Macro Roundup

"... Despite what Lighthizer thinks, American factory jobs ain’t comin’ back — we’re headed back to the factory employment level of 1940 by 2024 if BLS forecasts are accurate. At the same, US manufacturing output will continue to rise to new record high levels due to increases in factory worker productivity. And that’s really the best of all possible outcomes — increasing factory output with fewer inputs (workers) — and achieves the ultimate economic goal, one that should be celebrated as the most desirable type of economic progress possible. As hard as this concept is to accept for most people, we should never forget that jobs are not a true economic benefit, but are rather a cost or price of production and ultimately of consumption. As Milton Friedman explained, the appropriate national objective is to have the fewest possible jobs in any given industry. That is, we want the greatest amount of output with the least amount of work (and fewest jobs) — think farming...."

Mark Perry, "Robert Lighthizer falls for the ‘jobism’ fallacy," American Enterprise Institute, May 12, 2020, https://www.aei.org/carpe-diem/robert-lighthizer-falls-for-the-jobism-fallacy/

Robert Lighthizer falls for the ‘jobism’ fallacy

In a 1992 Wall Street Journal op-ed (“Help the Economy: Destroy Some Jobs”) featured previously on CD here, here and here, economist Richard McKenzie criticized the misguided political obsession with what he referred to as “jobism” — the modern public-policy philosophy that mistakenly focuses on of the number of jobs as being the “key measure of a country’s economic success or failure.” It’s an excellent and overlooked view of the economy and labor market, and worth revisiting again today in response to US trade representative Robert Lighthizer, who concluded in his New York Times op-ed “The Era of Offshoring U.S. Jobs Is Over” that (bold added):

The era of reflexive offshoring is over, and with it the old overzealous emphasis on efficiency and the concomitant lack of concern for the jobs that were lost. After we have defeated this disease and reopened our economy, we cannot forget the hard lessons learned from this misguided experiment. Over the long run, the path to certainty and prosperity is the same for our companies as it is for our workers: Bring the jobs back to America.

To understand why “bringing lost jobs back to America” is misguided, here are some key excerpts of Professor McKenzie’s 1992 WSJ op-ed (emphasis added):

Economic progress and job destruction go hand in hand. Jobs are destroyed when a better mousetrap or computer program is developed or when work is made obsolete by more efficient or cheaper means of production. No country can afford an idle population. By the same token, no country can afford to treat jobs as so many ounces of gold that must be counted stored and protected from obsolescence.

Job creation (and protection) is a favored goal of our leaders because it appeals to existing political interests and is seductively misleading and counterproductive. It is also one of the easiest goals to achieve. To create or protect jobs, all Congress has to do is to obstruct progress and kill or retard opportunities for competitiveness and entrepreneurial spirit.

Job destruction is shunned as a national policy goal not only because it appears openly hard-hearted (which paradoxically it is not) but also because job destruction is so very difficult to achieve. Job destruction requires ingenuity, creativity and the courage to take a few risks that others will not take. It requires intensive study, hard work and detailed knowledge of the multitude of economic circumstances that can only be known by real people in the workaday hinterlands, not Washington. It requires, in short, the types of skills and understandings that are generally absent in political circles.

Over the past several years, politicians and pundits have called for a renewal of “American competitiveness.” They don’t seem to get the underlying message in the country’s failures in domestic and international markets: America had been destroying too few jobs.

Moreover, they have not yet realized that renewed competitiveness must be built on a commitment to progress, which means relying on people outside the political capitals.

Revitalized competitiveness mandates a willingness to replace much that is old with much that is new. It requires widespread (not wanton) job destruction. And it means that we must view, for example, the loss of several hundred thousands manufacturing jobs over the past two decades as a measure of the success of the industry in dramatically improving productivity and maintaining its world-class status.

When renowned Harvard Economist Joseph Schumpeter lauded the market is a system of “creative destruction” 80 years ago, he meant every word. Destruction — specifically job destruction - is pervasive to any economic system that is creative.

