Main Edition
US
FR
Will Trump shatter the Dark Deal? (Jeenah Moon/Bloomberg via Getty Images)
While Donald Trump told Americans they were right to feel angry about their economic woes, the Democrats told them they were wrong to feel that way. The election result shows which message voters appreciated most.
A road trip across the United States reveals how much of its heartland is now desolate. Once-proud towns struggle to keep their post offices, and shopping malls open amid rising homelessness and an epidemic of deaths of despair. Trailer parks, Amazon warehouses and the odd giant prison occupy vast tracts of once-happier vistas. Meanwhile, prosperous city dwellers fly over these wastelands as they commute from one ultra-rich, usually coastal, city to another. How did America get into this sorry state?
It’s a far cry from the Golden Age of American capitalism. In the two decades after the Second World War, the United States was a surplus country. As Europe and Japan lay in ruins, US authorities not only fixed exchange rates between the dollar and the currencies of its allies, but also sent huge quantities of dollars to them (both as aid and loans) so that friendly foreigners could afford to buy American goods. With these two bold moves, America dollarised Europe and Japan.
The Bretton Woods system worked because the US surplus meant that, with every Cadillac, every Westinghouse fridge, every Boeing jet that European and Japanese customers imported from America, the dollars sent to Europe and to Japan were being repatriated. It was a mutually advantageous global recycling process.
But then, at the height of the Vietnam War, two developments changed everything. Firstly, the productivity of American factories fell behind those of Germany and Japan, causing the US trade balance to slip into the red. America was now importing more than it was exporting. Secondly, a large amount of the dollars the Pentagon was spending on the Vietnam war ended up in European and Japanese banks. A constant flood of dollars was therefore leaving America’s shores to form dollar lakes in Europe and Japan.
This money ended up in foreign central banks. For a while, America’s trading partners took advantage of the fixed exchange rate of their currency to swap their dollars for their own currency or to buy gold at a fixed exchange rate. But, in August 1971, President Nixon blew this system up.
The Deutschmark and the yen, along with many foreign currencies, skyrocketed. Foreign central banks did not know what to do with the dollars in their vaults. If, for example, the Bundesbank were to use these dollars to buy Deutschmark, the demand for the German currency would increase, damaging Germany’s exports. So, foreign central banks decided to use their dollars to buy US government debt.
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
SubscribeSuperb pithy first observation – one of the best I’ve seen regarding Trump’s victory.
Also, the conclusion that the amount of spending power tied up in real estate, and the amount of wealth hoovered up by finance, needs to be redistributed to more productive uses, i.e.the creation of real and not just nominal wealth, is hard to fault, except that it’s not a binary choice that needs to be made in an instant. Trump can start a process and hope that the next decade or two sees a change in direction take root.
The problem is that capitalism, where first you created wealth, capital, then reinvested it to create more, seems at some point to have morphed into creditism, where access to credit more than an ability to generate capital from production seems to have become the dominant principle at work in determining who has ‘wealth’ and where resources are allocated. Even the car companies make most of their money from credit these days.
He’s only got four years. Radical change, even if it is in the right direction, would be too much destruction before anything could arrive to replace it. I hope that the Trump Administration goes all in on deregulation and energy production, and tilts the scales back to the creation of actual things – manufacturing – as the primary source of wealth.
I’m not convinced tariffs are a good idea, especially the blanket ones proposed – perhaps that’s just an opening position for negotiations.
What I find odd is that Trump specifically ruled out blanket tariffs in a pre-election speech I saw recently. He said that he would put tariffs on items that America could produce herself, but not on stuff they needed & could not produce themselves.
That makes room for a whole lot of flexibility, which makes sense to me. Did nobody else see the speech? I can’t see it being mentioned anywhere.
I wouldn’t mind reading more articles like this from Varoufakis. To re-industrialize the West needs to de-financialize, which pretty much means establishing an entirely new status quo. Not an easy task.
The reason the Financial Sector has dominated is because other sectors have not prospered. De-financing will only reduce the sector to be another also ran, though it would make us ‘more equal’. 🙂 Instead, we need to encourage other sectors to grow, and that will require Finance to be involved.
To prosper, the West has to produce what it demands and can produce itself.
