James Galbraith: The Dollar System in a Multi-Polar World

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Yves here. This James Galbraith article on the history and prospects for the dollar is a meaty read, so I hope you can find time for it. It’s an excellent piece but others might tell a different story with somewhat different emphasis.

For instance, Galbraith depicts the rise of financiers to influence as inevitable in a post-Bretton Woods world. Perhaps, but that was only because they got rescued when they got themselves in trouble in a world of volatile markets, particularly interest rates. Having the government repeatedly eat the industry’s tail risks amounted to a massive subsidy.

That pattern had started in 1970, even before the post-Bretton-Wood era, when the Fed bailed out the commercial paper market (and Goldman Sachs) when Penn Central declared bankruptcy. The savings & loan industry was going bust by the later 1970s, leading to two rounds of salvage operations, the second after the famed S&L crisis.

Another factor was when the US embraced a strong dollar policy, which was terrible for US manufactures but great for its multinationals and its banks. The US lobbied aggressively for financial services industry deregulation around the world and had the World Bank, through its International Finance Corporation, encouraging developing economies to set up capital markets. I saw first hand how destructive this was to Japan. The US had whipsawed Japan’s foreign exchange rate through the Paris and then the Louvre Accord. A high yen did dent Japanese exports to the US but did not lead to more Japanese purchases of American goods. But the economic effect was large enough that the Bank of Japan lowered interest rates, with the intent of increasing consumption. It instead fueled speculation, even at the retail level.

While that was happening, the US also pressed Japanese banks to deregulate. Mind you, Japanese banks were not terrible at running retail branches and corporate lending operations. But the scope and speed of deregulation was tantamount to telling a drayage company that it was really in the transportation business and giving it a 747 to fly.

These factors made Japan’s real estate and stock market bubbles even worse than they would otherwise have been. No wonder China has been very attentive to Japan’s sorry fate.

And speaking of China…its rise would have been delayed had the US not pressed for China to be allowed to join the WTO before it qualified.

By James K. Galbraith, Lloyd M. Bentsen Jr. Chair in Government and Business Relations, University of Texas at Austin. Originally published at the Institute for New Economic Thinking website

As Costabile (2022) points out, the dollar has by now been de facto the primary world reserve asset for over a hundred years, first because of US preeminence in the holding of gold and its creditor position with respect to the European belligerents in the Great War. In 1944 US military and industrial power, soon to be backed, in the shadows, by a monopoly over the atomic bomb, were the foundations of the gold-exchange standard established at Bretton Woods.

A Brief History of the Neoliberal Era

On August 15, 1971, the curtain came down on the gold-exchange standard, and it rose – though we did not know it yet and thought otherwise at the time – on the neoliberal era. Devaluation, export controls, the wage-price freeze, and fiscal stimulus à outrance – these were Keynesian and even wartime measures that seemed to signal a mass conversion of Richard Nixon’s coterie to full employment, price stability, and managed trade. My father, John Kenneth Galbraith, the World War Two price control chief, was called by The Washington Post for a comment. “I feel like the streetwalker,” he replied, “who has just been told that not only is her profession legal, but the highest form of municipal service.”

The impression held through the explosive growth year of 1972, ensuring Nixon’s re-election with full employment at the highest real median wage of all time. But it fell apart in 1973 when the stimulus ended, controls were weakened or lapsed, oil prices spiked, and the resulting general inflation was met by high interest rates, spurring a new slump in 1974. At that point pre-Keynesian dogmas re-emerged in an updated toga. The Phillips Curve was declared vertical, so that unemployment was fixed at a “natural” rate, while the central bank was vested (by academics, though not yet in practice) with control of prices through control of the money supply. The consequence of any attempt to improve real performance – except by removing “rigidities” such as union wage contracts, unemployment insurance, and welfare programs, would be hyperinflation and the collapse of the dollar. Capitalism was thus a child of beauty, natural health, and balance – but prone to fits of hysteria or depression if fed either slightly too much or slightly too little, by its monetary Momma.

Exchange rate theory in the 1970s, as the Smithsonian agreement enshrining floating took hold, generally complemented domestic doctrine. In an extension of David Hume’s specie-flow model, deficits would force devaluations and surpluses would bring appreciations. If the Marshall-Lerner conditions held, then the realignment of relative prices would bring the current account back into balance. And for a while, all seemed to follow the plan: US trade deficits brought the dollar down, corresponding surpluses drove the Deutschemark and the yen up.

But the Marshall-Lerner conditions did not hold, and trade balances did not return to equality of exports and imports. Instead, the US issued Treasury bonds, while Japan and Germany accumulated financial assets. And in the Third World, ex China and India, the balance depended largely on the presence or absence of oil. Demand for oil, it turned out, is notably invariant to price. So as prices went up, for producers it was the best of times. And so long as oil importers wished to grow, they were obliged to cover the bill with borrowings from commercial banks, on terms that the bankers controlled, and at rates governed in the final analysis by the policy of the Federal Reserve.

