The political economy of policy coordination

Michael C. Webb explores a central question about postwar economic history: how has the growth of international markets affected the coordination of economic policy among nations? His analysis overturns the popular assumption that policy coordination has eroded as American hegemony has receded.

Instead, he argues that the growing mobility of capital forced governments to abandon the strategies they had used in the 1950s and 1960s to insulate monetary and fiscal policies from international influences, and to move toward more direct coordination of central economic strategies.

Webb examines in particular how the United States, Japan, and Germany took unprecedented steps to coordinate monetary and fiscal policies in the late 1980s and early 1990s, although domestic political obstacles - not any decline in U.S. power - limited the impact of this policy coordination. He concludes by assessing the effectiveness of these attempts to reconcile the goal of a stronger liberal system of economic exchange with the desire to maintain national autonomy.