Jeffrey Sachs On Making Foreign Policy Reflect Economics

does make it more urgent. Welcome to Benchmark, a show about the global ecod I'm Daniel Moss, columnist at Bloomberg Opinion in New York. Name scot Landman, Economics editor with Bloomberg News in Washington. Jeffrey Sacks, of professor at Columbia University in New York, is the author of a new foreign policy, Beyond American Exceptionalism, published by Columbia University Press out October two. He joins us this week, Jeff, Welcome

to Benchmark. Great to be with you, Jeff. Every few years there are calls for a new approach to America's dealings with the world. What's unique about this moment that warrants a big change? Maybe we've needed a change for quite a while. America has been admissed in wars almost perpetually, almost NonStop. Now for decades, we seem to be creating lots of crises, or engaged in a lot of crises, and we're not solving major challenges that we face, such

as the global environmental crises. So what we are doing is not working, and I think that that's why I'm calling for a new foreign policy. But perhaps for years and years there's been a sense that we're not on the right course. Naturally, different critics would have a different point of view. My point of view is that America got awfully arrogant in thinking that it runs the show. I used the familiar term American exceptionalism, and I think that this is a big part of our hang up.

And when people remind an audience that the U. S. Military is the most powerful in the world, we seem to hear that fairly often. Is that necessarily wrong or or does it miss the point? Or is it is it not really that relevant anymore? We are far and away the most powerful military in the world. We have nuclear warheads that, as they say, can make the dust bounce. We can destroy the world many times over. We have hundreds sometimes it's numbered around seven hundred military bases and

around seventy countries around the world. We can project power on our naval fleet, we have a basis for intervening in other countries. So this military power is vast, without question, But what is it getting us? What? What? What is the point? After all? Well, it does, of course provide a defense. No one would dream of invading the United States.

That's fine. But what it also has done has led us into one conflict after another in Syria, in Iraq, in Afghanistan, in Libya, in Somalia, in countless other countries were covertly engaged or provide aiding air support as in Yemen, and we're not solving anything from these conflicts, just like we experienced with the Vietnam War, America with over powering military strength, but we ended up leaving after more than a million Vietnamese died in that war, and I would

say it was a war for absolutely no point. How critical are the tectonic shifts that the global economy has witnessed in the past few decades to the foreign policy challenge presenting us now? My basic argument is historical. I point out that because of the Industrial Revolution, Britain became the dominant power of the nineteenth century. It was the pos Britonica, the British Peace, the British Empire on which

the sun never set. And then I explained that in the twentieth century, because of World War One, the Great Depression in World War Two, essentially the British Empire faded and the American Empire succeeded it. And in ninety one the Time magazine editor Henry Loose christened the American Century, and that was the declaration that America now rules the roost and that we are the top dog in the world, which was the case even during the Cold War when

it was a confrontation with the Soviet Bloc. The US was far and away economically, more developed, more advanced, more prosperous. Of course, both sides had enough to blow up the world many times over. It's almost a miracle that it didn't happen when the Soviet Union collapsed at the end of the nineteen eighties, and then literally does of the politically in December, the US took that as the full confirmation that not only was it the American Century, we

were the only superpower standing. It was then called the unipolar world. I found that very naive, very arrogant, and very risky, because, after all, when you're five percent of the world population, are you really running the rest of the world? You really presume it. And I watched with my own eyes and visits year after year the rise of China, which really began its rapid ascent in eight

So we were declaring the unipolar world. America's the colossus, America's the new Rome, America's the indispensable country, America's the

exceptional country. Just at the moment when a very large country with four times the population was soaring ahead in terms of investment, infrastructure, technological capacity, and by some measures which one can technically argue about, China's roughly the same size economy as the United States now, or or even larger, And that suddenly runs against the grain of what do you mean, were the unipolar power? How can China be the same size? How can China be the larger trade

partner of other countries in the world. Now this is again motivating yet another wave. This is the fundamental driver of Trump trying to really break the international rules of the game, because he he thinks that the US will fall behind if these rules continue the way they are. In one sense, He's right. If we actually play fair and open, it wouldn't be surprising that a country four times more populous than the United States and very clever and uh and very effectively governed, would be able to

reach American technology levels. And that that is exactly what's happening. Let's go back to the end of the Cold War. President George H. W. Bush is generally praised for his handling of that period. You had a vantage point as an advisor to Mikhail Gorbachev, the last leader of the Soviet Union. Jeff, what did you observe well? I did