In this way the abolition of the Bretton Woods system set in motion the final defeat of New Deal banking law and of balanced international financial governance, in the end restoring the financiers to the center of American and world economic power. For forty years that genie had been bottled up, internally by regulation, deposit insurance, and the Glass-Steagall Act, so that in the 1940s, 1950s, and 1960s banks were largely adjuncts to the large industrial corporations and under the fairly-effective discipline of the state. There were, accordingly, no financial crises from 1934 to 1974, when Franklin National Bank failed, followed in 1975 by the “fiscal crisis” – really a bankers’ crisis – of the City of New York. On the international side, capital controls and the IMF had provided (in principle) a similar damper. After 1971 and especially 1973, the currency casinos were open again.

The 1970s were nevertheless an apparently prosperous time in much of the Third World for oil exporters and most importers alike; credit flowed on easy terms and the bills could still be paid. There was therefore no tendency, in either the global North or the global South, for trade imbalances to self-correct. And as balance sheets grew, banks also prospered, while a latent power built in the hands of the agency charged with managing the interest rate.

The specific conditions of the United States in the 1970s were of economic goals that were, if not intrinsically incompatible, then unachievable with the tools on hand in the circumstances of the moment. These goals included high employment in the face of industrial encroachments from – at the time – most notably Germany and Japan; reasonably stable prices in the face of peak domestic conventional oil production, rising imports, and rising prices; and a strong international dollar, central to the power, prestige, and worldview of the bankers. The choice, ultimately, was to sacrifice labor and industry, while breaking the back of commodity prices, industrial wages, and therefore prices, all the while driving the dollar back into the global driver’s seat. This choice was made by Paul A. Volcker, appointed chair of the Federal Reserve Board by President Carter in the summer of 1979.

The rest is, so to speak, history. Volcker’s actions, redoubled in 1981 with the arrival of President Reagan, achieved their purposes on inflation, wages, unions, and the dollar. Exorbitant privilege got a new lease on life, one that has yet to expire, notwithstanding the later advent of the euro. Autonomous development strategies in Latin America, Africa and Southeast Asia were forcibly abandoned; the new mantra was “export-led growth” and incorporation into global value chains, specifically the sweatshop element thereof. Books balanced, if at all, via austerity, unemployment, curtailed imports, and the sale of public assets and mineral rights. When Mexico went to the brink of default in 1982, the squeeze was relaxed but only slightly and only enough to ensure the survival of the money-center banks. In the aftermath they would rule, almost undisturbed, for twenty years. The opening of Eastern Europe in 1989 and the fall of the USSR in late 1991 cemented the new order.

In short, with the end of Bretton Woods and the associated abandonment of capital controls by most countries, exchange rates became, to an overwhelming degree, an artifact of capital flows, asset transactions and relative rates of return, and thus substantially under the influence if not the control of private financial power. A period of orthodoxy, confidence and capital inflow would bring on the simulacra of prosperity, accompanied by Dutch Disease and deindustrialization. Asymmetric bets, as against Mexico in 1994 and Thailand in 1997, could precipitate a crisis. When crises hit, funds would flee to the safety of US Treasury bonds, inefficiencies, excesses, and “crony capitalism” would be duly discovered, and the IMF would be called in with ritual purgatives. No longer concerned with exchange-rate stabilization, still less with financing a development plan, the Fund and Bank became enforcers of an austerian and neoliberal code of conduct – the “Washington Consensus.”

What Backed the Dollar-Based System?

Thus, one may say that after 1981 the US returned to the 1920s system, but without the backing of a stranglehold over gold or the industrial and military superiority of the early and mid 20thcentury. It was the pull of high interest rates, the debt vulnerability of the Global South, and the accelerating decay of the Global East that combined to establish the dollar-based system under which we have lived ever since. From 1989 and especially 1991, this position was reinforced by the ideological and political collapse of the USSR and its socialist allies, with no corresponding gain in the underlying strength of the US position. On the contrary, the US camouflaged the consequences of deindustrialization and the moral effects of its defeat in Vietnam with a series of minor wars against apparently trivial opponents – in which sustained victory nevertheless proved elusive.

As recent crises make clear, up to now the dollar-based order has been supported mainly by instability elsewhere and the lack of a credible alternative or compelling reason to create one, or where such reasons are felt, the ability to do so. With a large and liquid market for debt, the US Treasury bond remains the refuge of first resort even when a financial upheaval originates within the United States, as was the case with the sub-prime debacles of the 2000s and even today. The system has been held up, in short, by confidence in itself, and not, so far as one can see, by much of anything else. This however did not necessarily portend collapse on its own in the immediate or even foreseeable future.

