In the post-war boom era of 1945 to 1971, the U.S. surplus was at the center of the global economic order. Throughout the Bretton Woods period, the United States recycled part of its surplus via foreign direct investment – mainly in Western Europe and also in Japan. Within the system of international economic flows, the U.S. exported goods to the rest of the world and also finance these purchases. Besides, the United States created demand for the exports of foreign countries, primarily Germany and Japan.
After the 1970s, this system of international economic flows changed. From 1971 to 2008, there is the expansion of the age of high finance where the U.S. deficits have been at the center of the global economic order. Considering this background, What Yanis Varoufakis (2013) calls the “Global Minotaur” is the system of international economic flows built after the 1970s. According to this system, the whole world surpluses aimed to finance the unsustainable expansion of a double deficit on which the US built its political and economic hegemony. The American trade surplus turned into a large and increasing deficit that joined the government deficit to form the twin deficits. These twin deficits characterize the “Global Minotaur era”.
Without the Wall Street institutions recycling the global surpluses, the U.S. had not been able to hold its twin deficits. Indeed, the new global order after the 1970s was supported thanks to the close collaboration of the expansion of high finance overwhelmed by the political power of economic neo-liberalism. Besides, the global expansion of corporations and supply chains enhanced business models based on increasingly lower wages. As a result, the global surplus recycling mechanism reversed the flow of global trade and capital flows: the United States provided sufficient demand for manufacturing in foreign countries – mainly China – in return for capital inflows. As a matter of fact, between 1971 and 2008, the era of high finance supported the expansion of global trade at the cost of financial bubbles, corporate mega-profits and increasing social inequalities. In this scenario, mainstream economics supported the free market efficiency discourse.
However, accordingly Varoufakis (2013), the “Global Minotaur” has a crucial weakness. Indeed, the last cause of the global crisis is founded on the Minotaur’s dynamics that is synonymous to the global asymmetries on which the global architecture has been built after the 1970s. Indeed, the maintenance of the U.S. supremacy requires global permanent unbalances. Consequently, the current global surplus recycling mechanism could not stabilize the world economy.
As the fundamental structural flaws in the global economy have not been addressed since the 2008 financial crisis, there are serious concerns that a new global economic crisis of unprecedented magnitude could still happen.
The Global Minotaur: America, Europe and the Future of the Global Economy, by Yanis Varoufakis, Zed Books, New York, 2013.