have an unbelievable seat at the theater, really unbelievable. And where George Bush Sr. Was quite good was nineteen eighties, eight eight nine in teaming up with Gorbachev for a peaceful transformation of Eastern Europe and for German reunification. I believed strongly then that Gorbachev's vision of a peaceful common home of Eurasia that would stretch from Rotterdam to a lot of astok as he said, from the Atlantic to the Pacific in a common home was was really a

great idea. But the idea that Cheney had, who was the Defense Secretary at the time, and started to be implemented was head No, we won. Now we're on top. This isn't an open world, this is now a US led world. And the so called neo CON's began their ascent, and I was chagrined at the time, but not really understanding the full import of how misguided this was. I was rather idealistic. I thought Gorbachev was terrific, and I thought, let's all live in peace, as it were. And instead

what the US did was start to expand NATO. One might have thought NATO could have been disbanded. It was the military alliance against a country that no longer existed. But no, not only did it continue, but it started to expand eastward uh and pretty relentlessly, until, as I point out in the book, it really crossed a trip wire in two thousand and eight when the US invited Ukraine and Georgia into NATO, and Putin said, are you kidding?

That's our border? No way, And that is a lot of the recrudescence of the tensions that are plainly evident until now, ye Jeff moving eastward from Soviet Union in Russia. I have to admit that, as a journalist covering economics, I went straight to the economic section of your book and found the framing of the whole situation as you

discussed earlier, As you discussed earlier, very interesting. I was particularly struck by your writing about the japan relationship with the US and the parallels with today's relationship between the US and China. And and you talk about how the US was responsible or at least complicit, in Japan's economic collapse after its boom in the nineties eighties, and now the US seems to be trying some of the same

kinds of tactics against China. How do you see those parallels and why do you think again America will will not be able to contain China's economic rise. Well, let me say first that my view is a bit heterodoxident unusual. It would not be the textbook or the mainstream view,

and I can't prove it to the decimal point. But having been quite involved with Japanese policymakers and US policymakers over the years, my sense is that in the nineties seventies when Japan was soaring, and then in the early eighties when one of my colleagues at Harvard, wonderful sociologist and writer As Vogel, called Japan has number one uh. And there was the talk that, well, Japan is going to outstrip the US as the dominant industrial power of

the world. That American strategic thinkers, the formers of statecraft, said, no way, anyway, Japan is under our security umbrella. Ours Japan depends on US, and no way Japan is going to take our semiconductor industry. No way it's going to take our steel industry. No way it's going to take

our auto companies down. We're going to stop that. And all through the eighties, the US, which has a lot of leverage on Japan, first put in so called voluntary export restraints, and then in eighty six James Baker uh engineered is Treasury Secretary engineered a sharp appreciation of the end really undermining Japan's export competitiveness. And in nineteen to the Japanese financial bubble burst and Japan went into the doldrums for twenty years, not a profound crisis, but definitely

hinto the doldrums. And that whole idea of Japan overtaking US was gone. And I would say, in my interpretation, vanquished by active high level US state craft. So is there a template there for the current situation. I think we're walking the same game plan play out right now, and I see it in a number of ways. The US is saying no to China's exports, trying to block

the way. And then if the yuan the redmand b starts to depreciate, they scream currency manipulation, currency manipulation, and the Chinese right now lean against appreciation, partly because they want to avoid the charge of manipulating the currency. To me, this is all a game. What do you mean manipulating the currency? You start a trade war, you put on

export barriers. Of course the currency is going to depreciate, But the US goal is to slow the Chinese economy, to break the export led growth model, and ultimately to stop China's rise. And this I think is not just

an innocent surmise. This is pretty explicit, and I think it's pretty clear from the Trump administration foreign policy documents that China is really accused of all sorts of nefarious things, which are gross exaggerations, vulgar exaggerations in certain contexts, definitely trying to provoke the sense of crisis and use America's policy instruments to hurt the Chinese economy. I doubt that this is going to work in the end. I think

it's very regrettable and very dangerous. But the US is thinking probably strategically in a sense, not just Trump's whims while We're gonna pull off Europe because they depend on us for security, and so it's going to be the US and Europe. We're gonna block China from gaining new technology. Russia's kind of ambivalent in all of this. India is going to be on side, So we're progressively going to

isolate China. That's the idea. I think it's fatuous. I think it's dangerous, and it is the kind of actions that lead to a spiral of arms race and eventually potentially hot conflict because Chinese not just hardliners now, but mainstream annalists are saying and it's completely understandable the US is trying to break us. A lot of contemporary commentary links American retreat in Asia to say, disputes about the South China Sea or withdrawal from the Trans Pacific partnership.