Had neoliberal hegemony been entirely complete, the doctrine of TINA – “there is no alternative” – could never have been refuted. But in fact, even in the West the doctrine was never universally or fully applied, and differences in economic and social performance could be noted. Egalitarian Scandinavia, industrially-integrated Germany, Japan, and the Republic of Korea, generally speaking, liberalized less and performed better. In the US itself, the stabilization and social insurance programs of the New Deal and Great Society largely endured, and the country benefited from the compulsive Keynesianism of its political elites, of both parties when crises hit. However this pragmatism was obscured by a dogmatic rhetorical commitment to free-market doctrines, and the industrial base continued to wither while, in each crisis, first and foremost, the banks were saved.

The triumph of neoliberal capitalism, the global hegemony of the United States in a dollar-based monetary world, and the end of history itself were, therefore, not firmly founded. The illusion could persist only so long as there emerged no clearly different, functionally superior economic development model. Had the victory of the neoliberals been complete, they might have put off that day indefinitely. But it wasn’t. And they couldn’t. Enter China.

China’s Challenge to the Neoliberal World.

The “rise” of China is an uncontested fact. As such it poses a lethal threat to neoliberal ideology, even though the Chinese themselves have made little effort to brand their experience and none whatever to export it as a competing economic model. China simply is, and as such it poses an interpretive challenge that neoliberalism cannot handle.

Consider the options. According to one, once popular but somewhat fading in recent years, China has made a successful “transition to capitalism” and owes its success to having applied the principles of the free market. But if that were the case, how can the West complain? It is unsportsmanlike to kvetch if bested at one’s own game.

A fall-back is to assert that while China has indeed played the capitalist game, it has gained an unfair advantage by bending “the rules” – for instance by appropriating “intellectual property,” manipulating the RMB, or running a low-wage industrial system. But this claim merely exposes the rules for what they are: an effort to preserve the monopolies and privileges of the already-rich. Such rules have been broken by every rising power going back to the 17th century at least; in the 19th century the practice of systematic violation of “the rules” even had a name: “The American System.”

The third option, taken up avidly by voices as disparate as Mike Pompeo and Robert Kuttner, is to slime China as a “totalitarian” state, an aggressive economic power, ruthlessly driven forward by its Communist Party. But this solution amounts to conceding the superiority of communism and the inferiority of capitalism and of democracy in the economic sphere. It thus completely negates the triumphalist posing that gave neoliberalism its legitimacy forty years ago.

The China that one sees with trained but unfiltered eyes does not so easily fit into these simple boxes. It has the following key characteristics:

The Chinese model has succeeded, by trial and error, over a bit less than 50 years, in eliminating mass poverty, in creating an urban world that is largely secure, with an educated, healthy population. In 2020 it succeeded in mobilizing that population to defeat the Covid-19 pandemic – so far, anyway – as no Western society, except New Zealand, was able to do. It now offers its engineering services as an export to the developing world on favorable financial terms and with no ideological or diplomatic baggage. It has no need of advertising this; the success of the model and the appeal of the offerings speak for themselves. For this reason, the public-relations counteroffensive from the West focused on flaws and allegations both real and imaginary, is necessarily intense.

Will the Chinese engine, now increasingly tied to a reconstructed Russia and the gravitational pull of the world’s largest demographic, productive, and trading region – the emerging Eurasian Economic Union and Shanghai Cooperation Organization – spell the end of the end of Bretton Woods? Is the writing on the wall, at long last, for the dollar-based international order?

The answer to this question depends not only on the size, productivity, and technical development of the Chinese nation and its economy but also on the role of Chinese financial assets in the world at large, in relation to the incumbent role of the financial assets of the United States, Europe, and other “Western” nations and international institutions, including the IMF.

China is now the world’s largest economy by purchasing power measures. It is the world’s greatest trading nation. But it plays neither the global financial nor the security role and has no evident ambitions to do so. Indeed, one may argue that to take on such roles would be antithetical to the Chinese development model, which rests on construction and production rather than finance, and which is entirely defensive militarily and reliant on international institutions, law, and cooperation for the preservation of world peace. China moreover protects its internal assets and limits the external reach of its economic actors with capital controls; it does not run current account deficits that would make obligatory the large-scale expatriation of financial claims, and to do so would be quite incompatible with its position in the structure of world production systems, and risk leading to internal instabilities that the Chinese state cannot afford. Finally, China holds over a trillion dollars in US government bonds, and cannot easily divest these, even if it wished to do so, without affecting either the price of the bonds or the exchange rate of the dollar, and so devaluing its own holdings.

What China can do, over time, is to take two steps that are evidently on the agenda. First, it can arrange for bilateral or multilateral payment mechanisms, with willing partners, that bypass the conventional medium of the US dollar. It can for example pay in RMB for Iranian oil and accept them back for Chinese goods. This works so long as trade in the non-dollar sector is reasonably balanced, so that the partner in the surplus position does not end up with large holdings of a financial asset it may not want, entirely trust, or be able to use in other transactions. But when trade is unbalanced for an extended period, one party or another may find themselves with financial assets denominated in units that are perceived to be insufficiently stable or liquid. And so the question of an alternative to the dollar-denominated reserve asset is, inevitably, raised.

