Surplus Recycling and the Canadian Federation: Reassessing the Allocation of Money and Power
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Authors
Courchene, Thomas J.
Date
2013-04
Type
working paper
Language
en
Keyword
Alternative Title
Abstract
In his 2011 book, The Global Minotaur: America, the True Origins of the Financial Crisis and the Future of the World Economy, Yanis Varoufakis makes a
convincing case that effective surplus-recycling mechanisms (SRMs) are essential for maintaining the internal stability and resiliency of macro economic systems. While his analysis both novel and insightful, it is nonetheless the case that the role of surplus-recycling mechanisms has long been centre-stage in ensuring international macroeconomic equilibrium. Arguably the most familiar SRM was the “rules of the game” under the gold standard or, more instructively, under the pricespecie-flow mechanism. Countries running balance-of-payments surpluses will experience inflows of gold (specie) that in turn will increase domestic wages and prices thereby eroding their balance-of-payments surpluses by decreasing exports and increasing imports. Balance-of-payments-deficit countries will experience the opposite impacts, with the result that the system will re-equilibrate. However, if the balance-of-payments-surplus countries sterilize the gold or specie inflow, then the surplus-recycling mechanism is stymied and the burden of adjustment is shifted to the deficit countries in the form of austerity or exchange-rate depreciation, both of which significantly increase the political and economic adjustment costs, and undermine the principles of the system.
Description
Institute of Intergovernmental Relations
School of Policy Studies, Queen’s University
Citation
Publisher
Queen's University Institute of Intergovernmental Relations