You Know What's Cool? Dollars.
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You Know What's Cool? Dollars.
The dollar system is a durable and powerful asset, ideal to deploy against Russia. Plus: Fixing the mess California courts made at Berkeley.
Dear readers,
The war in Ukraine is having cascading global effects — sending oil prices through the roof, causing Germany to re-arm, and leading the US to reconsider its relationships with oil producing countries like Iran, Saudi Arabia and Venezuela.
I have a podcast about these global effects coming for you on Thursday, with Michael Singh from the Washington Institute. The picture he paints for how this war will reshape the world isn’t pretty, but it is informative, and I think you’ll want to listen. (If you’re not getting the podcast, you can subscribe here.)
Now, on to today’s newsletter.
American economic might: One of the main frustrating geopolitical themes of the last 20 years has been the relative decline of US economic power. China could afford to crush the pro-democracy movement in Hong Kong, even though doing so has undermined Hong Kong’s position as a key Asian financial center, because the mainland Chinese economy had grown so much relative to Hong Kong’s since reunification in 1997. American movie studios — and sports leagues — cater to Chinese government and public sensibilities. And our efforts to join forces with like-minded countries to project economic power together have sometimes faltered, most notably the Trans-Pacific Partnership.
It has often felt like our economic might just isn’t the power source it used to be. So I think it’s worth noting how successful western efforts to flex economic muscle have been over the last few weeks, and what that tells us about the economic advantages we still have to press in global relations.
First, the Biden Administration has had diplomatic success, bringing so many countries together to sanction Russia. (Of course, the main builder of that coalition was Russia, whose actions are so threatening to Europe that they seem to have produced decades’ worth of reorientation in a few weeks.) Then, those sanctions are already imposing the asymmetrical damage that they are supposed to: A rupture with Russia causes economic pain here in the form of higher energy prices, but that’s no match for the broad economic distress being experienced there. Nobody has to worry about whether they can get cash out of an American or German ATM.
A few notes on why this is working:
First, the obvious: Russia’s a much smaller economy than China, and so when things go haywire there it just doesn’t affect us like problems in China do. Our relative economic power compared to essentially anyone else in the world remains formidable.
China often flexes its economic muscles by caring more than we do. Nobody is boycotting an American film studio for doing the edits China demands on films, or changing what hotels they stay in because Marriott apologized for calling Taiwan a country. But consumers don’t have to care for the Russia sanctions to work. And in this instance, consumers do care, which is one of the reasons you’re seeing companies start to “self-sanction,” like with Shell apologizing for its perfectly legal recent purchase of Russian oil, and saying it won’t buy again. This amplifies the effect of the sanctions.
Most importantly, everybody wants access to the dollar system, and there’s no good substitute for it. We are a much larger trading partner for China than Russia is, which undermines China’s willingness to help Russia work around sanctions. Chinese banks are afraid of US sanctions if they do business with Russia. And while cryptocurrency is often believed by its fans and detractors to be a way around government rules, it — and the entities that might trade with Russia in it — are subject to government regulation. Western governments are watching out for crypto-fueled leakage in the sanctions, but it’s still a matter of leakage. Legitimate multinational companies that had been doing business in Russia up to last month aren’t going to adopt crypto to evade sanctions. They’re leaving the market.
I have seen some warnings on the last point that we should be careful what we wish for — that pushing Russia out of western financial networks will only cause it to form, with China, alternative networks. The problem with that is that a key purpose of international financial links is to trade with free western countries, which for quite some time to come will be a larger economic force than China and the states that align with it. We’d have to cooperate in the shift to a new system for the new system to be any good, and we wouldn’t.
It is possible that our sanctions and our freezing of Russia’s cash reserves overseas will reduce other countries’ comfort in relying on the dollar-based international financial order. But the question there is, still, where they would otherwise go. China? Trusting China to maintain a rules-based financial order, and protect free access to one’s financial assets whatever the political orientation of the Chinese regime, is a worse bet than trusting us, even after all these sanctions we’ve imposed.
As such, the economic power we and our allies project by denying Russia access to ourselves and our institutions is not just large but likely very durable, something we can draw on again in future crises, even as Chinese GDP continues to grow relative to ours.
Finally, I just want to note that it’s good that we have this power. People sometimes forget to say a strong West is a good thing (or, they believe it isn’t, and that’s why they search for ways to be anti-anti-Putin), but it is. We are a society with good values that promote freedom and prosperity, and the Chinese and Russian societal models are much worse for the human condition. It is a good thing that we have this power to wield, it’s a good thing that the NATO alliance gives Russia reason to fear moving beyond Ukraine, and it’s a good thing that Europe is taking economic and military steps with us that strengthen the western alliance.
Save Berkeley: Last week, the California Supreme Court declined to take up a case where a judge has ordered UC Berkeley to cap its enrollment at a level below last year’s, on the grounds that the university did insufficient environmental review of the effects of higher enrollment on the city of Berkeley.
Following that announcement, the university announced it wouldn't have to drop as many students as it previously claimed — instead, it’s going to shuffle students around, requiring over 1,500 undergraduates to spend their first semester studying online (ugh) or delay starting until next January.
I’m more sympathetic to the plaintiffs here than you might expect. They complain that housing growth has not kept up with student growth at the university, and as a result students are crowding into residential homes, driving up rents and also creating a nuisance as they engage in college-student behavior in residential neighborhoods. And they’re right: That’s not a good way to house an influx of college students.
Of course, if Berkeley residents are upset the city hasn’t added enough housing, they should look in the mirror.
Berkeley has three rapid transit stations, and two of them are bordered by huge surface parking lots that the city has spent decades arguing about developing. There has been progress in the last few years, in that the talk about these parking lots has shifted in the direction of building multifamily housing on them. But it’s still all talk — there are no shovels in the ground.
And the same oppositional political and legal environment that led to the lawsuit against the university has also made it hard to add homes. If you don't want students and other residents competing for homes, change the zoning, stop the lawsuits, and let people build the homes that are demanded. Either housing designed specifically for students or more apartments for the general public will achieve the goal of easing Berkeley’s housing crunch, but you have to build something.
And the state should help this situation along by changing the law. It’s done some of this already — one of the factors that has changed the political environment around those BART parking lots is that Berkeley is required by state law to add 9,000 new homes by 2031. But the state should also reform its environmental review law, the California Environmental Quality Act, so it stops being a general-purpose litigation tool to stop buildings people don’t like, and instead favors the construction of new housing at colleges, even where local officials are resistant to new construction.
After all, what could be more environmentally friendly than students living in Berkeley, which has a mild climate requiring little heating and cooling, and walking to school? If CEQA is an environmental quality law, it should make that easier to achieve, not harder.
That’s all for today. I’ll be back with the Mayonnaise Clinic tomorrow, and that podcast with Michael Singh on Thursday. See you then.
Very seriously,
Josh
You Know What's Cool? Dollars.
California without nimbyism is unironically the space utopia meme.
Good post today