Vance Opposes Dollar as reserve currency

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Two weeks ago the online right spent an entire week fighting about a twenty dollar burrito. Some of the loudest voices in that fight were people who spend their days defending Vice President Vance, and their complaint was affordability. Things cost too much. Working people cannot get ahead. The burrito, they said, was indicative of the burden on the young. The Vice President himself got into it, going after Washington Post columnist Marc Thiessen’s weight because Thiessen would not buy the argument. It is “quite obvious the man has never missed a burrito,” Vance posted on August 5.

Then, someone found this video of the Vice President in 2023, at an American Moment event, when he was in the Senate, arguing that things are too cheap for Americans. In his own words:

“This is like, maybe super heterodox. I am not sure that I think the reserve currency is actually good for the United States of America. I think there is a good argument that reserve currency status is akin to coal in Appalachia, it’s a resource curse, right? It allows your consumers to consume very cheaply, right? That’s been the story of the American economy for the last 15 or so years, uh, even before that, is we can just borrow basically in an unlimited way because we have the reserve currency.”...

He called your groceries, your electronics, and even your toaster “mostly useless imports,” and used the favored word of the woke, “privilege,” in doing so. Also, please note, the man who calls the reserve currency “a massive tax on American producers” is a big proponent of tariffs, which are “a massive tax on American producers” and consumers together.

The Vice President just identified two things as the problem. One, that American consumers get to buy things cheaply. Two, that Washington gets to borrow without limit. Those are not the same problem. The first one is your grocery bill. The second one is Congress. And he wants to solve both by taking a hammer to the dollar...

Put it more bluntly. Vice President Vance is to economics what Candace Owens is to conspiracy theories. He, like she, decides to go contradictory and contrarian on exactly the points where the evidence backs the other side.... Economists left, right, and center recognize that the United States holds an enormous advantage with the dollar as the world’s reserve currency. So Mr. Vance decides it must be, well, not yet the Jews, but something not good.

Let me tell you what reserve currency status actually buys you.

We do not get magic interest rates, but the serious estimates of the discount we get on Treasury borrowing run around ten to thirty basis points. That is real money at our scale, but not the difference between a good life and a bad one.

Because the world treats our debt as the safest asset on the planet, we can carry a mountain of it before anyone blinks. The Atlantic Council’s people put the effect at something like a fifth more sustainable debt than we could otherwise hold. That is the difference between our fiscal problem being a slow moving disaster we can still fix and a Tuesday afternoon margin call....

There is more. When the world panics, money runs toward our dollars, not away from them. We are the fire exit. ... The dollar as the global reserve currency is itself the deterrent on that front. It is somewhat ironic that the Vice President thinks the United States should not have the world’s reserve currency and Beijing agrees with him. China is actively working to persuade the BRICS aligned nations to walk away from the dollar as the global reserve currency, just like the Vice President. Beijing has been at this for a decade and hit a wall, because the world will not trust a currency backed by capital controls and a court system that answers to a party. What China cannot win, the Vice President proposes to give away. I should note, too, that Alexander Dugan, the Russian philosopher often called Putin’s brain and a favorite of the post-liberal right, is on record demanding the very same thing. “We must raise the question,” Dugin wrote, “of the creation of a system of regional currencies as well as the rejection of the dollar as the world reserve currency.”

The Vice President also brings up the “resource curse,” which is a real idea, though he misses a key point. Economists have spent forty years noticing that oil states and diamond states often turn out poor and rotten.

But the resource curse is not a curse of resources. It is a curse of bad government. The economics literature is not ambiguous on this. Economists Mehlum, Moene and Torvik settled the question in the Economic Journal twenty years ago, and the work since has confirmed it. Push institutional quality above a threshold and the curse does not merely weaken, it reverses. Resources become a blessing. Below that line, money gets grabbed. Above it, money gets invested....

Which brings us back to the thing the Vice President said and then walked right past. He told us the problem: “we can just borrow basically in an unlimited way.” Mr. Vice President, that is not the dollar doing that. That is Congress doing that. That is Medicare on autopilot and a Senate that has funded this government by continuing resolution since Obama. You are the President of the Senate. You have the tie breaking vote. The tool for fixing an unlimited borrowing problem is a budget, not a currency crisis.

He is right that something happened to American manufacturing. Employment peaked near 19.5 million in 1979 and sits at about 12.6 million now. I will go further than most of my free trade friends: the China shock was real. The scholars Autor, Dorn and Hanson put it around a million manufacturing jobs, up to 2.4 million counting the towns that died around them. Those are real places, real people, and real funerals. Some of them, we should be mindful, are in the backyard of where the Vice President grew up.

But Autor, Dorn and Hanson’s research found the China shock was under a fifth of manufacturing job losses in that window. The rest is productivity. And none of it is a reserve currency story. If a strong currency killed factories, Germany, Japan and Switzerland would be industrial wastelands instead of three of the most formidable manufacturing nations alive. They built what they built on hard money....

Lastly, notice how the Vice President opened. “This is like, maybe super heterodox.” That is not an economist talking. That is an internet troll flagging his own contrarianism so you will grade him on daring instead of accuracy. J.D. Vance is a creature of the internet and he does not stumble into these positions. He believes them. He picked this up the way a lot of men under fifty picked up theirs, in reply threads and podcast clips, inside a world where a theory never has to survive contact with a payroll or a bond auction. You float the resource curse take, the timeline nods, and you never sit with a family in Middle America and explain what happened to their mortgage.

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