International capital movements, speculation, and the 'conservation of saving' principle. A 'Harcourtian' interpretation of global imbalances and the global crisis

This paper is inspired by the contributions made by Geoff Harcourt concerning the macroeconomics of open economies, international capital movements and speculation (e.g. Harcourt 1994, Dalziel/Harcourt 1997). This conceptual frame- work is developed in a simple model, useful for validating some of Harcourt's policy proposals for open economies, as well as for interpreting global imbalances and the global crisis. More specifically, this paper describes the workings of two economies, Home and the Rest of the World (RoW), which are related through both trade and capital flows. On this basis, this article: (i) develops the relationship between income levels in a deficit country (Home) and in a partner country (RoW); (ii) studies the role of key parameters in the two countries' main macroeconomic functions; (iii) applies the main results to global imbalances and in particular to the US, which plays the role of Home in the present context; (v) suggests a possible link between global imbalances, speculation, and the international role of the dollar; (vi) proposes an enlarged version of Harcourt's 'modest proposal for taming speculators'.