That rules out tropical fruit, which we can import, but does include manufacturing, especially high quality, high tech, high value goods. And that will require greater emphasis on STEM subjects, not only in the workforce, but also in the education sector and political bubble, locally through to national level. We used to be famous for it, and we were successful because the state was supportive of private industry, and didn’t punish success.
The BBC has proven to be totally incompetent at providing any general STEM education, encouragement or vision, preferring singing, dancing and celebrities. Their subservience to the fictional Climate Emergency and the damaging NET Zero policies should be a signal for it to be disbanded, broken up, dismantled and scattered to the winds.
Instead, we need Scientists and Engineers with some teaching / presentation skills to inspire the next generation, not Arts and Humanities graduates that can parrot a few sound bites, without understanding what it all means. And we require a new set of politicians, with similar backgrounds and determination.
Are you under the impression that the BBC is a university?
Superb article. Good grief the undeserving rich are morons. This next Vance decade is going to be fun.
Burn baby burn.
Superb article? Not really. Varoufakis makes some good points but misses the most essential:
Trump’s cheap energy revolution combined with his mercantilism will suck every last penny of investment capital out of a Europe determined to pauperise itself with idiotic climate policies. Everyone in America will do better, not just the bankers and landowners. Europe’s decline will accelerate. As will ours if we don’t change direction pretty sharpish.
The US is a self-sufficient economy. We need them a lot more than they need us.
Watch and learn Yannis.
The US has the biggest trade deficit in the world by far, precisely because of the system that Varoufakis describes. Could it be self-sufficient? In theory, maybe. However, if industry is brought back it will take a lot of time to approach anything like mercantilism. More importantly, the global financial system was not designed for this and would have to be changed on a fundamental level. I don’t see how cheap energy alone will do this.
The US is already self-sufficient in the sense that it has the energy, mineral and agricultural resources to meet all of its material needs. The trade deficit is largely a consequence of bad policy which can be reversed. Once the US becomes self-sufficient in energy production that ‘global financial system’ becomes increasingly irrelevant.
The point stands: all Americans will get richer under Trump. We (Europeans) will get poorer.
And ‘cheap energy alone’ is a straw man’.
Energy is what drives everything. Energy lights the darkness. Energy runs the factories. Energy powers the electronics, the robots, the computers. In the industrial world, labor and capital were the primary drivers of economic activity. In the post-industrial world, energy is the driver of all economic activity. Many already refer to an energy economy. Even the greens, for all their misguided attempts to eliminate fossil fuels, understand that there must be sufficient energy generation to run a society and that generating and distributing that energy are the fundamental needs in order to reconcile modern society with their climate change policies.
Hugh, China is so far ahead of the rest of the world on the new low emissions technology – including nuclear, by the way – that unless Trump listens to industrialists like Musk on energy transition, rather than yesterday’s fossil fuel dinosaurs, the only economy that will be impoverished is America’s. Imposing the kind of tariffs he has been waving about will only accelerate how quickly Americans discover how ‘self-sufficient’ the US economy is…not.
If Trump really does unplug the US from the coming Electrified Century the rest of the world will just shrug, and move on. The American century is over. It was fun while it lasted, but it’s over now. Trump will be a transitional-in-decline President either way. There’ll be four more years of noise and neon and bellicose grandiosity for his domestic audience, but for the most part he will confine himself to favouring his local allies, securing revenge on his local enemies and lining the pockets of his family and friends. If Americans aren’t so exceptionalist, introspective and frightened by the changing future that they swallow his vaudeville garbage completely, they’ll soon grasp that they’re just 330 million among 8 billion, living on a landmass that is geographically isolated from the rapidly repositioning economic centre-of-mass of the 21st century, and no longer able to leverage technical innovative superiority and projectable military force to compensate. There are geopolitical pathways ahead other than picking a doomed fight with China in the Pacific they can’t possibly win before retreating into a nation-wide permanent Amish sulk while fighting endless civil wars with each other to prove to themselves how tough they still are.
JD Vance is a very intelligent realist whose political outlook is philosophically informed by an unusual blend of individualist and socialist instincts, both pragmatically grounded in his own genuinely hard-scrabble origins and both refined by Silicon Valley’s technical and financialised internationalism and scientific rationalism. By the time he becomes President the reality of America’s recalibrated no-longer-first-place in the world will be impossible to wish away with Hollywood simulacrum bullsh*t and virtual chest-beating (whether via WSJ, Fox, Rogan or here at UnHerd). My money is on his true view of Trumpism as a useful leadership model prevailing once he has assumed the White House. A viable American future looks far more like Peter Thiel’s than Charles Koch’s. Trump is a child. Vance strikes one as a grown-up. I suppose we’ll see.