Bottom Line: The philosophy of “jobism” is fundamentally flawed, deficient and misguided because it treats jobs as an economic benefit rather than as an economic cost, and therefore any public policy based on “jobism” that attempts to create, save, or “bring back” US jobs (e.g., via tariffs, protectionism, presidential bullying, tax breaks/incentives, etc.) are destined to make the US economy worse off and weaker, not better off and stronger. To maximize economic growth, vitality, competitiveness, progress, innovation, and dynamism, and raise our standard of living to the highest level possible, we should embrace Schumpeterian creative destruction in all its forms including job destruction.

Economic Reality Check: Despite what Lighthizer thinks, American factory jobs ain’t comin’ back — we’re headed back to the factory employment level of 1940 by 2024 if BLS forecasts are accurate. At the same, US manufacturing output will continue to rise to new record high levels due to increases in factory worker productivity. And that’s really the best of all possible outcomes — increasing factory output with fewer inputs (workers) — and achieves the ultimate economic goal, one that should be celebrated as the most desirable type of economic progress possible. As hard as this concept is to accept for most people, we should never forget that jobs are not a true economic benefit, but are rather a cost or price of production and ultimately of consumption. As Milton Friedman explained, the appropriate national objective is to have the fewest possible jobs in any given industry. That is, we want the greatest amount of output with the least amount of work (and fewest jobs) — think farming.

Critique of Chetty's mobility data

“…It is often desired to rank different populations according to the value of some feature of each population. For example, it may be desired to rank neighborhoods according to some measure of intergenerational mobility or countries according to some measure of academic achievement. These rankings are invariably computed using estimates rather than the true values of these features. As a result, there may be considerable uncertainty concerning the rank of each population…we consider the problem of accounting for such uncertainty by constructing confidence sets for the rank of each population. We consider both the problem of constructing marginal confidence sets for the rank of a particular population as well as simultaneous confidence sets for the ranks of all populations. We show how to construct such confidence sets under weak assumptions. An important feature of all of our constructions is that they remain computationally feasible even when the number of populations is very large. We apply our theoretical results to re-examine the rankings of both neighborhoods in the United States in terms of intergenerational mobility and developed countries in terms of academic achievement. The conclusions about which countries do best and worst at reading, math, and science are fairly robust to accounting for uncertainty. By comparison, several celebrated findings about intergenerational mobility in the United states are not robust to taking uncertainty into account....In our analysis of data from the 2018 PISA test, we find that the conclusions about which developed countries do best and worst at reading, math, and science are fairly robust to accounting for uncertainty. Both the marginal and simultaneous confidence sets are relatively narrow, especially for the countries at the top and the bottom of the PISA league tables. Indeed, only a small set of countries cannot be ruled out as being among the top or bottom three in terms of scholastic performance. In our analysis of data from Chetty et al. (2014, 2018), we find that several celebrated findings about intergenerational mobility in the United States are not robust to taking uncertainty into account. The most robust findings are obtained if we restrict attention to the 50 most populous commuting zones or counties. In that case, both the marginal and joint confidence sets are relatively narrow, and few places cannot be ruled out as being among the top or bottom five. By comparison, conclusions about the geographic patterns of income mobility become less robust to uncertainty when we consider all commuting zones. While upward mobility appears to be low in the Southeast and high in the Great Plains, it is not clear that the West Coast and the Northeast have particularly high income mobility. Nor is it possible to make a strong case for a lot of within-region variation in income mobility. Furthermore, rankings of places by upward mobility become largely uninformative if one defines neighborhoods with even more granularity by considering all counties or if one uses movers across areas to address concerns about selection.
Magne Mogstad, Azeem M. Shaikh, Joseph P. Romano and Daniel Wilhelm, "Inference for Ranks with Applications to Mobility across Neighborhoods and Academic Achievement across Countries, "University Of Chicago, March 13, 2020, https://statistics.stanford.edu/sites/g/files/sbiybj6031/f/2020-03.pdf

