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Guest lecture

The First-World Debt Crisis and the Desirable Policy Response

Event series: 

Robert Wade

Robert Wade is a New Zealander, educated Washington DC, New Zealand, Sussex University. Worked at Institute of Development Studies, Sussex, 1972-95, World Bank, 1984-88, Princeton Woodrow Wilson School 1989/90, MIT Sloan School 1992, Brown University 1996-2000.

Fellow of Institute for Advanced Study, Princeton 1992/93, Russell Sage Foundation 1997/98, Institute for Advanced Study, Berlin 2000/01. Fieldwork in Pitcairn Is., Italy, India, Korea, Taiwan. Research on World Bank 1995-continuing. Author of Irrigation and Politics in South Korea (1982), Village Republics: The Economic Conditions of Collective Action in India (1988, 1994), Governing the Market: Economic Theory and the Role of Government in East Asia's Industrialization (1990, 2003). Latter won American Political Science Association's award of Best Book in Political Economy, 1992.


The current first-world debt crisis is generally said to be rooted in pockets of the US financial system. This essay finds deeper causes in the global financial architecture which has enabled US policy makers to run the economy for the past decade spending 5 to 7 % more than it produces, importing twice as much as it exports. The US has reaped large benefits, including fast growth, low unemployment, and easy financing for US military activities in Iraq and elsewhere, even with tax cuts. The same mechanism has helped to generate fast growth in much of the rest of the world.

The essay identifies two zones of the world economy - one with substantially fixed exchange rates, linking the US deficit economy with the Asian surplus economies, in a system popularly known as Bretton Woods II; the other with floating exchange rates. The different dynamics of both zones tend to the same result: large and persistent current account deficits and surpluses, which constitute a force for financial instability in the world at large. The essay also finds deeper causes of the crisis in the feedback from political conditions to economic conditions. The feedback suggests a worrying parallel between today and 1929. The last section proposes a number of policy changes at national and multilateral levels designed to reduce the chances of repeat crises, including tighter "capital management techniques".

Last updated: 
Tuesday, 15 April 2008