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Jeffrey Sachs On Making Foreign Policy Reflect Economics · Trumponomics

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  Speaker 1: Jeffrey Sachs has been studying the intersection of policy, finance,
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  Speaker 1: and development for decades. Now, more than ever, he says,
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  Speaker 1: the US needs a foreign policy that reflects the big
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  Speaker 1: shifts in economic power, a state craft that reflects America's
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  Speaker 1: role as a superpower, but a chastened one, an economy
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  Speaker 1: that no longer has the capacity to bend the rest
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  Speaker 1: to its will. Donald Trump didn't create that need, he
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  Speaker 1: does make it more urgent. Welcome to Benchmark, a show
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  Speaker 1: about the global ecod I'm Daniel Moss, columnist at Bloomberg
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  Speaker 1: Opinion in New York. Name scot Landman, Economics editor with
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  Speaker 1: Bloomberg News in Washington. Jeffrey Sacks, of professor at Columbia
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  Speaker 1: University in New York, is the author of a new
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  Speaker 1: foreign policy, Beyond American Exceptionalism, published by Columbia University Press
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  Speaker 1: out October two. He joins us this week, Jeff, Welcome
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  Speaker 1: to Benchmark. Great to be with you, Jeff. Every few
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  Speaker 1: years there are calls for a new approach to America's
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  Speaker 1: dealings with the world. What's unique about this moment that
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  Speaker 1: warrants a big change? Maybe we've needed a change for
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  Speaker 1: quite a while. America has been admissed in wars almost perpetually,
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  Speaker 1: almost NonStop. Now for decades, we seem to be creating
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  Speaker 1: lots of crises, or engaged in a lot of crises,
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  Speaker 1: and we're not solving major challenges that we face, such
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  Speaker 1: as the global environmental crises. So what we are doing
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  Speaker 1: is not working, and I think that that's why I'm
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  Speaker 1: calling for a new foreign policy. But perhaps for years
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  Speaker 1: and years there's been a sense that we're not on
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  Speaker 1: the right course. Naturally, different critics would have a different
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  Speaker 1: point of view. My point of view is that America
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  Speaker 1: got awfully arrogant in thinking that it runs the show.
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  Speaker 1: I used the familiar term American exceptionalism, and I think
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  Speaker 1: that this is a big part of our hang up.
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  Speaker 1: And when people remind an audience that the U. S.
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  Speaker 1: Military is the most powerful in the world, we seem
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  Speaker 1: to hear that fairly often. Is that necessarily wrong or
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  Speaker 1: or does it miss the point? Or is it is
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  Speaker 1: it not really that relevant anymore? We are far and
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  Speaker 1: away the most powerful military in the world. We have
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  Speaker 1: nuclear warheads that, as they say, can make the dust bounce.
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  Speaker 1: We can destroy the world many times over. We have
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  Speaker 1: hundreds sometimes it's numbered around seven hundred military bases and
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  Speaker 1: around seventy countries around the world. We can project power
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  Speaker 1: on our naval fleet, we have a basis for intervening
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  Speaker 1: in other countries. So this military power is vast, without question,
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  Speaker 1: But what is it getting us? What? What? What is
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  Speaker 1: the point? After all? Well, it does, of course provide
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  Speaker 1: a defense. No one would dream of invading the United States.
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  Speaker 1: That's fine. But what it also has done has led
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  Speaker 1: us into one conflict after another in Syria, in Iraq,
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  Speaker 1: in Afghanistan, in Libya, in Somalia, in countless other countries
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  Speaker 1: were covertly engaged or provide aiding air support as in Yemen,
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  Speaker 1: and we're not solving anything from these conflicts, just like
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  Speaker 1: we experienced with the Vietnam War, America with over powering
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  Speaker 1: military strength, but we ended up leaving after more than
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  Speaker 1: a million Vietnamese died in that war, and I would
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  Speaker 1: say it was a war for absolutely no point. How
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  Speaker 1: critical are the tectonic shifts that the global economy has
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  Speaker 1: witnessed in the past few decades to the foreign policy
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  Speaker 1: challenge presenting us now? My basic argument is historical. I
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  Speaker 1: point out that because of the Industrial Revolution, Britain became
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  Speaker 1: the dominant power of the nineteenth century. It was the
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  Speaker 1: pos Britonica, the British Peace, the British Empire on which
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  Speaker 1: the sun never set. And then I explained that in
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  Speaker 1: the twentieth century, because of World War One, the Great
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  Speaker 1: Depression in World War Two, essentially the British Empire faded
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  Speaker 1: and the American Empire succeeded it. And in ninety one
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  Speaker 1: the Time magazine editor Henry Loose christened the American Century,
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  Speaker 1: and that was the declaration that America now rules the
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  Speaker 1: roost and that we are the top dog in the world,
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  Speaker 1: which was the case even during the Cold War when
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  Speaker 1: it was a confrontation with the Soviet Bloc. The US
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  Speaker 1: was far and away economically, more developed, more advanced, more prosperous.
