JD Vance and curse of the cheap goods

Are prices too low?

Vice President JD Vance is the current frontrunner in the 2028 Republican presidential primary, but as with Trump, many Republicans aren’t very excited about the option. This may be why there was a hatchet job on the veep over the weekend in the form of a video clip in which Vance shows his economic ignorance.

In the short clip, which comes from a longer video interview in 2023, Vance takes the positions that Americans are paying too little for consumer goods and that the dollar’s reserve currency status is an albatross around the neck of the country.

Image by Chat GPT

“I am not sure that I think the reserve currency is actually good for the United States of America,” Vance opined. “I think there’s a good argument that reserve currency 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, even before that. We can just borrow, basically in an unlimited way, because we have the reserve currency. That’s a massive subsidy to incurring debt. The debt is cheaper, even in a raised interest rate environment.”

“So we have this massive subsidy to cheap debt to the American consumer,” he continued. “That’s good, right? Consuming is important, especially food, medicine, and things like that, but I think it’s a massive tax on American producers.”

Keep in mind that this clip apparently originated at a time when prices were already high due to inflation, but Vance was concerned that American consumers were still consuming too cheaply. In a time of rising costs, that sentiment is not going to play well with voters.

More insidious is Vance’s dislike for the dollar’s status as the global reserve currency. The Bretton Woods agreement of 1944 established the dollar’s global currency status, and that has been a tremendous boon to the US economy. Transactions all around the world are conducted in dollars as the benchmark currency. This has contributed to American economic strength and helped consumers enrich themselves through the strong dollar.

Vance is correct that the global dollar has helped the US with cheaper borrowing costs, and that includes the government as well as consumers. The flip side to Vance’s argument is that if borrowing costs go up, interest on the federal debt, currently edging out defense spending as the third largest budget item, will grow as a share of the federal budget and crowd out other items. Without reserve currency status, we might ultimately lose the ability to finance the federal debt at any cost, triggering a Greece-like debt crisis. As I write this, 30-year Treasury yields, the cost of financing the national debt, have risen to their highest level since just before the 2008 financial crisis.

The kicker is that if the US enters an economic downturn because of a debt crisis, much of the rest of the world will follow, thanks to the interlinked global economy. When American consumers buy less, that impacts the economies of countries that export to us. To some extent, that slowdown is already happening due to Trump’s tariffs and trade wars. Our trading partners are looking for new markets as exports to the US drop. Those who can’t have experienced slowing or contracting economies.

The interesting thing for those defending Vance’s view is that our main geopolitical adversaries are also pushing to dethrone the dollar. Russia and China have long been jealous of the advantage that the US gets from the dollar’s global status, and they have been working to push alternatives for years.

If Russia and China think they stand to benefit from taking the dollar down a few notches, why is someone like Vance pushing the idea? In another 2023 clip, Vance explained his thinking to Fox News.

“While it does have benefits, King Dollar actually has a downside for American manufacturers,” Vance said. “I think our manufacturers could benefit quite a bit. What the reserve currency does, the good thing, is that it means that things are a lot cheaper here in this country. If you travel overseas, you can buy more with the American dollar. The bad thing is it’s really bad for our exporters.”

In essence, Vance’s argument for jettisoning reserve currency status is the same as Trump’s argument for tariffs. They think imports are too cheap, and they want to make foreign goods more expensive so that American consumers will buy more American-made goods.

The fundamental problem with this view is that the decline of American manufacturing is a myth. US manufacturing output has remained strong for decades, but there are two caveats. Manufacturing jobs have declined due to automation, and manufacturing has shrunk as a share of the GDP as the world transitions to an information-based economy. As with trying to shift aircraft carriers to steam catapults and build a new class of already-obsolete battleships, the Trump Administration’s manufacturing policy seeks to return us to the past, but you can’t turn back the clock.

Interestingly, Donald Trump seems to realize the importance of maintaining the dollar’s reserve currency status. In yet another video, the president said, “If you want to go to third-world status, lose your reserve currency.”

It isn’t often that I agree with Donald Trump, but this is one of those times. I just wish Trump were more consistent on the issue. Trump may not want to dump the dollar’s global status, but he has advocated for a weaker, inflationary dollar to bolster his protectionist schemes.

To give Republicans some credit, a lot of the flak came from the last remaining conservatives. Our old buddy, Erick Erickson, was very critical of Vance on both foreign policy and domestic issues, at one point likening the vice president to Candace Owens. Ouch.

If JD Vance gets his way, rather than making America great again, his economic policies are likely to pave the way for American economic decline. As a general rule, we shouldn’t pursue the same economic policies that Russia and China are advocating for, and we shouldn’t elect politicians whose ideas mirror theirs, whether it be dethroning King Dollar or cutting off aid to Ukraine.

It’s a good thing that the chances of America electing another Republican in 2028 will be near zero after four years of Trump’s mismanagement of the country.

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The poll also shed light on how the parties view socialism, with Democrats stressing “equality and fairness and public services,” and Republicans equating the term with “government control.” That ties in nicely with what I wrote in “Socialism vs. socialism” a few weeks ago.

The sad takeaway here is that neither party is very interested in free markets at this point.

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