OPINION:
Elon Musk likes to move fast and break things, whereas President Trump prefers to throw a few grenades and see where the pieces fall when abandoning Ukraine, levying huge tariffs or proposing to occupy the Gaza Strip.
Mr. Trump surely inherited a lot of pieces that needed fixing: American security alliances, where the United States bears too much to secure peace; the World Trade Organization, where the United States offered low barriers to the largest market while other nations generally imposed much higher barriers to our exports; and a dollar-anchored monetary system that requires large annual sales of U.S. sovereign debt abroad to increase liquidity for growing global commerce and transfers U.S. wealth to foreigners.
These result in triple imbalances: a burgeoning U.S. national debt to pay for an outsized military and prop up domestic demand drained by Americans spending too much abroad; an overvalued dollar that complements weak foreign compliance with WTO norms and imposes unfair competition on American agriculture, manufacturing and tradeable services; and income inequality and social decay. Printing the world’s money may permit Americans to consume more than they produce. Still, middle America struggles with lost manufacturing jobs, low-paying service-sector work, opioid addiction and worse.
The chairman of the Council of Economic Advisers, Stephen Miran, penned a widely circulated paper that essentially justifies Mr. Trump’s high tariffs and proposes a Mar-a-Lago accord like the 1985 Plaza Accord to devalue the dollar and make U.S.-based production more attractive. The paper also proposes reshaping the national debt by swapping outstanding U.S. Treasurys for 100-year zero-coupon or low-interest notes. The latter would be similar to the Consols issued by the Bank of England in the 1750s and afterward and the United States from 1877 to 1935.
To a conventionally trained international economist, Mr. Miran’s paper reads like poor financial journalism — a rambling track full of contradictions.
For example, although higher tariffs initially may make U.S.-based manufacturing more attractive, the complex international framework described above has bred dependence on a big U.S. defense budget and nanny states in North America and Europe. There are also disincentives to work and a yawning gap between funding the requirements for Uncle Sam’s annual budget deficits and financing for private investment on the one hand, and U.S. household savings and corporate retained earnings on the other.
Without fixing that savings imbalance, no tariffs or luncheon meetings among the finance ministers at Mr. Trump’s opulent resort and resulting dollar devaluation can fix the U.S. trade deficit.
Big tariffs should eventually drive up the dollar, negating trade benefits. An engineered devaluation would erode the real value of outstanding Treasurys, diminish the marketability of Mr. Miran’s consols, make future U.S. bond issues appear less reliable to investors, and risk the collapse of the dollar-based payments and international credit systems.
The status quo is rotting out Middle America with despair, addiction and sinking life expectancies among the working class, plummeting birth rates, and gradual ceding of the high-tech supremacy from the democratic West to authoritarians in the East: Chinese President Xi Jinping’s and Russian President Vladimir Putin’s axis with Iran, North Korea and likely new disciples.
Read by someone who sees the fragility, vulnerability and decadence of Western economic institutions and the increasing irrelevance of post-World War II institutions, Mr. Miran’s treatise reads like Luke 2:41-52: Jesus at 12 in the temple instructing the Hebrew scholars.
Mr. Miran advocates an institutional revolution akin to Emperor Constantine’s embrace of Christianity, but it’s not the Acts of the Apostles and Acts of Paul that lay out the framework for a new order.
At the risk of supreme hubris, here are my Pauline prescriptions:
The United States and its richer allies must spend less on social programs and recalibrate pension systems to encourage later retirements to free up resources for militaries financed by taxes, not an ever-larger sovereign debt. Germany and others must raise and finance armies and navies to check Russian and Chinese malevolent ambitions, or we should all take up Slavic languages and Chinese to serve the new masters.
Create a new currency like Meta’s stillborn libra, a basket of major Western currencies weighted by gross domestic product, to replace the dollar as the reserve currency, supported by a new Western financial institution to enable it.
Agreement among participating nations to issue sovereign debt only in libra-denominated bonds.
Don’t even try to make deals with the devil or his apprentice, Mr. Xi and Mr. Putin. They don’t keep their word and are out to destroy our democratic and capitalist institutions.
Big tariffs on axis nations but genuinely reciprocal free trade among the libra-participating nations.
During the Reagan years, I was approached by a rather liberal-leaning reader at Christ Church in Alexandria, Virginia, who asked what all this invisible hand stuff was about. I responded, “It’s merely the commercial division of the Holy Spirit.”
• Peter Morici is an economist, an emeritus business professor at the University of Maryland and a national columnist.
Please read our comment policy before commenting.