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  Speaker 1: Of course, both sides had enough to blow up the
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  Speaker 1: world many times over. It's almost a miracle that it
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  Speaker 1: didn't happen when the Soviet Union collapsed at the end
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  Speaker 1: of the nineteen eighties, and then literally does of the
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  Speaker 1: politically in December, the US took that as the full
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  Speaker 1: confirmation that not only was it the American Century, we
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  Speaker 1: were the only superpower standing. It was then called the
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  Speaker 1: unipolar world. I found that very naive, very arrogant, and
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  Speaker 1: very risky, because, after all, when you're five percent of
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  Speaker 1: the world population, are you really running the rest of
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  Speaker 1: the world? You really presume it. And I watched with
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  Speaker 1: my own eyes and visits year after year the rise
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  Speaker 1: of China, which really began its rapid ascent in eight
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  Speaker 1: So we were declaring the unipolar world. America's the colossus,
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  Speaker 1: America's the new Rome, America's the indispensable country, America's the
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  Speaker 1: exceptional country. Just at the moment when a very large
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  Speaker 1: country with four times the population was soaring ahead in
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  Speaker 1: terms of investment, infrastructure, technological capacity, and by some measures
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  Speaker 1: which one can technically argue about, China's roughly the same
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  Speaker 1: size economy as the United States now, or or even larger,
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  Speaker 1: And that suddenly runs against the grain of what do
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  Speaker 1: you mean, were the unipolar power? How can China be
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  Speaker 1: the same size? How can China be the larger trade
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  Speaker 1: partner of other countries in the world. Now this is
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  Speaker 1: again motivating yet another wave. This is the fundamental driver
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  Speaker 1: of Trump trying to really break the international rules of
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  Speaker 1: the game, because he he thinks that the US will
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  Speaker 1: fall behind if these rules continue the way they are.
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  Speaker 1: In one sense, He's right. If we actually play fair
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  Speaker 1: and open, it wouldn't be surprising that a country four
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  Speaker 1: times more populous than the United States and very clever
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  Speaker 1: and uh and very effectively governed, would be able to
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  Speaker 1: reach American technology levels. And that that is exactly what's happening.
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  Speaker 1: Let's go back to the end of the Cold War.
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  Speaker 1: President George H. W. Bush is generally praised for his
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  Speaker 1: handling of that period. You had a vantage point as
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  Speaker 1: an advisor to Mikhail Gorbachev, the last leader of the
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  Speaker 1: Soviet Union. Jeff, what did you observe well? I did
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  Speaker 1: have an unbelievable seat at the theater, really unbelievable. And
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  Speaker 1: where George Bush Sr. Was quite good was nineteen eighties,
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  Speaker 1: eight eight nine in teaming up with Gorbachev for a
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  Speaker 1: peaceful transformation of Eastern Europe and for German reunification. I
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  Speaker 1: believed strongly then that Gorbachev's vision of a peaceful common
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  Speaker 1: home of Eurasia that would stretch from Rotterdam to a
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  Speaker 1: lot of astok as he said, from the Atlantic to
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  Speaker 1: the Pacific in a common home was was really a
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  Speaker 1: great idea. But the idea that Cheney had, who was
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  Speaker 1: the Defense Secretary at the time, and started to be
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  Speaker 1: implemented was head No, we won. Now we're on top.
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  Speaker 1: This isn't an open world, this is now a US
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  Speaker 1: led world. And the so called neo CON's began their ascent,
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  Speaker 1: and I was chagrined at the time, but not really
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  Speaker 1: understanding the full import of how misguided this was. I
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  Speaker 1: was rather idealistic. I thought Gorbachev was terrific, and I thought,
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  Speaker 1: let's all live in peace, as it were. And instead
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  Speaker 1: what the US did was start to expand NATO. One
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  Speaker 1: might have thought NATO could have been disbanded. It was
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  Speaker 1: the military alliance against a country that no longer existed.