The evident solution to this problem lies in a common reserve asset for the emerging non-dollar trading area. This is the historical role, of course, of gold bullion. In the modern world, gold is unlikely to play this role in full, given the extreme instability of its market price, while other commodities are subject to depletion through use as well as to speculative instabilities originating in activities outside the common reserve zone. The logical approach is therefore an international financial asset, comprised of a weighted set of the national bonds of the participating countries, as in recent schemes for a Eurobond, backed by the joint commitments, in proportion to size and capacity, of China, Russia, Iran and other participating countries, such as Kazakhstan and Belarus. In the realities of Eurasia, this means a predominantly RMB-based bond backed predominantly by China. The durability of such an instrument against the US Treasury bond can only be tested over time.

These are the basic conditions for the emergence of a non-dollar financial zone. It is easy to see that they are quite stringent. Efforts by one country or another to move in this direction may be deterred by the threat of sanctions, or thwarted (as in the case of Iraq in 2003) by war. Big changes in the world financial order appear to happen only under extreme circumstances.

The World Crisis and the Financial Future

The world crisis that erupted on February 24, 2022, with the outbreak of open warfare between Russia and Ukraine has already radically reorganized trade and financial relations. In short order Russian banks were disconnected from SWIFT and withdrew from Europe, many Western firms withdrew from Russia, NordStream 2 was “suspended,” airspace was closed, and the NATO countries froze Russian central bank assets while moving to confiscate the private property of Russian nationals alleged to be close to the Russian state. The freezing of central bank reserves constitutes, in effect, a technical default of the West toward Russia, even if interest on the blocked assets will continue to accrue. At first, the ruble fell and the dollar rose, as did the prices of oil and gas, Russia’s major, and continuing, export commodities.

In this test of wills and power, Russia starts from a strong position. She is nearly self-sufficient in every essential, including energy, food, heavy machinery, and weapons. The loss of familiar Western consumer goods and services can be made up through local initiative – not lacking in today’s Russia, compared to Soviet times – or from China. Russia’s financial assets greatly exceed her debts, even after the loss of foreign-held reserves. In reaction to the blocking of Russian banks, Russia set up ruble accounts in those banks, to which Russian debtors could make payments to Western creditors – who would thus be blocked from accessing those payments, not by Russia, but by the action of their own governments. This gives Russia’s commercial creditors at least a modest vested interest in the stability of the ruble. This interest has been bolstered by the Russian decision to demand payment for gas in rubles, effectively forcing Europe to work around its own sanctions or forego up to forty percent of its gas supply. So far, Hungary, Slovakia, and Austria have agreed to pay in rubles, and Germany seems headed to the same decision. The ruble, at current writing, is trading above pre-war values.

The strategy of the United States was to pressure the Russian government through its oligarchs, Westernized elites, and urban upper classes, hoping to affect the internal politics of the Russian state. This approach appears based on a view of Russia formed in the Yeltsin era, and a view of the attractions of the liberal West to powerful Russians, that is quite remote from the present realities, both social and political, and from the balance of power inside Russia. The departure in late March of Anatoly Chubais from his last official post and from Russia is a clear sign of this fact. The apparent failure of US officials to grasp this point in recent years has to rank among the greatest intelligence disasters of modern times.

In short, Russia has been effectively excluded from the world of Western global finance, in ways that do not affect the foundations of her economy in very serious ways and are sure to strengthen the industrial-military elements of her political order. The driving force for this new division of the world is not Russia herself, but the asymmetric, mostly financial/economic response of the NATO powers to Russian actions in Ukraine. Russia has therefore been obliged to take steps that the Western-oriented elements of her own government, notably at the central bank, would not have otherwise contemplated. With the backing of China, Iran, Belarus, Kazakhstan, and the studied neutrality of India, a new international financial system is in the process of being created. It is the creation in a real sense, not of Russia herself, but of top policymakers and strategic thinkers in the United States.

That said, Russia’s global economic reach is limited. Her whole population is only a quarter of that of the United States and the European Union, her GDP (a measure that is not appropriate to the current test of strength) is much smaller, and her currency is historically unstable. So while Russia’s military position is very strong, her contribution to a new financial order on the world stage is secondary to that of China – which as we have seen, remains and wishes to remain an integral part of the world economy and a large trading partner of both Russia and of the United States and Europe. While aligned with Russia in support of the latter’s security goals, China is not yet trading its existing dollar reserves in bulk for something less prone to political interference but at the same time less liquid and less stable. India, parts of Africa, and Latin America will, no doubt, find ways to cooperate with the new system, but with exceptions such as Venezuela and Nicaragua (as well as Cuba), this is unlikely to bring on a breach of their existing relationships to the dollar and the euro.

