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Say “Richard Nixon” and most Americans think “Watergate” and “scandal”. He may be remembered by the oldest and best of readers as the man who opened U.S. diplomatic relations with China.
But a deeper analysis shows that the challenges facing the Nixon administration – from changing perspectives on America’s place in the world, to the pressures of globalization, to the difficulties of balancing politics. economic and foreign – are exactly what President Joe Biden faces today.
Indeed, one could argue that America is now at a pivotal point quite similar to 1971, the year Nixon and his top advisers made the decision to sever the link between the US dollar and gold, thereby removing a key pillar of Bretton Woods. regulation. This is, in fact, exactly what Jeffrey Garten argues in his important new book, Three days at Camp David: How a secret 1971 reunion transformed the global economy.
Garten is uniquely placed to tell this story. He has worked in both diplomacy and finance: he was Under Secretary of Commerce in the Clinton administration and managing director of the Blackstone Group. He also did in-depth interviews with several of the prominent figures who were, like the line of the musical Hamilton actually goes “to the room where it happened”. The full list of 44 interviewees – from Henry Kissinger and Paul Volcker to Alan Greenspan and George Shultz – is impressive and comprehensive.
Why is this story so relevant today? For today as then, an era in the history of the world monetary system is drawing to a close. This is arguably the one that started with Nixon’s decision to break the dollar-gold parity. This helped make US exports more competitive (the “America First†strategy of its day) and corrected the trade imbalance that had resulted from too many dollars going overseas.
It also allowed the central bank to exert a much greater leverage effect on the economy. Rather than make politically difficult choices between various interest groups, Nixon (and pretty much every administration since then) passed the buck to the Federal Reserve. Higher interest rates curbed inflation, and dollars eventually poured into the United States.
But instead of strict limits on speculation, it paved the way for the financialization of the economy, as securitization rather than lending became the core business of the U.S. financial system, which was now too big to fail.
The Biden administration is counting on this global economic paradigm to hold on – indeed, it must if the president is to implement his fiscal stimulus plans, which depend on relatively low interest rates and the power of the dollar to allow states – United to borrow.
But everything from inflationary pressures and trade disagreements to the recent popularity of gold, cryptocurrencies and the rise of sovereign-backed digital currencies (like the digital renminbi, which China hopes to become a part of much. most important of its own trading and financial system) suggests that we are again at a tipping point.
If the current paradigm were to break quickly and unexpectedly, the dollar and any dollar-based asset could be quickly devalued. As the Biden administration considers these pressures and how to deal with them, it would be wise to take three lessons from the Nixonian playbook.
First, populism must be balanced by deep engagement with allies. Politically, Nixon’s administration was heterogeneous: his Treasury Secretary John Connally was an unbridled nationalist, but National Security Advisor Henry Kissinger was the ultimate globalist. Having a team of rivals around the table ensured an honest debate on how to balance domestic needs with the realities of foreign markets.
A government-led industrial strategy was also crucial. Who knew that Peter Peterson, a special advisor to Nixon, was an economic planner of the best kind? He advocated a tougher stance on international competition (urging Nixon to “dispel any Marshall Plan psychology”), but also a “fix the problem at home” approach that included public investments in high growth technologies, the worker retraining and the local economy – all hallmarks of the Biden approach.
What Nixon has done that Biden has yet to do is articulate a vision for what the global economy should be like. He rejected the views of his immediate predecessors, John F Kennedy and Lyndon Johnson, who, as Garten puts it, “acted as if there were no limits to America’s peace commitments, stability and prosperity in the world â€, or at home. In Nixon’s alternate vision, America would no longer carry the rest of the world on its own, but would lead a new coalition of allies, including Germany and Japan.
What started as a “set of harsh, one-sided actions” actually increased America’s involvement in the world, thanks to a better (albeit imperfect) monetary system, a series of arms treaties. nuclear and new international organizations to fight poverty and improve food security. . But this only happened because the administration was able to keep national and international needs in mind.
Between Big Tech, state-owned China and peak financialization, the situation today is undoubtedly more complex. But the fundamental challenge is the same: How can America help itself without abandoning the world? Scenario planning at Camp David would be in order.
rana.foroohar@ft.com
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