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  Speaker 1: But no, not only did it continue, but it started
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  Speaker 1: to expand eastward uh and pretty relentlessly, until, as I
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  Speaker 1: point out in the book, it really crossed a trip
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  Speaker 1: wire in two thousand and eight when the US invited
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  Speaker 1: Ukraine and Georgia into NATO, and Putin said, are you kidding?
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  Speaker 1: That's our border? No way, And that is a lot
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  Speaker 1: of the recrudescence of the tensions that are plainly evident
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  Speaker 1: until now, ye Jeff moving eastward from Soviet Union in Russia.
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  Speaker 1: I have to admit that, as a journalist covering economics,
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  Speaker 1: I went straight to the economic section of your book
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  Speaker 1: and found the framing of the whole situation as you
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  Speaker 1: discussed earlier, As you discussed earlier, very interesting. I was
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  Speaker 1: particularly struck by your writing about the japan relationship with
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  Speaker 1: the US and the parallels with today's relationship between the
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  Speaker 1: US and China. And and you talk about how the
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  Speaker 1: US was responsible or at least complicit, in Japan's economic
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  Speaker 1: collapse after its boom in the nineties eighties, and now
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  Speaker 1: the US seems to be trying some of the same
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  Speaker 1: kinds of tactics against China. How do you see those
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  Speaker 1: parallels and why do you think again America will will
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  Speaker 1: not be able to contain China's economic rise. Well, let
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  Speaker 1: me say first that my view is a bit heterodoxident unusual.
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  Speaker 1: It would not be the textbook or the mainstream view,
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  Speaker 1: and I can't prove it to the decimal point. But
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  Speaker 1: having been quite involved with Japanese policymakers and US policymakers
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  Speaker 1: over the years, my sense is that in the nineties
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  Speaker 1: seventies when Japan was soaring, and then in the early
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  Speaker 1: eighties when one of my colleagues at Harvard, wonderful sociologist
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  Speaker 1: and writer As Vogel, called Japan has number one uh.
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  Speaker 1: And there was the talk that, well, Japan is going
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  Speaker 1: to outstrip the US as the dominant industrial power of
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  Speaker 1: the world. That American strategic thinkers, the formers of statecraft, said,
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  Speaker 1: no way, anyway, Japan is under our security umbrella. Ours
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  Speaker 1: Japan depends on US, and no way Japan is going
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  Speaker 1: to take our semiconductor industry. No way it's going to
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  Speaker 1: take our steel industry. No way it's going to take
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  Speaker 1: our auto companies down. We're going to stop that. And
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  Speaker 1: all through the eighties, the US, which has a lot
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  Speaker 1: of leverage on Japan, first put in so called voluntary
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  Speaker 1: export restraints, and then in eighty six James Baker uh
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  Speaker 1: engineered is Treasury Secretary engineered a sharp appreciation of the
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  Speaker 1: end really undermining Japan's export competitiveness. And in nineteen to
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  Speaker 1: the Japanese financial bubble burst and Japan went into the
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  Speaker 1: doldrums for twenty years, not a profound crisis, but definitely
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  Speaker 1: hinto the doldrums. And that whole idea of Japan overtaking
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  Speaker 1: US was gone. And I would say, in my interpretation,
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  Speaker 1: vanquished by active high level US state craft. So is
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  Speaker 1: there a template there for the current situation. I think
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  Speaker 1: we're walking the same game plan play out right now,
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  Speaker 1: and I see it in a number of ways. The
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  Speaker 1: US is saying no to China's exports, trying to block
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  Speaker 1: the way. And then if the yuan the redmand b
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  Speaker 1: starts to depreciate, they scream currency manipulation, currency manipulation, and
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  Speaker 1: the Chinese right now lean against appreciation, partly because they
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  Speaker 1: want to avoid the charge of manipulating the currency. To me,
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  Speaker 1: this is all a game. What do you mean manipulating
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  Speaker 1: the currency? You start a trade war, you put on
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  Speaker 1: export barriers. Of course the currency is going to depreciate,
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  Speaker 1: But the US goal is to slow the Chinese economy,
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  Speaker 1: to break the export led growth model, and ultimately to
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  Speaker 1: stop China's rise. And this I think is not just
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  Speaker 1: an innocent surmise. This is pretty explicit, and I think
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  Speaker 1: it's pretty clear from the Trump administration foreign policy documents
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  Speaker 1: that China is really accused of all sorts of nefarious things,
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  Speaker 1: which are gross exaggerations, vulgar exaggerations in certain contexts, definitely
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  Speaker 1: trying to provoke the sense of crisis and use America's
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  Speaker 1: policy instruments to hurt the Chinese economy. I doubt that
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  Speaker 1: this is going to work in the end. I think
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  Speaker 1: it's very regrettable and very dangerous. But the US is
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  Speaker 1: thinking probably strategically in a sense, not just Trump's whims
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  Speaker 1: while We're gonna pull off Europe because they depend on
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  Speaker 1: us for security, and so it's going to be the
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  Speaker 1: US and Europe. We're gonna block China from gaining new technology.