Conclusion: A Dual System Has Arrived

A tentative conclusion is that the dollar-based financial system, with the euro acting as a junior partner, is likely to survive for now. But there will be a significant non-dollar, non-eurozone carved out for those countries considered adversaries by the United States and the European Union, of which Russia is by far the present leading example – and for their trading partners. China will act as a bridge between the two systems – the fixed-point of multi-polarity. Should similar harsh decisions be taken with respect to China, then a true split of the world into mutually-isolated blocs, akin to the coldest years of the Cold War, would become a possibility. However the consequences for the Western economies in their current state of dependence on Eurasian resources and Chinese production capacity would be exceptionally dire, so it seems unlikely (though who knows?) that policy-makers in the West would push matters that far.

In the present crisis, political leaders in the West have been under the most extreme pressure to wield powers that they do not have, in order to display a resolve that they may not feel. Their reactions must be judged through the prism of this pressure and the requirements of political survival. They have, so far, managed to refrain from taking fatal military risks, while deploying the full force of information-war assets, and concentrating on a sanctions regime that is part of a well-worn toolkit, demonstrably more costly in the Russian case to its designers than to its target. The evolution of political pressures is difficult to predict, and a catastrophic turn, leading toward general war, would not be without precedent. Threats to Transnistria or, even more, to Russia proper at Kaliningrad, are portents of the catastrophic possibilities.

But, for sake of argument, let’s assume that the end of the world does not happen, and that relative restraint prevails until the fighting dies away in Ukraine. It appears that the next turn of the global financial screw will occur in Europe, most notably in Germany, as the implications of high energy prices and perpetually short supplies become clear. Germany’s competitiveness is tied to Russian resources and Chinese markets; its politics and financial links are with the Atlantic alliance. Though stranger things have been known, it is hard to believe that Germany would permanently subordinate itsindustry, technology, commerce, and general welfare to Washington and Wall Street, even for the sake of the high principles now being so eloquently stated by her politicians and press. The tension between economic and political forces can only grow over time, leading either toward deindustrialization or toward a new relationship with the Eurasian East – a new Ostpolitik, so to speak. The advocates of this approach on the German Left have been crushed, which means that the policy itself can be taken up, after an interval – perhaps quite short – in some other part of the political spectrum.

That being so, while the dollar/euro-based global financial order is unlikely to fall immediately or in a single cataclysm, it seems plausible that it will lose exclusive hold over at least one more major participant and her economic satellites – perhaps sooner rather than later. And then there is another, in the background, ever-quiet, that almost-forgotten third-largest economy in the world, Japan. While anti-Russian sentimentthere appears strong, what will happen, as time moves on, is anyone’s guess.

Can the United States survive the rise of a multi-polar world? The question is absurd: of course it can. But not without a political upheaval, spurred by inflation and recession and a falling stock market in the short term and eventually by demands for a realistic strategy consonant with the actual global balance of power. The ultimate threat is not to the living possibilities of the country so much as to its political elites, based as they are on global financial rents and domestic arms contracts. A world moving away from exclusive reliance on the dollar will clip the wings of US finance. A multi-polar world requires multi-lateral security arrangements, incompatible with the present extent of US military power projection; adding more money to a dysfunctional force structure will not make the country safe or secure, and it will make inflation worse. On the other hand, a lower dollar would help revive domestic self-reliance on critical goods, an industrial strategy can begin the necessary process of reconstruction, while investments in infrastructure and new technologies can work to offset the impact of higher energy costs. The latter are necessary, in any case, to combat climate change, so that what is necessary for adjustment in the short run aligns, for once, with what is necessary for survival later on.

Multi-polarity, in short, could be bad for oligarchy but good for democracy, sustainability, and public purpose. From these points of view, it would come not a moment too soon.


Costabile, Lilia, 2022. “Continuity and Change in the International Monetary System: The Dollar Standard and Capital Mobility,” Review of Political Economy, published online March 10, https://doi.org/10.1080/09538259.2022.2038438

James K. Galbraith holds the Lloyd M. Bentsen Jr, chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs at The University of Texas at Austin. He drafted the first legislative plan to rescue New York City in 1975 and served as Chief Technical Adviser for Macroeconomic Reform to the State Planning Commission of the People’s Republic of China from 1993 to 1997.

This paper will appear in a special issue of the International Journal of Political Economy. Adapted and used here by permission.

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  1. fresno dan

    In the present crisis, political leaders in the West have been under the most extreme pressure to wield powers that they do not have, in order to display a resolve that they may not feel. Their reactions must be judged through the prism of this pressure and the requirements of political survival. They have, so far, managed to refrain from taking fatal military risks, while deploying the full force of information-war assets, and concentrating on a sanctions regime that is part of a well-worn toolkit, demonstrably more costly in the Russian case to its designers than to its target. The evolution of political pressures is difficult to predict, and a catastrophic turn, leading toward general war, would not be without precedent.
    All this (i.e., conflict with Russia) ostensibly for Ukraine. What is amazing is that in the West their is the belief in homo economimus, but by what rational evaluation is the current policy toward Russia rational?
    Best answered by Keynes: Practical men in power who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

    1. clarky90

      It is otherwise called, “A human being peeing directly into a howling wind”. The results vary according to the person’s exact orientation to the wind direction, their posture, the volume of the stream of urine, the stream velocity and the duration of the urination.

