bain_y_howells__monetary_economics__policy_and_its_theoretical_basis

304 MONETARY ECONOMICS
cal counterpart to the Plaza Agreement: budgetary changes were to be coordinated
to lower the value of the dollar together with fiscal expansions in
Japan and Germany to compensate for any contractionary tendencies in US
policy. Yet in practice, little happened although interest rates and the dollar
did start to fall. In 1987, in the Louvre Accord, finance ministers decided
to try to maintain exchange rates within agreed target zones, but the arrangement
was abandoned after the 1987 stock market crash.
At one end of the spectrum of opinions on recent attempts at policy coordination,
are those who do not see the economic summits as attempts at policy
coordination at all. In Kindleberger’s presidential address to the 98th
annual meeting of the American Economic Association in 1985, he asserted
that ‘...the commitment to consultative macroeconomic policies in annual
summit meetings of seven heads of state has become a shadow play, a
dog-and-pony show, a series of photo opportunities ....with ceremony substituted
for substance’. 11 Portes argues somewhat differently, questioning
not their effectiveness but the motives behind them, seeing the global
macroeconomic policy attitudes of 1979-85 as ‘...the very antithesis of policy
co-ordination’. 12 In his view, the spirit behind policy coordination
should be a desire to produce more efficient outcomes, but he saw the G7
summits as attempts to alter the balance of power within the existing economic
system by bringing about changes in fellow-members policies in
one’s own interests.
Pause for thought 10.11:
What do you think a 'dog-and-pony show' might be? To what aspects of such a
show might Kindleberger be referring in the quote above?
At the other end of the spectrum lie the views of those who do, indeed,
see G7 and G3 meetings as coordination but who believe that all such
attempts are likely to do more harm than good. Such views are based on a
central belief in the efficiency of markets, a Public Choice school interpretation
of the aims and ambitions of bureaucrats who attempt to manage markets,
and a feeling that economists are ‘...abysmally ignorant about the
macro-economic processes and the dynamics of forces that determine the
fate of national economies’. 13
Horne and Masson (1988) provide a good example of the ‘lessons to be
learnt’ approach to the summits. They distinguish between ‘procedural’ and
‘substantive’ achievements. At a procedural level, they suggest that the
summits were a success, establishing ‘...an increased awareness of policy
interactions, a recognition of the role of exchange rate factors in macroeco-