The heart of the problem

“Since the international economic system is simultaneously determined it is impossible to determine whether balance of payments disequilibria are caused by the excess saving or the excess spending countries – one could not exist without the other. However, in a fixed exchange rate system the fact that the country with the balance of payments deficit eventually runs out of foreign exchange reserves means that it is forced to adjust its internal policies to accomodate the policy of the excess saving countries. Since this can only be done by reducing imports (increasing exports would require the rest of the world to spend more, which it unwilling to do) it involves reducing income and employment. Since the excess savers are never forced to reduce their saving due to an excess accumulation of international reserves, only one group of countries, those in deficit, has to adjust – thus the adjustment is asymmetrical. And since the adjustment always requires lower employment, it not only jeopardises national employment policy, it also produces a reduction in employment and unemployment for the global economy. Under asymetrical adjustment the global economy could never reach full employment of labour and would suffer from excess saving. But, for Keynes, this was not morally justified since unemployed labour was just as inefficient a use of resources as the misallocation of capital.” Source: A New Triffin Paradox for the Global Economy, J.A. Kregel (1999). There is so much wrong with this paragraph. When I conjure my inner Murray Rothbard I will critique this at length.

Edit: Ok, I think the fundamental flaw in this line of thinking is that decreasing imports must result in unemployment and lower income.  This is not necessarily so.  One alternative is to increase domestic production to offset the decrease in imports: in other words, instead of importing goods, we can make them ourselves.