princeton and Oxford
Copyright © 2013 by Princeton University Press
Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540
In the United Kingdom: Princeton University Press, 6 Oxford Street, Woodstock, Oxfordshire
OX20 1TW
press.princeton.edu
All Rights Reserved
Library of Congress Cataloging-in-Publication Data
Temin, Peter.
Th e leaderless economy : why the world economic system fell apart and
how to fi x it / Peter Temin and David Vines.
pages cm
Includes bibliographical references and index.
ISBN 978-0-691-15743-6 (alk. paper)
1. Economic policy. 2. International economic relations. 3. Global
Financial Crisis, 2008–2009—Government policy. I. Vines, David. II. Title.
HD87.T416 2013
320.6–dc23 2012032589
British Library Cataloging-in-Publication Data is available
Th is book has been composed in Minion Pro with ITC Franklin Gothic display
by Princeton Editorial Associates Inc., Scottsdale, Arizona
Printed on acid-free paper. ∞
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
For our children and grandchildren
in the hope that they will soon see a return to prosperity
For Peter: Elizabeth, Melanie, Colin, Zachary, and Elijah
For David: Sam, Alexander, Louis, Luke, and Tom

CONTENTS
Preface ix
ONE Th e World Economy Is Broken 1
TWO Th e British Century and the Great Depression 21
THREE Keynes from the Macmillan Committee to Bretton Woods 59
FOUR Th e American Century and the Global Financial Crisis 107
FIVE Restoring International Balance in Europe 151
SIX Restoring International Balance in the World 205
SEVEN Using Th eory to Learn from History 243
Appendix 257
Notes 275
References 283
Index 299

PREFACE
The discussions that led to this book began aft er the eruption of
the unpronounceable Icelandic volcano, Eyjafj allajökull, stranded Peter
in London aft er a 2010 conference. David invited him to wait for the skies to
clear in Oxford, leading to four days of discussion about the topics of this
book. We transformed our clear agreement on the issues into a book outline
during Peter’s week in Oxford in the spring of 2011, and we worked on it
while David visited MIT in the fall of 2011 under the MIT-B alliol Program.
(We fi rst met two decades earlier, when David hosted Peter at Balliol College
under this same program, and have been in touch since.)
We have been giving talks and writing papers on these themes over the past
few years, and we decided that a full- length presentation of our thesis and its
historical background would help current policy deliberations. We off er this
volume to all who are interested in the world economy and distressed at the
lack of understanding oft en shown in the popular press. As we describe in
the text, we use only simple economic models and reserve discussion of the
models— as opposed to the history and analysis— to an Appendix.
For their feedback we thank the audiences at the American Academy of
Arts and Sciences; the Asia Europe Economic Forum in Paris, Seoul, and
Tokyo; the Australian National University; the Fundación Ramón Areces
(Madrid); MIT; Oxford University; the Reserve Bank of Australia; Swarth-
more College; the University of California at Berkeley; and Wake Forest Uni-
versity. And we thank Christopher Adam, Christopher Allsopp, Ross Garnaut,
and Max Watson for their insights along the way.
We thank Balliol and Nuffi eld Colleges for accommodation while meeting
in Oxford and Balliol College and MIT for accommodations while meeting in
Cambridge, Massachusetts.