But as I said I think Vance’s American decade will be fun, whichever way its democratic polity decides to go with it. Rgds.
“Tariff king” is a bit overheated considering plenty of tariffs were instituted under the Biden regime. They are a tool, partly for negotiating and partly for use. Trump is, after all, from the world of business, not policy, meaning he has dealt with the effects of rules and regulations.
Kudos to Yanis for noticing how the current system favors the politically connected and ultra-rich, which is redundant. That reality is what made a candidate like Trump possible in the first place. He made that clear in 2016 when debating Hillary as she tried making noise about what he pays in taxes. Trump’s response was that he pays what the tax code lets him pay, just like her cronies and donors.
Amazing article from Yanis! Thank you.
Lenin said, “Capitalism has triumphed all over the world, but this triumph is only the prelude to the triumph of labour over capital.”
I like the summary of neo-liberal economics but the fact is Trump already did the supposedly impossible in his chaotic first term, blue collar wages went up for the first time in decades due to tariffs and restricting illegal immigration, while the stock market performed extremely well.
Global labor arbitrage by Wall Street and corporate managers has so crippled the country and empowered Chinese competitors (there are now more Chinese companies in the Fortune Global 500 than American) that I think even they realize they will have to pay higher wages and transfer production to friendlier countries to allow American multinationals remain competitive.
I sometimes have a predictive sixth sense about events in the vicinity (or sometimes personalities), although more often than not my timing is rather awry. I happen to make a Varoufakis joke BTL in another piece, and guess who turns up with a load of waffle.
Yep. It’s always been clear Trump promises to ‘middle’ America wafer-thin. He’s not going to cobbler his own class for their benefit. He’s going to lie to them to protect himself and his own class. And he’s going to commandeer the new on-line sphere of influence to help with that.
The targeting of migrants will act as a suitable distracting smokescreen for a while, but folks will gradually grasp he’s the grifting charlatan many have been highlighting for years. It’s just going to take a while because supposed revenge creates temporary myopia.
I find this idea – proposed by Varoufakis and echoed by you here – that Trump has a class which he belongs to and must server rather odd. Where does this idea come from ?
Trump is as much an outsider and nouveau riche as anything else. I’m not convinced he belongs to anything. He effectively leads the Trump Party rather than the Republican Party. Trump looks after himself. Everyone else is “at the back of the queue” as Obama so foolishly put it in 2016.
I suspect your TDS is getting worse and will continue to do so. Just bank Starmer’s election win and let it go.
The votes are almost all counted and Trump has 50.3% and Harris 48.1%. Impossible to deny that he represents the majority. Nor are the US electorate anything like as dumb as you assume. They know perfectly well what they’re voting for. Just as they did in 2016. Just as we did in 2019 in the UK. I think there’s more than enough evidence now that patronising the voters doesn’t work.
The people being “targeted” are illegal immigrants – not “migrants”. And this is exactly what the US people have voted for – for their laws to be upheld. It should be no surprise that legal Latino immigrants are strong supporters of Trump here.
Yes he’s about himself first and foremost but the real estate magnate and the billionaire owner are his class. Let’s see what he does for those living paycheck to paycheck, those on minimum wage, those struggling to afford any health cover. And don’t be blaming migrants. yes Border needs controlling, but US is a tremendously wealthy country yet that wealth increasingly concentrated.
As regards him having more supporters – he got more Votes in a two horse race. Many will have held their nose and his personal popularity not as strong as you may think. Democrats putting up a weak candidate and disorganised campaign without any real sense what they needed to offer to middle America cleared helped him too.
I’m not convinced there is such a “class”. Or indeed that “class” is really that relevant in 2024.
Have you considered that illegal immigration may be increasing the wealth inequality and reducing the incomes and wealth of the least well off US citizens ? The US voters certainly seem to think so. And they’re in a rather better position to call this than us.
