Dollar trap or empire by invitation? The global political economy of the dollar system.

"This succinct and powerful analysis adds a key element of political economy that is often missing from arguments over the dollar system, all too often phrased in national terms. We talk as though the rest of the world as a collectivity suffers the unequal terms of trade implied by America’s exorbitant privilege. It is often said that the “safe asset” status of US Treasuries is ultimately grounded in America’s national military power. Both claims have an element of truth to them. But as Atkeson et al remind us, global investors flock to the United States not simply because the United States supplies protection, or serves as a unique issuer of “safe assets”, but because investing in America offers outsized returns thanks to the country’s lop-sided domestic political economy. America is a great place for corporates to make profit and that is ultimately what attracts investors and accounts for a large part of America’s net foreign liabilities. Managers of foreign capital enthusiastically buy into the American profits bonanza."

-Adam Tooze @ Chartbook

Super curious speculations about the global political economy of the dollar system, of which I probably understand about half. So for the sake of trying to organize my own partial understanding and for the curiosity of the equally economic literacy challenged I summarize: 

There is an old economic saw that goes, more or less: If you owe the bank $100 that's your problem but if you owe the bank $100 million that's the bank's problem; it's usually attributed to mid-20th c oil magnate J. Paul Getty but its actual origins are older and murkier.*

The US owes the world, our bankers in this respect, so much that defaulting on that debt or devaluing the dollar is viewed as a threat to foreign economies heavily invested in the dollar system. Some people call this the "Dollar Trap." Countries become dependent on dollars and their stable growth value. 

One large factor reinforcing foreign investment in the dollar system-- and so making it more invitational than just a trap-- is that returns, profit returns, interest rates, are better in the US, and in the dollar system than anywhere else. This is attributable (significantly, if to an uncertain degree) to reduced labor claims on corporate profits (which US economists refer to euphemistically as "higher productivity") in the US. Likewise, the priority placed on "share value" in the stock market reinforces this anti-union, anti-labor, anti-government bias in the US, which makes foreign investment more lucrative than places where labor (and/or the state) take a bigger piece of the pie. This is particularly so in other developed capitalist states like Germany or Singapore or Norway or Japan, etc. 

So in a terribly dreary twist domestic inequality, living wages, public infrastructure, are casualties to a booming dollar system; and so foreign investment in the dollar is hedged by domestic austerity measures for workers and the public good, health care, environment, whatever, in the US. You know, all that "waste, fraud, and abuse" stuff. In the ultimate boomerang that which makes the dollar invitational to foreign investors makes it an austerity trap, the "dollar trap" at home, for labor and the caring economy in the US. 

It's also possible global use of the dollar is viewed more as a debt "trap" or lucrative "invitation" based on global asset positions. In modern times until maybe two decades ago the amount of foreign assets owned by the US and foreign ownership of US assets was more or less equal. Since then the imbalance has shifted dramatically towards foreign ownership of US assets exceeding US investment in foreign assets by nearly $29 trillion. This is not like Trump's crude Tariff obsession with balance of trade numbers that leave out lots of relevant economic exchange. The claim here is that the imbalance in foreign assets works against the value of the "invitation" and increases the sense that investment in the dollar system is a "trap" that foreign states will look for ways to escape. 

My general understanding, woefully limited, is that the dollar system has proven remarkably resilient because ultimately it makes global trade easier and more profitable than the Euro or China's RMB or any other currency and has been doing so since WW2. There is some stabilizing hegemonic power in a single currency system that is conducive to global growth and prosperity, or let's say the belief that it does possess this power has survived some pretty big disruptions, which includes on and off non-stop Cold Wars and getting off gold in 1972. 

But will the dollar system survive Trump? Can labor and the caring economy ever escape the dollar trap? Can the dollar stay relevant in the global energy transition of the 21st c if the US opposes and cuts investment in that transition? Stay tuned to Professor Tooze to find out, he of a comically pompous accent is in no way to blame for my crude misinterpretations of his super interesting work.

