This is indirectly related to the funding of public higher education, but it’s one of those ideas that won’t stop scratching my head to get it out. I would love to hear from my smart and worldly readers about what you think about it.
In the episode of Marketplace last week, reporter Brendan Greeley connected two dots I never thought to connect. This is difficult, but worth the effort.
The first theory is the resource curse, a well-established concept in political science that holds that countries with abundant resources often fall behind economically compared to countries without. In countries with such resources, power tends to be concentrated in those who own the resources, rather than those who produce the most. That has a lower impact on productivity in the long run. It also has a distorting effect on politics, as those who hold state power are responsible (initially) only to a few oligarchs. Fat is a textbook case; OPEC is not well-stocked with a thriving democracy.
Countries that have managed to avoid the resource curse, such as Norway, often build strong democratic institutions before resource acquisition.
The opposite example of the resource curse is a country like Japan. Japan has very limited natural resources but has rapidly developed into an advanced industrial power. Its politics is imperfect, but it is generally considered democratic.
So far, nothing new.
The second is that the US dollar is the global reserve currency. Again, this is well established. Because it is the most widely used currency in international trade, some countries find it useful to keep more dollars on hand. That enables the US to run the largest trade and budget deficits in decades without any major consequences. We can find buyers for dollars even if dollars are used for transactions in which the US is not involved. That is a great privilege. It enables us to flood the economy with dollars without worrying too much about system collapse.
(Stephanie Kelton and the school of modern monetary theory would argue that flooding the economy with dollars has historically been the most effective way to keep the economy booming. I’m not sure how that works when dollars move overseas.)
What stopped me in my tracks was when Greeley connected the dots by suggesting that the US is falling victim to the resource curse, and that the resource in question is not oil or gold or coal. It’s dollars. Our status as the world’s reserve currency is a poor match for the gusher issuing dollars.
Hmm.
If that is true, then we would expect to see those who are fortunate enough to be catastrophically able to gain greater access to political power. (Check.) We can expect to see a disconnect between productivity increases and wage increases. (Check.) We would expect to see an increase in the return on capital and a decrease in the return on labor. (Check.) We can expect to see growing inequality and political conflict. (See.) And we can expect to see more and more democratic institutions. (Check.)
Hmm.
One might argue that the concept of the resource curse originally referred to natural resources, which are non-existent money. That is true, but I suspect it is irrelevant. The issue is the concentration of valuable resources in the hands of too few. Whether the resources in question are liquid carbon or fiat money is not the issue. US dollars are needed around the world, but only America can produce them. We are the currency of Saudi Arabia.
The resource curse is hard to escape. It can happen with a sudden drop in the price of the resource, like what happened to the price of whale oil when kerosene lamps came along. Seen in that light—sorry—the sudden interest in cryptocurrency makes some kind of sense. If, say, Bitcoin or something similar were to displace the US dollar as the global reserve currency, we would be in for a world of economic damage. It’s enough to make one wonder about the motives of someone proposing a “strategic Bitcoin reserve.”
It can also be through political violence. That is often a case of the cure being worse than the disease.
Or it can be done by asserting the power of democracy. Norway has (so far) escaped the curse by putting its oil profits under public control. It can be done. It requires a broad coalition of people who are committed to the rule of law, a culture of respect for all people and an antidote to entrenched power. That sounds like a tall order, and it is. It would steer some runners into public service and others into the middle class, likely out of pain for the ultra-rich. But I’d rather live in that world than have more billionaires suddenly change public policy, or one where the savings and incomes of many people are suddenly as useless as whale oil.
Wise readers of the world, I would like to get your thoughts on this. I’m at Bluesky (@deandad.bsky.social), and you can reach me by email at deandad (at) gmail (dot) com. WHAT DO YOU THINK? Is the US dollar our version of the resource curse?