I never said he was popular or that people liked him. If you listen to actual voters being interviewed, what you hear is that they feel that they know him and that he knows and relates to them better than the Democrats did. That’s very different from being liked or popular. I heard many people who voted for him say they didn’t like him.
US econ at almost full capacity so how do you make out they are suppressing wages. They may be helping keep inflation lower than would be but who suffers most if that rises? And that’s why the deporting millions is rhetoric that’ll never happen. It’s a slogan to help re-election.
The desire of some to blame immigrants for the failures of US form of capitalism is way out of ahead of what the real causes are. Those are as the Article outlines. If you buy the ‘blame immigrants’ line you have fallen for the oldest trick in the book.
As regards the generalisation about voters knowing him, yes they’ll be some who indicate that, but you are over-generalising. His personal popularity ratings are much lower than the vote proportion he received. That tells us poor opposition and a more general anger drove the results and if anything a majority remain sceptical at best about his fitness to govern and with good reason as we are highly likely to find out.
You mean he’ll deport a few and we’ll never hear the end of it, of course it’s nonsense. Thousands of businesses in agriculture, hospitality, retail and other sectors depend on cheap labor including the millions of illegals , many businesses would not survive without them. How many illegal are ‘criminals ‘, it’s all a show. Americans will be very disappointed, because in 4 years there will more inequality, more poverty and all the problems that exist will remain. And the national debt will be approaching 50 trillion. The stock market is way overvalued and in a short term surge, but that won’t last because reality will eventually catch up
Let’s see what he does for those living paycheck to paycheck, those on minimum wage, —–> How many of them has he employed over the years, at far more than minimum wage? Your line belies the central conceit of govt – that it is somehow the role of policymakers to “do” for the rest of us. Most Americans would rather govt get out of the way and just stick to a few things that make sense for it to do, like manage the border, keep infrastructure up to date, and handle defense.
My assessment of his personal motivation for going into politics in the first place is that he was angry that he wasn’t allowed into the circles of the super rich, the davos men, the people who wield real power. He wasn’t even allowed to buy an NFL team. Like every other slight or insult, he took it personally and held a grudge, and he found that a lot of the American people have their own grudge against these same people, and here we are. It’s interesting that history may indeed turn on something so simple as a man who wasn’t allowed into an exclusive country club returning with a mob of angry peasants to burn it down. At the end of the day, I doubt Trump feels any personal loyalty to anyone but himself. I don’t really care what his reason is. Anything that pushes the globalists, the super-rich, the donor class, etc. out the door is OK with me.
You are the closest to Trump’s agenda, IMHO.
Trump tower will pop up all over the world so he will not be impacted but he does want to burn the house of those who as you said did not allow him at the table at DAVOS! EXACTLY!
The immigrant thing is a distraction (because it gets people going) and anyone with a tiny brain should be suspicious of this type of thinking…I bet similar tactics were used to destroy European Jewry! always scapegoating those in the minority! It is the greatest propaganda tool!
The real hurt: poor whites in US or Europeans!
Trump may want to settle old scores and it is not with the working man or woman…it is the invisible man who laughed at him when Trump try to come to the table…Trump has an axe to grind. The question is can he do it or how can he do it?
Not to leave you depressed, I think this will be better for all of us to have industrial and financial not just Ponzi schemes!
Let the Golden Era and creative pursuits come back again! LOL
Don’t you get bored churning out the same tired old narratives every single day? Amazed you have time anyway, what with the twelve hours shifts you have to work as a retired naval officer. Or whatever it is today. 🙂
I do have still work, at least part-time, as much for the neurons as the income I think. Unlike I suspect yourself with your elite US undergrad privileged education? Whilst you were carrying your books around shipmate I was going through Raleigh and then away at Sea for months whilst in my teens whilst you were no doubt in the Uni clubs and societies before back to bank of Dad and Mum. Costs a bit to go to Uni in US don’t it. Strange self loathing you seem to have developed in later life, but look I’m sure your privilege as a younger person wasn’t all your fault.
Was that Raleigh cycles ?
Good to still be working and doing something useful.
Not sure how privilege as a younger person can really be that person’s fault. They don’t get to choose their parents and circumstances. Only how they behave to others and what they do with the opportunities. I’m not totally convinced that some of this privilege wasn’t and isn’t sometimes more of a burden in practice. Too easy to imagine everyone else is having an easy life.