      This knowledge (don’t do it!) can only be gained by real-world experience. (It can not be taught!). It is typically acquired by those people with a curious scientific bent, who have peed outside in stormy weather, while experimenting with different orientations to the prevailing wind.

  2. The Rev Kev

    And in this article you can see why the hysteria over China. It says ‘Had neoliberal hegemony been entirely complete, the doctrine of TINA – “there is no alternative” – could never have been refuted’ and there you have it. The future would be entirely neoliberal with only variations allowed in every country – until they could be ratcheted up by the World Bank and the International Monetary Fund that is through conditional loans. Francis Fukuyama’s book “The End of History” was more a boast than as an attempt at an observation. So the thing is how can you have There Is No Alternative when China is just sitting there showing people that there is in fact a choice. If China has done this, then other countries could reform their own models too. So There Is An Alternative after all. And that is why the neoliberal west is going into hysteria and launching all these attacks. A major non-neoliberal state cannot be allowed to stand as it might spur resistance. One facet of this is how China is still going for zero-Covid while the west is going for let er rip & it’s your fault of you get sick. That alone has got some people screaming that this cannot happen and China is doing it all wrong. So expect much more of these attacks on China.

  3. orlbucfan

    The neoliberal/neocon doctrine of TINA is a joke. There are always alternatives, good and bad. What I find fascinating are the dates: 1970, 1971. That’s right around the time the far right/big business blueprint known as the Powell Memorandum came out in 1971. Coincidence? Highly doubtful.

  4. Patrick Donnelly

    OK, but he is not his Dad. He will never have the access of his father, so the insights will not be published.

    The USA decided that being industrious was too slow and that attacking other economies would ensure preeminence of the currency, actually, just a means of controlling trade.

    Much shorter and more accurate?

  5. Bart Hansen

    Hardly a day goes by, and never a week, without a new outrage being added to a long list of indications that the US is broken.

    Just very recently we have learned of the DHS disinformation board and increasing censoring and cancellations of alternative media, the system of costs involved in acquiring congressional perks, the $33billion to the Ukies, the administration’s dithering over student loan debt and of course the continued refusal to consider Russia’s need for security.

  6. Tom Pfotzer

    A meaty article, indeed. A few choice quotes:

    The ultimate threat [of a multi-polar world] is not to the living possibilities of the [U.S.] so much as to its political elites

    A world moving away from exclusive reliance on the dollar will clip the wings of US finance. A multi-polar world requires multi-lateral security arrangements, incompatible with the present extent of US military power projection; adding more money to a dysfunctional force structure will not make the country safe or secure, and it will make inflation worse

    an industrial strategy [in the U.S. which adapts to a multi-polar world] can begin the necessary process of reconstruction, while investments in infrastructure and new technologies can work to offset the impact of higher energy costs. The latter are necessary, in any case, to combat climate change, so that what is necessary for adjustment in the short run aligns, for once, with what is necessary for survival later on.

    For all you readers wondering why patriotic, red-blooded Americans might foment for the rapid and enthusiastic embrace of a multi-polar world, there’s your rationale.

    Why do I encourage Russia and China to extricate themselves from the clutches of the “West”? Isn’t that “unpatriotic”??

    No, it’s not. It’s perfectly rational self-preservation that’s animating my actions.

    We’re facing two inter-linked monster problems: a mal-designed economy which is eradicating our middle class (social stability) as it rapidly, catastrophically ruins the environment we depend upon for our survival.

    What to do?

    NeoCons – spearhead of our misdirected elite – have decided to add another monster problem: provoke a nuclear war. Whatever it takes to preserve the dying social order.

    Multi-polar world can’t happen fast enough.

  7. dftbs

    The “survival” (and dominance) of the USD and its vassal currencies over the collective West shouldn’t be in doubt. The US and it’s political and military subjects retain a monopoly of power in their domestic spheres, I would even characterize this grip as tightening. The physical, financial and information security apparatus being constructed in this thin slice of the globe is very comprehensive and should be able to maintain the transactional monopoly, if not the purchasing power, of the USD and to a lesser extent Euro, Yen, CAD, Sterling, & AUD.

    But I think Galbraith is too modest in characterizing the “non-dollar, non-euro zone” as simply significant. It is in actuality the vast majority of the world. As the US leads the collective West into this isolationist future where it feels secure in its coercive power, I don’t think it has taken into account the tremendous cost it will have to bear. First in productivity, as what’s left of Western manufacturing will have its processes rearranged around unnatural political cleavages. Second in purchasing power and living standards as that coercive transactional monopoly will hold little force outside the political sphere of the “West”.

    I think the consequences of this lead to a conclusion far more grim than the Galbraith’s optimistic ending. He exhibits the mind of what Fresno Dan refers to as “homo economicus”, and assumes we’ll arrive at the “rational” conclusion, in this case “sustainability and public purpose”. If in the present globalized world of Western plenty the oligarchy did it’s determined best to hoard the benefits; I don’t think we can expect a more just outcome in the coming world of scarcity.

