alliances, Barron's, Federal Reserve, finance, globalism, manufacturing, Our So-Called Foreign Policy, Paul Volcker, Trade
For decades, anyone (like yours truly) who’s even intelligently argued for fundamentally new strategies for U.S. foreign policy and trade policy has been dismissed by defenders of the longstanding globalist approaches as an isolationist or a know-nothing or a protectionist (to name a few slurs). So imagine my surprise to see the other day my own critique of globalism (which decries both its national security and economic dimensions) being closely mirrored by no less than Paul Volcker. Even better, Volcker seems to agree that the mistakes made by both the main aspects of globalism are closely related.
To remind, Volcker is a former Chairman of the Federal Reserve who, as top official at the central bank, had the rare combination of economic smarts and political courage to understand that the only plausible way to end the raging inflation that began crippling the country in the late-1970s was to clamp down hard on credit. A deep recession resulted, but largely because of Volcker’s tight-fisted approach, the economy’s subsequent growth during the 1980s and 1990s was significantly healthier (though not perfectly healthy) than before Volcker hiked interest rates and curbed the money supply’s expansion.
Previously, he served in a senior Treasury Department role at a key juncture of post-World War II U.S. and world economic history (when the post-war global monetary order was falling apart, and a new jerrybuilt order was cobbled together), and as an economist at the Fed. Since leaving the central bank (in 1987), Volcker has been a highly successful advocate of Wall Street reforms and a respected voice for responsible economic policies. (Here’s a short, handy bio.)
Also to remind, my own basic description of what’s been wrong with America’s globalist policies is that they’ve acted as if developing various types of international arrangements (including institutions like the UN and International Monetary Fund and military alliances), which have been aimed at grandiose global goals (the world’s pacification via the spread of democracy and global economic integration), were the best guarantors of achieving acceptable levels of U.S. security and well-being. (See this article for the most recent, comprehensive statement of these views.)
Consequently, globalists softpedaled efforts to create and sustain the national military and economic strength needed for the country to survive and prosper in the world as it was likely to remain for the foreseeable future: dog-eat-dog and tumultuous. In the process, they regularly sacrificed crucial chunks of the real economy (that is, its most productive sectors) – and the huge number of good jobs they supported – in quixotic efforts to bolster those institutions and to win and keep those allies. As a result, they lost sight of what should be the overriding objective of all foreign policymakers: promoting the interests of the great majority of their own citizens in the most realistic, responsible possible ways (and my definition of responsibility includes financial responsibility).
Actually, Volcker’s indictment is even harsher than mine, at least in tone. In this interview with Barron‘s last week, he suggested that the globalists’ priorities were driven by their desire that America “dominate politically and foreign policy-wise.”
But the substance of our perspectives are remarkably similar. As Volcker argued (and it’s worth quoting the relevant passages in full):
“We were willing to run these current account deficits [in order to pay the mounting costs of globalism without requiring Americans to pay for them with politically toxic higher taxes], and it was favorable for businesses—they could invest abroad, import more freely. But eventually it breaks down. During that process, you lost a lot of small American manufacturing. Now we’re getting the blowback from that. A lot of people feel left out, and they were! We took great pride in open markets, free competition, no tariffs. That pleases the scholars, it pleases big business, but it doesn’t please the people in the part of the country that lost out.
“[Interviewer] Is that an argument for protectionist…?
“Sounds awful, doesn’t it? That’s a bad word.
“Everyone wants to help the home team. We were more interested in dominating politically and foreign-policy-wise. And then we paid, sacrificing rural industry in the process.
“When I was back in the Treasury, the old Treasury bureaucrats would be like, oh God, somebody’s going to visit the president next week, what’s he going to give away? Because other country’s leaders were intent on encouraging the U.S. to buy from them, and the president would say OK, you’re part of NATO, you’re this, you’re that, all these individually small concessions.
“[Interviewer] Am I oversimplifying what you’re saying: The Nixon shock [Nixon administration policies that brought the post-war monetary system to an end] which bought us 40 more years of political dominance?
“I don’t want to overdo it, but yeah. It oiled the wheels of our foreign policy, building a whole network of allies and international institutions and so forth. That’s part of the process, it’s not the whole process. The top dog pays the price [laughing].”
Because I’ve closely followed Volcker’s career, I’m more surprised by the bluntness of this analysis, not its content. But there was one aspect I found genuinely unexpected – his description of Treasury Department career bureaucrats. For decades, in my experience, they’ve been among the truest believers in globalism, including in the desirability of neglecting the productive economy in favor of finance. It seems that in Volcker’s day, they were far more realistic.
As with any argument worth making, critiques of globalism shouldn’t need to rely on “appeals to authority” – the specious practice of insisting on the superiority of a certain viewpoint mainly because supposed experts agree with it. But who could reasonably fault any globalism critics who take pride in being in such splendid company?
Benjamin Cole said:
Yeah, in the old days, many economists did talk about the international “balance of payments” and they were not obligated to defend runaway current-account trade deficits.
A theory: In the 1940s-70s, the largest US companies were national, but not global.”What is good for GM is good the country.” So the balance of payments was taken seriously. The national corporations spoke from self-interest, but it coincided with the national interest.
Today the US-based multinationals, and other multinationals are the big players. So the tune is, “trade deficits are great!” GM makes more cars in China than the US. Apple makes all its phones in China, BlackRock is a major investor in China.
So, who plays the tune that US foreign, military and trade policy dance to?
Of course, Beijing probably pays for a lot of PR too.