In the book, Jeff, you reach back much further to one, the year before Nixon's visit to China, what happened in nine one that sets the scene for today. Well, one thing that happened in nineteen seventy one is that the world order dramatically changed when the US unilaterally ended the financial system that had governed from the end of the World War two and Nixon unilaterally broke the bond of the dollar and gold. That set off many different things,

including eventually the rise of the Euro. We also had then the opening to China, and that was a strategic move of the US to try to get a flanking maneuver against our adversary, the Soviet Union, by beginning and opening to China, and the idea there was will let

China into the system to outflank our main foe. In fact, that moment really did start to lee to a transformation that dramatically accelerated in nineteen seventy eight when Mao died in seventy six and then Don chaw Pin came to power opened the Chinese economy to market forces and to globalization itself. The US normalized relations with China. China's rise was seen to be to the US advantage. At the time. We always describe it as well playing by the rules

in an open system. But what's happening now is that open system from the point of view of those who think that the job of the US is to remain on top no matter what. Boomerang, because it opened the way for China to regain economic strength, and again, nothing like our standard of living, because China is still a fraction of America's standard of living, but because it's so much bigger in population to reach the scale of the

US economy in the aggregate. Jeff, one more economic theme that you address is that there is a populist cycle, not just a business cycle, but a populist cycle, you know, that can run in countries that turn inward with their policies. Can you talk about how how this concept relates to Donald Trump's America First policies and and the protectionist turn that he's taking Right first. I think it's not right to say that America First is isolationist, America first is unilateralist.

The idea of America First is the notion I'm out for the United States. Rules are a hindrance to freedom of maneuver. I don't believe in international rules. I believe than the art of the deal. So we're not going to be trapped by rules. We are sovereign and we can act as we want. That's America first. One of those ideas is that protection can be to America's benefit. There are different parts of the argument. Apparently, one is will protect our manufacturing. That's a kind of straight, simple

minded economics. The other is will break China's rise. That's more international statecraft geopolitics. Populism is a bit different, but part of the Trump package. Populism is really short term appeal to your base by spending money you don't really have. And I have watched these populous cycles repeatedly in Latin America.

I started my career in Latin America watching countries in bankruptcy, in debt crisis, in hyper inflation, and typically there had been a strong strong man like a Juan Perone or a n Ugo Chavez in Venezuela, and they wanted to appeal to the masses, and so they spent wildly, and everything was fine because you get a bit of a kinesie and aggregate demand boom at the beginning, and your currency remains stable because you still have reserves and Eventually

you run out of cash and you start borrowing because you still have some borrowing capacity. And then eventually you hit the wall on what you can borrow, and then all hell breaks loose, and typically you end up with hyper inflation, which is Venezuela's case now. And I can tell you it is not easy to bankrup Venezuela. It's a very rich country. It took Chavez and Maduro a generation of mismanagement to end up in hyper inflation. So

what is Trump doing. Trump's whole career has been borrow other people's money, put it into a corporate shell, take some of it out for the family, bankrupt the shell, leave the creditors high and dry, and keep at least some measure of private wealth. And he's made a career out of doing this. He's just doing it with my money right now, and your money and other America's money because his ideas he doesn't want to give away money to poor people like maybe Perrone or Chavez did. He

wants to give tax cuts for the rich. Uh, And so we had a two trillion dollar tax cut. The Republicans are apparently wanting to do it again, despite the fact that we're running a one trillion dollar a year budget deficit. You get into a cycle, and Trump is doing what he's done all his life, which is using other people's money to bolster probably his personal fortune, but

at least his political fortunes right now. But it's such a short term game, and it's really expensive, and if it goes on for very long, which obviously depends on our electoral cycle among other things, it becomes incredibly destructive. Jeffrey Sex, thank you for joining Benchmark. It's a pleasure to be with you. The book is a new foreign policy beyond American Exceptionalism, published October second. Benchmark will be

back next week. Until then, you can find us on the Bloomberg Terminal, Bloomberg dot com, or Bloomberg app, as well as podcast destinations such as Apple Podcasts, Spotify, Flora where for you listen. We'd love it if you took the time to rate and review the show so more listeners can find us. And you can find us on Twitter. Follow me at Scott Landman Dan You're at Moss Underscore Pico, and our guest Jeffrey Sachs is at j E F F D S A c pH S. Benchmark is produced

by topor foreheads. The head of Bloomberg Podcasts is Francesca Leafy. Thanks for listening, See you next time.