    Presently the collective West is a net importer of commodities and manufactured goods. It’s high tech exports are not irreplaceable and are protected by a legal regime the West itself is dismantling. What then will the West have to offer in the future? The coercive security apparatus that will maintain the dollars domestic role will be used to retain its purchasing power over the one thing the West will have left, its own citizens. We long ago made the choice between socialism and barbarism.

  8. Susan the other

    A very nice obituary for financialized neoliberalism. If it coulda, it woulda. But, obviously, it could not. I think Jamie is letting us down softly. And I think he is right because change takes time. The major fact that China kept its own state-owned bank to maintain social stability, good infra, good tech, and capital controls is proof of the deficiencies of neoliberalism. But nobody in Washington D.C. will touch those facts with a ten foot pole. Publicly. It will be most interesting to observe how our politicians describe the incoming new “dual system” of world economic order – a multi-polar one that will bring all our chickens home in the form of inflation (check) and recession (next check). But in the process there will be enough cooperation to now address the problems we have been avoiding. We might actually go out and save the planet. What a lovely, long goodbye to neoliberalism. With a good bit of hope for the future. Only Jamie Galbraith can trace it all out like this. Thank you for posting him, as usual.

    1. Susan the other

      One more quirky twist of reality – all the money that neoliberalism unleashed and allowed to exponentiate with abandon is still floating around. Neoliberalism couldn’t control it because neoliberalism has only one mandate which is to make profits and reinvest them. So when we found ourselves without any good “investments” left – big funny – but instead a massive need to clean up the garbage left by all the externalized costs, we were effectively paralyzed. By ideology. I think that might be another definition of insane. In fact, we don’t really need to suffer inflation – all we need to do is use effective price controls and some good industrial policy. And that huge ocean of money, a veritable slush fund from the past, can be put to immediate and good use cleaning up the planet and establishing good social reform, especially health care. And as luck will have it, since there’s not much left to exploit, we will invest in things that will be long-term-good and the dollar will become more valuable. So what was everyone so afraid of?

  9. Kris Alman

    “Can the United States survive the rise of a multi-polar world?”

    The false premise of Pax Americana has been exposed with this reshuffling of hegemonic order.

    Can capitalism survive multipolarity if Western political economists and politicians continue to preach a neoliberal agenda without accounting for caste systems and negative externalities that undergird the global existential crises we face?

    Unless multi-polarity decouples us from fossil fuels and growth at all costs, this reshuffling will become a global circular firing squad.

  10. Dave in Austin

    Today we had one of the more blatant efforts to calm the panicky herd of currency traders.


    The titles actually on the chart are “Euro/Dollar hits 5 year low” and “Dollar to Yen a two decade high” and the chart show one line heading north and one heading south, nice Yin-Yang balance. But the real headline should read more like the chart’s web address: “Dollar hits 5 year high against Euro and 20 year high against Yen” with two lines heading rapidly in the same direction.

    All while the US stock market goes down a bit, the Chinese market and FTSE go seriously down and the US 30 year mortgage rate which hit 6.8% on Monday is now down half a point in three days as panic-cash flows into the US banking system. Great for me. Except for my little flier on Russian ETFs, I’m in GringoBuck-cash and the rest of the world is beginning to treat the Dollar like gold bullion deposited at the NY Federal Reserve in 1938.

    The currency buffs are telling us “We think the Asian economy will slow down and if the Ukraine War is another 20 year Afghanistan War, Europe is toast. Time to bail.”

    Meanwhile the headlines are about a possible Supreme Court decision due in six months and folks holed-up in a Maripol basement.

  11. Glen

    A very good article, and I’m still working to absorb it all.

    I do notice one re-occurring theme, we keep having to bail out the banks. Maybe we can learn from China on this one, they have shown the interesting tendency to throw CEOs in jail when the law is broken.

  12. John k

    Galbraith points out that trade between, say, Iran and China will tend to be in balance bc neither wants to hold large amounts of the other’s currency. This is barter with a currency to keep track of details. Of course three or more states could be involved such that overall all are in balance but no two are in balance.
    I’ve been thinking everybody will move towards balanced trade. The us of course has by far the greatest imbalance, goods trade deficit now around 300b/quarter. High and growing inflation + recession will reduce the deficit, but the real effect begins as/when others, not least China, become reluctant to hold more $.
    Galbraith is right to say it’s not easy to switch out of a trillion in $ assets. Perhaps China storing more and more commodities, and maybe thereby not allowing more $ to accumulate? Is the beginning. Simply not accumulating more means their trade surplus declines. Perhaps we will see Chinese workers getting more pay, allowing them to buy more of what they produce… further boosting us import costs.
    One of our ‘imports’ is spending on foreign adventures. Perhaps we will ‘buy’ less?
    Imo balanced trade is good for most, though this would mean a major transition for the us. Less imports, less foreign travel, etc. worryingly, our elites will not go quietly into the night.

