There is a faction within the US imperial regime that believes that the US long-term de-industrialization is caused by the global reserve currency status of the dollar (see Stephen Miran’s arguments on depreciating the dollar) and wants the US to give up its dollar hegemonic status. This reasoning is not correct, of course, because the US government can always run the fiscal policy to re-industrialize itself and raise the living standards of its own working class irrespective of its dollar status as the global reserve currency

I don't completely agree with this assessment.

Yes, the US could also use fiscal policy to re-industrialize itself. But this would not change the dynamic which leads to a trade deficit for the US. The basic process regarding currency hegemony is, as Steve Keen puts it, as follows

No country has ever become an Empire by conquering other countries with imported weapons. A critical step in becoming an Empire, therefore, is creating weapons that defeat its rivals. This requires a strong manufacturing sector;

Once that country becomes an Empire, its currency becomes the basis of international trade within its Empire;

This pushes up the value of its currency relative to its vassals, which weakens the Empire’s manufacturing sector;

One (or more) of the Empire’s vassals (or rivals) develops a strong manufacturing sector, which enables it to construct weapons that enable it to overthrow the Empire;

That once vassal becomes the next Empire, its currency replaces the previous Empire as the currency for international trade, and the cycle repeats.

Thus, if the US would re-industrialise, that wouldn't change the structural position of the dollar with regards to other currencies: it would remain relatively too strong. As a result, it would only lead to a more prosperous population in both the US and the rest of the world (as there are simply much more products being produced), but it wouldn't change the fact that the US will remain an importing nation.

[–] xiaohongshu@hexbear.net 15 points 4 days ago* (last edited 4 days ago) (1 children)

Keen is very good as a heterodox economist (way better than the neoclassical economists) and his Debunking Economics book was foundational to my own understanding on economics many years ago.

However, he does not understand how international trade works - Keen believes that when a country earns trade surplus (say, China earns USD by selling stuff to the US), that foreign currency actually leaves the original currency zone (USD leaving the US banking system). This faulty understanding of the monetary system was fully exposed during his debate with Warren Mosler back in 2018. Bill Mitchell wrote an entire blog post debunking this misconception on trade. It still amazes me that even very smart people can have such fundamental misunderstanding about the topics within their own field of study.

Keen even admits that his Minsky software is based on the European central banking model, which does not reflect how fully monetary sovereign system actually works. In his model, the state (currency issuer) is merely one of the players rather than the principal actor that dictates how the financial system actually runs, as MMT has laid out very nicely.

His double-entry book keeping stuff is very good though when it comes to understanding how the financial flow operates in between the institutions.

[–] aqwxcvbnji@hexbear.net 1 points 3 days ago* (last edited 3 days ago) (2 children)

I have read the blog post you linked to, but I do not understand its relevance to my initial claim. The claim is:

(a) a country with currency hegemony will always be a net importer, as other countries need its currency (e.g. because fossil fuels can essentially only be purchased in that currency).

(b) as a result, the goods produced by that country with currency hegemony are relatively expensive and uncompetitive on the world market

(c) the industrial production apparatus of a country with currency hegemony will therefore disappear in the long term, and with it that country's capacity to enforce its general hegemony.

This is also clearly evident in the dynamics between the US and China: China is building an impressive production apparatus, while the US has developed a “rust belt”. This is a consequence of the currency hegemony in the US.

In my opinion, the blog post you link to does not even disagree with that claim, as it states:

The accumulation of these US-dollar denominated assets (bits of paper and electronic bank balances) is the ‘reward’ that the Chinese (or other foreigners) get for shipping real goods and services to the US (principally) in exchange for less real goods and services being shipped from the US.

Given real living standards are based on access to real goods and services, you can work out, from a macroeconomic perspective, who is on top. (...)

Note, I used the qualifier ‘from a macroeconomic perspective’. A US worker in Detroit who has endured unemployment as a result of cheaper imports coming from nations with lower labour standards (pay and conditions) than the US is unlikely to be among those who benefit.

That last sentence is crucial. After all, it is not just about that individual worker, but also about the factory where he used to work, which no longer exists.

In other words, maintaining a current account deficit has led to the closure of a factory in the US and the opening of a corresponding factory in China. So, in China, the infrastructure necessary for hegemony is being built up, while in the US it is being dismantled.

(Fiscal policy could potentially lead to the build-up of additional production capacity in the currency hegemon, but that would not change that country's position vis-à-vis other countries. This might work in the short term, but all other countries still have the same need for dollars. As a result, they will produce even more to sell to the US, so that the relative position of the countries remains the same, albeit at a higher level of prosperity now.)

[–] FuckyWucky@hexbear.net 2 points 3 days ago* (last edited 3 days ago)

It can also be said with more certainty that imports are a benefit if the country has a full employment policy, which the US does not.

It gets treats from China well in excess of what it gives to China and rest of the world, that the US de-industrialized itself in doing so is a political choice.

Without a full employment policy, loss of exports for the exporting country means

It will lose employment, capitalists may not invest with lower demand.
A balance of payments squeeze (basically the amount of resources a country can command abroad) will occur, since many exporting countries can't get more than they give.

With a full employment policy, (1) wouldn't occur, since the state will provide employment and invest as needed. (2) however would be a constraint which is part of the reason why many exporting countries, particularly smaller ones can't decouple from the US.

For the importing country, imports can displace local production within a market economy. However, it doesn't mean the state can't counter it. After all, imports basically mean China is giving the US stuff for free while taking its own electronic entries.

If US wants, it can continue to produce cars, if the quality is as good as Chinese it can set prices to match Chinese ones. If its worse, it can sell the cars at a discount over Chinese ones. The state can set prices this way to keep its industry, the industry may run losses in money terms, but it gives the country self-sufficiency and employment. The US by allowing imports without a full employment policy basically crushed worker bargaining.

[–] xiaohongshu@hexbear.net 2 points 3 days ago

There is no need for China to build up the trade surplus (accumulation of dollar-denominated assets) in order to build its industries. As Mosler said, the shipment of Chinese goods to the US could all sink at sea and it does not affect one bit for the monetary situation in China, because as a monetary sovereign state, the Chinese government can always create the RMB (its own currency) needed to drive investment.

The reason China accumulates dollar-denominated assets is because it is following the IMF export-led growth strategy, that in order to keep their government deficit down, they have to first accumulate foreign assets to offset the deficit spending by the government. So, Chinese labor and resources are converted into real goods and services that Westerners enjoy, before they are allowed to invest domestically after earning the foreign revenues.

Keen does not understand that the US dollars (or dollar-denominated assets) do not “leave” the US currency zone when China earns it, so in his model, China is accumulating those assets while the US has to lose them. This failure in understanding the monetary logic is behind his entire argument.

Put another way, MMT asserts that the Chinese government does not have to balance its budget per the IMF. It simply has to run up the deficit (like the Americans do) to keep its industries working and workers employed, but this time, instead of an export-oriented model, Chinese labor and resources will be used to fulfill the demands of its domestic economy. Similarly, the US does not have to de-industrialize itself to preserve the reserve currency status of the dollar, because the US government can always run the fiscal policy to ensure full employment, social welfare and free healthcare to all its citizens without losing the dollar hegemony.

[–] aqwxcvbnji@hexbear.net 1 points 3 days ago

Btw, which text of Jia Genliang are you referring to? I can't find anything from that person about Europe. Thanks!