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  Speaker 1: Russia's kind of ambivalent in all of this. India is
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  Speaker 1: going to be on side, So we're progressively going to
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  Speaker 1: isolate China. That's the idea. I think it's fatuous. I
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  Speaker 1: think it's dangerous, and it is the kind of actions
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  Speaker 1: that lead to a spiral of arms race and eventually
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  Speaker 1: potentially hot conflict because Chinese not just hardliners now, but
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  Speaker 1: mainstream annalists are saying and it's completely understandable the US
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  Speaker 1: is trying to break us. A lot of contemporary commentary
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  Speaker 1: links American retreat in Asia to say, disputes about the
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  Speaker 1: South China Sea or withdrawal from the Trans Pacific partnership.
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  Speaker 1: In the book, Jeff, you reach back much further to one,
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  Speaker 1: the year before Nixon's visit to China, what happened in
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  Speaker 1: nine one that sets the scene for today. Well, one
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  Speaker 1: thing that happened in nineteen seventy one is that the
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  Speaker 1: world order dramatically changed when the US unilaterally ended the
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  Speaker 1: financial system that had governed from the end of the
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  Speaker 1: World War two and Nixon unilaterally broke the bond of
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  Speaker 1: the dollar and gold. That set off many different things,
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  Speaker 1: including eventually the rise of the Euro. We also had
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  Speaker 1: then the opening to China, and that was a strategic
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  Speaker 1: move of the US to try to get a flanking
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  Speaker 1: maneuver against our adversary, the Soviet Union, by beginning and
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  Speaker 1: opening to China, and the idea there was will let
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  Speaker 1: China into the system to outflank our main foe. In fact,
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  Speaker 1: that moment really did start to lee to a transformation
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  Speaker 1: that dramatically accelerated in nineteen seventy eight when Mao died
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  Speaker 1: in seventy six and then Don chaw Pin came to
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  Speaker 1: power opened the Chinese economy to market forces and to
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  Speaker 1: globalization itself. The US normalized relations with China. China's rise
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  Speaker 1: was seen to be to the US advantage. At the time.
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  Speaker 1: We always describe it as well playing by the rules
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  Speaker 1: in an open system. But what's happening now is that
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  Speaker 1: open system from the point of view of those who
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  Speaker 1: think that the job of the US is to remain
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  Speaker 1: on top no matter what. Boomerang, because it opened the
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  Speaker 1: way for China to regain economic strength, and again, nothing
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  Speaker 1: like our standard of living, because China is still a
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  Speaker 1: fraction of America's standard of living, but because it's so
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  Speaker 1: much bigger in population to reach the scale of the
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  Speaker 1: US economy in the aggregate. Jeff, one more economic theme
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  Speaker 1: that you address is that there is a populist cycle,
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  Speaker 1: not just a business cycle, but a populist cycle, you know,
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  Speaker 1: that can run in countries that turn inward with their policies.
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  Speaker 1: Can you talk about how how this concept relates to
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  Speaker 1: Donald Trump's America First policies and and the protectionist turn
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  Speaker 1: that he's taking Right first. I think it's not right
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  Speaker 1: to say that America First is isolationist, America first is unilateralist.
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  Speaker 1: The idea of America First is the notion I'm out
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  Speaker 1: for the United States. Rules are a hindrance to freedom
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  Speaker 1: of maneuver. I don't believe in international rules. I believe
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  Speaker 1: than the art of the deal. So we're not going
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  Speaker 1: to be trapped by rules. We are sovereign and we
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  Speaker 1: can act as we want. That's America first. One of
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  Speaker 1: those ideas is that protection can be to America's benefit.
