The International Monetary System: A Time of Turbulence

By Jacob S. Dreyer; American Enterprise Institute for Public Policy Research | Go to book overview
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Summary of the Discussion

Given a history of controversy over the "locomotive" and "convoy" proposals for coordinated economic expansion and, in general, over advantages and disadvantages of establishing a permanent institutional framework for coordination of national economic policies, the extent of general agreement among the participants of the conference on a number of major issues was somewhat surprising. Still, some participants, most notably Robert Solomon, maintained that closer coordination of economic policies in 1972-1973 could have prevented the worldwide boom that then developed and that led to an explosion in commodity prices, contributed to the oil price boosts of 1973-1974, and ultimately resulted in a painful global slump. Even this premise was challenged, however. Helen Junz held that the explosive economic growth of 1972- 1973 was, at least partially, due to excessive consultations and implicit coordination of policies among nations. Every government underestimated at that time the strength of its own economy and, consequently, unintentionally misinformed its partners about the true conditions. Thus, errors of judgment became compounded, and every government continued to pursue highly expansionary policies on the assumption that increments to the global growth of demand for resources due to such policies would not be excessive. Thomas Willett pointed out in this connection that international coordination of macroeconomic policies would be more defensible if, indeed, governments had a superior forecasting ability. He claimed, however, that this ability is, if anything, rather inferior because of the inherent bias of politicians toward overoptimism. Moreover, Willett contended that because coordination is likely to be based on governments' discretion, as distinct from predetermined rules, political considerations are certain to influence the outcome, not necessarily in a desirable manner.

Rainer Masera addressed the issue of structural differences among countries and of how they impinge on a coordination process. He pointed out that not only are certain prices sticky and others flexible but that the degree of their stickiness is very different among countries. After all, institutional settings for determination of wages are different

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