Front Page Titles (by Subject) International State Planning and Inflation - Literature of Liberty, October/December 1978, vol. 1, No. 4
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International State Planning and Inflation - Leonard P. Liggio, Literature of Liberty, October/December 1978, vol. 1, No. 4 
Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.
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International State Planning and Inflation
“Coordinated International Economic Expansion: Are Convoys or Locomotives the Answer?” Federal Reserve Bank of St. Louis Review 60 (July 1978): 11–19.
The international Organization for Economic Cooperation and Development (OECD) espoused the “locomotive” approach in December 1976. This approach to international economic policy puts the responsibility for stimulating world output on the three major industrial countries (Germany, Japan, and the United States). They were to expand aggregate demand in each of their countries so as to cause demand in other countries eventually to increase. But one year later, the OECD Secretariat changed its policy approach, recommending instead that all governments expand aggregate demand in tandem (the “convoy” approach).
Both proposals assume the existence of significant unused capacity in most OECD countries. If true, economic growth could occur without aggravating price inflation. Alternatively, OECD countries are viewed as having unemployment concentrated in export industries. Scant evidence exists for either hypothesis. Regardless, the necessary monetary expansion will increase price inflation, even if there are some temporary effects on real output. Moreover, since evidence suggests that space capacity is not present, there would not even be any short-run benefits.
OECD countries with low price inflation and balance of payment surpluses have not retarded expansion in deficit countries. Rather, by lending savings to deficit countries, surplus countries have benefited the former. Thus, acceleration in the growth of aggregate demand in Germany and Japan would provide little additional help to their OECD trading partners. Instead, by not undertaking such expansion, Germany and Japan support countries with weaker economies. Policies for coordinated international economic expansion would aggravate the problems that such expansion is intended to correct.