  13. Richard Kirchhofer

    The Chinese did not forcibly deindustrialize the United States. The implicit US policy was to do so itself while handing off its Intellectual Property willingly for cheaper product to sell back home. This has made the United States dependent on Chinese manufacturing but it has also created an enormous dependency of the Chinese on continuing to receive dollars to fund its economic miracle. It seems that as things go, you would have to eliminate or significantly reduce US-China trade to make the idea of a multi-polar reserve currency realistic. And no one in the United States or China really wants that except perhaps the American worker.

    1. Left in Wisconsin

      I think Galbraith’s argument is that China will be part of both systems, not (the conventional wisdom) that each country in the world will be part of one or the other exclusively. I agree that there is no way to disentangle Chinese manufacturing from the consumers of the western world.

      1. Glen

        The real question is if push comes to shove, who can really go it alone?

        If the Fed can create money by pressing a button, then one must assume that China can too. But China has also created over 20,000 km of high speed rail in the last ten years which is something that America cannot create with the push of a button, or with its existing industrial base.

    2. Pintada

      Mr. Kirchhofers point leads me to think of Formosa. Isn’t now the perfect time for China to reclaim that island? What could the US do? Sanctions would hurt the US more than China. Direct military intervention would seriously risk nuclear conflagration even if the US has the means while fighting Russia in the Ukraine.

      BTW: Thanks to Mr Galbraith.

  14. Left in Wisconsin

    I think this is the key sentence (fragment):

    The Chinese model has succeeded, by trial and error, over a bit less than 50 years

    We in the west, or at least our leaders, have been in the embrace of a very rigid dogma over the last 40-50 years, in which all of our real-world experience has been in financial manipulation but where our real economy has been governed by an incredibly blinkered and, as Galbraith points out, false worldview about what is and isn’t possible. Meanwhile the Chinese have tried this, that, and the other, and have garnered vast experience that they can use to inform policy.

    As Michael Pettis regularly points out, this does not mean that the Chinese economy is necessarily healthy or not in need of real reform, but their economic policy knowledge base is just so superior to ours. TINA was always bullsh1t, a political slogan masquerading as an incontrovertible economic fact of life.

  15. Akash

    I think the Vietnam War is sometimes overlooked, like it is here, in an otherwise eloquent and thought-provoking article, as a prime mover in the decision to jettison Bretton Woods I. The war involved enormous expenditures, particular dollars expended overseas, so at bottom I feel it was war and militarism that opened the door to Neoliberalism and the regressive dismantling of New Deal policy. Galbraith is no doubt correct that the Bretton Woods II regime closed the curtain on the New Deal/Great Society and opened it for the Capitalist Neoliberal counter-reaction, but Bretton Woods II itself was hastened along by war/militarism.

  16. lance ringquist

    the article completely gloss’s over the facts that TINA was not cemented in till 1993. the fact is that carter was a dim wit, that put two dim wits, and a russian hater in positions of power, alfred kahn, or as i call him the great con, and volker. why didn’t carter just get over it and nominate al bundy, he could have done just as good a job as those two idiots. then there was machine gun bryzezinski, any one remember when he was handing out machine guns to the future al qaeda?

    then reagans attacks on unions.

    but it was nafta billy clinton and the likes of bomb them tony, gerhard schroeder, there was a idiot that got a hold of new zealands labor party, what a mess he made.

    they and others are the ones who cemented TINA, the first bomb dropped on yugoslavia, was the first load of cement.

    china not so sure of. very resource poor. and as the world is recoiling away from free trade, whats mine is mine, whats yours is mine. and are beginning to say hey, those are our resources, and we do not want to be a resource extraction country under the u.s.a,. and i am betting they will say the same to china. they want to develop their own resources.

    so what will china do? become a country relying on cheap labor and environmental degradation, and keep filling the coffers? or become a modern vast middle class economy will full rights for all.

    that is the real challenge, and i bet in the short term, we will not see that at all.

    china may kick and scream as loud as a frustrated free trade parasite trying to figure out what happened.

    and i am not so sure it was china that sticks out like a sore thumb, part of it no doubt.

    you could see the panic setting in in billionaire land after 2008 when the idiots found out that the western worker can no longer service their debt, consume, save a little and have some leisure time.

    that is why the sudden urge for a universal basic income.

    of course under free trade. it will be like pouring gas on a bonfire! the massive explosion of inflation will make today seem tame.

    now of course not all billionaires became sorta enlightened, many want us to just go away and die.

    either way the free traders looked inwards, and saw all of the wrong answers, and looked outwards, and saw all of the wrong answers.

    and here we are.

  17. Old Sarum


    It reminds me of the argument of communists back in the 20’s or 30′ that communism was ‘scientific’.

    Also more to the point, Britain found out in 1914, that the war-dynamic changes everything and Sterling was jolted into a long decadence.

    Has anyone factored in the possibility of a certain communist state just writing off US dollar assets? They are after all just a social construct. An ‘asset jubilee’?


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