Distinguished Lecture on Economics in Government: Thinking About International Economic Coordination

I am not opposed to international cooperation in all economic matters, but in this lecture, I stress the counterproductive consequences of the international coordination of macroeconomic policy. I believe that many of the claimed advantages of cooperation and coordination are wrong, that there are substantial risks and disadvantages to the types of coordination that are envisioned, and that an emphasis on international coordination can distract attention from the necessary changes in domestic policy. Moreover, the attempt to pursue coordination in a wide range of macroeconomic policies is likely to result in disagreements and disappointments that reduce the prospects for cooperation in those more limited areas of trade, defense, and foreign assistance where international cooperation is actually necessary. In stressing the limited scope for the international coordination of macroeconomic policy and exchange rates, I do not wish to imply that such action is never appropriate. There are some small and very interdependent countries where such coordination should undoubtedly be the general rule. There are also some conditions when the potential gains from coordination are such that all countries could expect to benefit from participation. But the active coordination of the macroeconomic policies and of exchange rates among the United States, Japan, and Germany will generally be inappropriate. Moreover, as I shall explain in these remarks, the United States is particularly unsuited to participate in an ongoing process of economic coordination.