This article, written by Gold Standard 2012 director Jeffrey Bell, appears in the summer issue of the magazine International Economy. Contributors were asked to respond to the question, Is financial globalization beginning a process of reversal?
The Dollar’s Universal Acceptance Has Been the Single Biggest Force for Globalization — This Legacy is Under Assault
This year marks the centennial of Ronald Reagan, and it may be useful to review his presidency’s contributions to economic globalization in light of the threat to globalization today.
Most obviously, Reagan’s peaceful winding down of the Cold War inaugurated the first era in human history in which capitalism became all but universal. The global boom of 1983-2007 lifted hundreds of millions of people in China, India, and elsewhere from subsistence to middle-class living.
Reagan was a strong believer in free trade, and his advocacy in the 1980 campaign of a North American Accord linking the United States to Mexico and Canada led in steps to economic integration of this continent via NAFTA. He solidified the commitment of the Republican Party to free trade, and the 1984 election was the first in American history in which the Democratic presidential campaign was more protectionist than that of the GOP.
Reagan was elected in the wake of the dollar’s near-collapse in 1979. His staunch support of Paul Volcker’s tightening not only halted inflation, but (in tandem with highly stimulative supply-side tax cuts) triggered such a massive dollar rally that the Plaza Accord was needed in 1985 to bring the dollar back down to Planet Earth. Reagan believed a strong and stable dollar is the keystone of an integrated world economy. The dollar’s universal acceptance since the 1940s as the world’s final money has in fact been the single biggest force for globalization.
This legacy is now under pervasive assault. The generation-long capitalist boom is over. Global trade talks have little if any traction, while bilateral agreements negotiated with such allies as Colombia and South Korea languish in Congress, unacted on year after year. It would be hard to find a major trading partner that hasn’t expressed public dissatisfaction with U.S. monetary policy, particularly in regard to our management of the dollar. Developing countries once committed to free movement of goods and capital are imposing exchange controls and resorting to other, newly fashionable forms of “repression” to shield themselves from a tidal wave of weak dollars.
Is all this a function of policy ineptness? Or are we witnessing the end game of a Fed-centered monetary regime less and less well adapted to the world of the twenty-first century? If he were alive and politically active today, where would Reagan be? My own guess is that Ronald Reagan, never one to demonize a policy debate, would identify the problem as systemic and would be barnstorming for yet another big change in the way the world works.