*- Reportedly, Grump likes this economics proverb as well and relates it in his speeches this way: "If you owe the bank a million dollars, you got a debt problem. But if you owe the bank a billion you actually own the bank." In business terms Trump has always wanted to be a chip off the old block. Using size and scale of business projects to extort concessions and profits from other smaller stakeholders is a business model specialized in by his father the real estate developer, Fred Trump 

Techno-Fascism Comes to America

"Accelerationism emerged from Karl Marx’s idea that, if the contradictions of capitalism become exaggerated enough, they will inspire proletarian revolution and a more egalitarian society will emerge. But [Andrea] Molle [poli-sci prof at Chapman] identifies what he calls Muskian “techno-accelerationism” as having a different end: destroying the existing order to create a technologized, hierarchical one with engineers at the top. Musk “has to completely break any kind of preëxisting government architecture to impose his own,” Molle said. He added that a government thoroughly overhauled by Musk might run a bit like the wireless system that operates Teslas, enabling the company to theoretically update how your car works at any moment: “You’re allowed some agency, but they are still in control, and they can still intervene if the course is not going in the direction that it is supposed to go to maximize efficiency.”

Kyle Chayka @ NYer

We're taught capitalism and communism are irreconcilable binaries but in an important sense they are not. I remember trying to explain this to colleague once and they shot back with, 'right, we're a mixed economy,' like what I was saying was obvious and of useless value. But I still think it's useful to remind ourselves of this now and then because when we talk about economic issues this way, which is still the way they are almost without exception discussed in politics, as these abstract, hypothetical, antagonistic binaries, we obscure understanding the really existing economy. Bezos harrumphing this past week that the editorial writing in WaPo, from now on, will be restricted to "personal liberties and free markets," as if the subject of "free" and "unfree" markets in the real economy were clear and obvious to everyone, is a perfect case in point.  

My contention is that it isn't clear-- Bezos' "free markets" may protect his freedom to accumulate wealth but do they increase the freedom of workers to find living wage work? or the freedom to live in a healthy environment? Most importantly, thinking about markets in this strict binary fashion muddles public understanding of economic issues, fostering ideas like all taxes and regulations are bad, when really any large scale market over time is absolutely dependent on rules and regulations and taxes to build the infrastructure that make any really existing large-scale market function and work. Still, living in the antagonistic Cold War binary over the economy we get the random destruction of Leon and his hacker gang rampaging through the government right now, immiserating many and, if not stopped before it's too late, probably crashing the economy. And even then, if the Great Recession is any guide, before the government has even finished bailing out the economy and putting it back together, the free market dogmatists will be blaming the crash on the government. 

But let's back up a little and try to explain how I came to this way of thinking.  

Heterodox economic historian Karl Polanyi (1886-1964) argues both free market capitalism and Marxism are post-Enlightenment utopian schemes. Both rationalizing political-economic orders, claiming to be natural orders and universalizing systems, that in theory put an end to political conflict and class struggle, their carrot, by, in the case of the free marketeers, maximizing market freedoms and human productivity, independent of government intervention (Laissez-faire), or politics, and in the case of communism, by transferring the ownership of the means of production from a few super rich capitalists to all labor as a collective body politic, thereby allowing eventually the withering away of  the state, or politics, again, and everyone fishes in the morning and reads in the afternoons and goes out to shows in the evenings. Utopia! The problem, according to Polanyi, is when put into practice by political power, enforced by governments and the rule of law, these utopian schemes, capitalism or communism, become dystopic, corrosive to human society, principally because they are, in the case of market fundamentalists (and neoliberals), hostile to any democratic claims outside the bottom line economic maximizing profit seeking priorities of big capitalists, like taxes or regulations or living wages, and in the case of communists, or Dictatorships of the Proletariat in communist command societies, they are hostile to political dissent of any kind or any human right that threatens communist party authority. 

It doesn't make it any less threatening or potentially destructive but totalitarian technocratic engineering fantasies like the Muskian one above, which is really just another neoliberal market fantasy, are not entirely a new thing, by any stretch. Musk's grandfather was something of an antisemitic technocracy nut back in the 1950s. I'm sure Leon sees himself as a great world builder and he's gifting society with his fully-automated manufacturing surveillance world geared to escaping the earth and colonizing Mars. But what jumps out at me in his "techno-accelerationist" fantasy, not to mention his efficiencies rampage through the federal government right now, is the reckless contempt for workers, for labor, for others, for the human rights or individual freedoms of anybody but himself. He thinks any part of government that doesn't serve him (28 billion in contracts, or something like that, from what I've heard) is government waste; helping the poor, cancer research, social security, all wasteful inefficiencies. So, again, in the Polanyian sense, another utopian ends up a dystopian; and in this case, even a Neo-Nazi. 