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  Speaker 1: There are different parts of the argument. Apparently, one is
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  Speaker 1: will protect our manufacturing. That's a kind of straight, simple
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  Speaker 1: minded economics. The other is will break China's rise. That's
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  Speaker 1: more international statecraft geopolitics. Populism is a bit different, but
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  Speaker 1: part of the Trump package. Populism is really short term
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  Speaker 1: appeal to your base by spending money you don't really have.
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  Speaker 1: And I have watched these populous cycles repeatedly in Latin America.
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  Speaker 1: I started my career in Latin America watching countries in bankruptcy,
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  Speaker 1: in debt crisis, in hyper inflation, and typically there had
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  Speaker 1: been a strong strong man like a Juan Perone or
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  Speaker 1: a n Ugo Chavez in Venezuela, and they wanted to
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  Speaker 1: appeal to the masses, and so they spent wildly, and
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  Speaker 1: everything was fine because you get a bit of a
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  Speaker 1: kinesie and aggregate demand boom at the beginning, and your
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  Speaker 1: currency remains stable because you still have reserves and Eventually
• 22:44
  Speaker 1: you run out of cash and you start borrowing because
• 22:48
  Speaker 1: you still have some borrowing capacity. And then eventually you
• 22:51
  Speaker 1: hit the wall on what you can borrow, and then
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  Speaker 1: all hell breaks loose, and typically you end up with
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  Speaker 1: hyper inflation, which is Venezuela's case now. And I can
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  Speaker 1: tell you it is not easy to bankrup Venezuela. It's
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  Speaker 1: a very rich country. It took Chavez and Maduro a
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  Speaker 1: generation of mismanagement to end up in hyper inflation. So
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  Speaker 1: what is Trump doing. Trump's whole career has been borrow
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  Speaker 1: other people's money, put it into a corporate shell, take
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  Speaker 1: some of it out for the family, bankrupt the shell,
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  Speaker 1: leave the creditors high and dry, and keep at least
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  Speaker 1: some measure of private wealth. And he's made a career
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  Speaker 1: out of doing this. He's just doing it with my
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  Speaker 1: money right now, and your money and other America's money
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  Speaker 1: because his ideas he doesn't want to give away money
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  Speaker 1: to poor people like maybe Perrone or Chavez did. He
• 23:48
  Speaker 1: wants to give tax cuts for the rich. Uh, And
• 23:51
  Speaker 1: so we had a two trillion dollar tax cut. The
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  Speaker 1: Republicans are apparently wanting to do it again, despite the
• 24:00
  Speaker 1: fact that we're running a one trillion dollar a year
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  Speaker 1: budget deficit. You get into a cycle, and Trump is
• 24:08
  Speaker 1: doing what he's done all his life, which is using
• 24:11
  Speaker 1: other people's money to bolster probably his personal fortune, but
• 24:16
  Speaker 1: at least his political fortunes right now. But it's such
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  Speaker 1: a short term game, and it's really expensive, and if
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  Speaker 1: it goes on for very long, which obviously depends on
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  Speaker 1: our electoral cycle among other things, it becomes incredibly destructive.
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  Speaker 1: Jeffrey Sex, thank you for joining Benchmark. It's a pleasure
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  Speaker 1: to be with you. The book is a new foreign
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  Speaker 1: policy beyond American Exceptionalism, published October second. Benchmark will be
• 24:49
  Speaker 1: back next week. Until then, you can find us on
• 24:52
  Speaker 1: the Bloomberg Terminal, Bloomberg dot com, or Bloomberg app, as
• 24:55
  Speaker 1: well as podcast destinations such as Apple Podcasts, Spotify, Flora
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  Speaker 1: where for you listen. We'd love it if you took
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  Speaker 1: the time to rate and review the show so more
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  Speaker 1: listeners can find us. And you can find us on Twitter.
• 25:08
  Speaker 1: Follow me at Scott Landman Dan You're at Moss Underscore Pico,
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  Speaker 1: and our guest Jeffrey Sachs is at j E F
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  Speaker 1: F D S A c pH S. Benchmark is produced
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  Speaker 1: by topor foreheads. The head of Bloomberg Podcasts is Francesca Leafy.
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  Speaker 1: Thanks for listening, See you next time.