There is that saying about how societal collapses develop slowly in dribs and drabs until everything falls apart all at once. We're in this terribly precarious place where it feels like it is the resiliency of the separation of powers in our system, and the democratic will of the people within that system, by definition procedural and lumberingly disorganized forces, respectively, versus a fascist corporate state ("move fast and break things") for billionaires and bigots backed by state and non-state actor violence. Ack! 

Anyway, if it's any comfort there are no lack of wildly rhyming historical precedents to our troubled tabloid times and they keep coming. I've been pounding on the Nazi parallels, because of Ryback's Takeover. And Adam Tooze's The Wages of Destruction, which I maybe haven't mentioned as much. Lessons from that book I think worth mentioning here: Don't believe the Nazi economic miracle hype; Albert Speer was a propagandist, foremost. The technocracy in Germany was at odds with the Nazis by 1935 and everything after that, economically, was maximizing total war production and extreme austerity for working people. And the Nazi economists knew by 1937, latest, Germany would not be able to develop anything like parity in military productive strength with the collective force of their enemies before 1945-1950 or later. When Hitler launched Barbarossa, his invasion of Russia in 1941, logistics support was provided by horse drawn carts. In other words, fascist Germany was less an economic miracle than an industrializing state war machine; and one of brutally violent consequence to Jews and gays and communists and Gypsies and disabled people and, really, any non-German speaking people in Poland and Ukraine. Fascist Germany is often credited for its technocratic achievements but what stands out in Tooze's account is how Hitler's racist delusions actually catastrophically undermine Germany's modernizing growth and security. 

Historian Janis Mimuru, as reported by Kyle Chayka in the NY-er, thinks, additionally, the techno-fascist takeover in Japan in the 1930s, in part inspired by German fascism, resembles in ways the hostile government takeover going on now by Leon and his hacker Dogers. Led by engineering and industrial elites, high on their own stash of flattering history books, great world builders in their own minds, Japanese engineers in the 1930s and Tech Bros now think they've got all the technocratic solutions, anything in their way, laws, workers, humans, democratic pressures of any kind are waste, inefficiencies, engineering problems and must be suppressed or "fed into the wood chipper," so to speak; enemies of the people, woke mind virus, etc.  

All of which is to say perhaps some healthy skepticism about the AI/crypto, "animals spirits," "vibes shift" boom hype going on these days might be in order. By one admin account, as related by Ezra Klein on a recent podcast about AGI (artificial general intelligence), Leon is stripping the government down to the studs so as to make way for the AI takeover, for efficiencies' sake of course. Please, note again, the lure here is the fantasy of automating away politics or any democratic claims on capital. The coming austerity with which we will pay for this hype, at any rate, will likely result in many excess deaths and considerable loss of wealth and security for anybody that is not a billionaire oligarch. 

What else strikes me about these comparisons, the Nazis and Imperial Japan, as well, and which is kind of obvious but feels right now like worth repeating, and underlining, is how the Nazis and Imperial Japan were both ultimately desperately doomed examples of national planning. They aren't paragons of rationalizing technocratic achievement. In the end they defy technocratic reason, convinced their cultural survival is at stake, their world beating technocratic arrogance crashes their countries in terrible military crackups.   

But no way Grump & Leon go there, right? I said historical comparisons can be comforting but they aren't always. They can also be grave warnings.   

Adam Tooze is an economic historian. I've read his Wages of Destruction, a meticulously demystifying account of economic development in Nazi Germany from 1933 until its collapse at the end of World War 2. Tooze also puts out a newsletter, Chartbook, that I can't keep up with, nor will I pretend I entirely understand, but, nonetheless, serves up super curious economic history odds and ends now and then like this one: 

The axial years in modern economics

Add also Joan Robinson, An Essay on Marxian Economics (1943).

A little social media reading list on the "Axial Age" of modern economics. Shouldn't be missed by students of political economic history:  

Chartbook, Adam Tooze