:...These flows create a system in what is called dynamic equilibrium; if you push it away from current conditions, it pulls itself back. If atmospheric carbon-dioxide levels go up, the rate at which carbon dioxide dissolves into the “sinks” provided by the oceans and plants will also, all things being equal, go up. This reduces the surplus, restoring the status quo. Until the 19th century this dynamic equilibrium had kept atmospheric carbon-dioxide levels pretty stable for most of the 10,000 years since the end of the most recent ice age. The plants-and-food branch of the carbon cycle, though, is not quite perfect. Like the little bit left in the corner of the sardine can that you can’t get out, not all the organic matter made through photosynthesis gets used by creatures that respire. Some ends up buried in sediments instead. The amount of carbon which leaks out of the biosphere this way is tiny compared with the flow returned to the atmosphere. But the leak has gone unstopped for a very long time, and that has allowed the Earth’s crust to build up a significant store of organic matter. Now human industry’s use of the most concentrated and readily available deposits of these fossil fuels has returned to the carbon cycle in a couple of centuries a fair fraction of what was stashed away over hundreds of millions of years. It is the addition of this new source with no new sink that has knocked the cycle out of whack. The world’s seas and plants have tried their best to keep things in equilibrium, responding to rising levels of carbon dioxide by stashing more away in the biosphere and oceans. They suck up roughly half of all the extra carbon dioxide that industry puts into the atmosphere. But that is as much as they can do. And so the amount in the atmosphere grows. This intensification of the carbon cycle has side-effects. Plants fed with extra carbon dioxide tend to grow more, if circumstances allow. Current estimates suggest the global rate of photosynthesis is 3-7% higher than it was 30 years ago; satellite images show the Earth is getting greener. Such “carbon-dioxide fertilisation” has improved the yields of some crops, and the growth of some forests and other ecosystems. This is not enough to compensate for the damage climate change does to agriculture by higher temperatures and altered rainfall. But, on balance, it is hard to see it as much of a problem. The same cannot be said of the increased flow into the ocean sink. More dissolved carbon dioxide makes seawater more acidic. How bad this acidification will prove is open to debate. But the process will probably be very damaging to some ecosystems, including reefs already stressed by rising temperatures. Even if fossil-fuel use were not warming the climate, this acidification would in itself count as a frightening global change. The growth of the two carbon sinks is also, left to itself, unsustainable. Warm water absorbs less carbon dioxide than cold water. So as the oceans warm their ability to offset emissions weakens. As to the land sink, higher temperatures speed up microbial respiration, especially in soils, more reliably than higher carbon-dioxide levels speed up photosynthesis.... But the equilibrium thus restored will not be the pre-industrial one. The carbon-dioxide level will settle down not far short of whatever the 21st century’s peak level turns out to be. Which means that temperatures will stay high, too—with all that entails for crops, ice caps and the like...."

Economist Staff, "Humanity’s immense impact on Earth’s climate and carbon cycle,"The Economist, May 9, 2020, https://www.economist.com/schools-brief/2020/05/09/humanitys-immense-impact-on-earths-climate-and-carbon-cycle

Humanity’s immense impact on Earth’s climate and carbon cycle

It is all, in the end, a matter of chemistry. Carbon dioxide is a form of what chemists call inorganic carbon—a simple molecule that is pretty inert. Fossil fuels are made of carbon in its organic form—often complex molecules that are far from inert. Combustion turns these organic complexities into inorganic simplicities: carbon dioxide, water vapour and heat.

Of the energy that people pay for (as opposed to the energy that comes from burning firewood) 34% comes from burning oil, 27% from coal and 24% from gas. Nuclear power, hydroelectric power and all other renewables combined provide just 15%. The result of all this fossil fuel use is a modern industrial economy and an annual flow of 9.5bn tonnes of carbon out of the ground and into the atmosphere.

Through its effects on the plants, animals and microbes which make up the biosphere, on the climate and on the oceans, this industrial flow of carbon links the Earth’s distant geological past to its future over millennia to come. It is the single clearest piece of evidence for the idea that humans now have a power over the Earth as great as the forces of nature, and that their use of this power has opened up a new geological epoch that some scientists call the Anthropocene.

To appreciate the importance of this industrial carbon flow, you have to understand the carbon cycle in which it sits. At first, this context seems reassuring. Almost all microbes, and all animals, get the energy that they need for life from breaking up food made of organic molecules. The flame-free, internalised form of combustion by which they do so, which biologists call respiration, produces much more carbon dioxide than industry does.

But respiration has a counterpart: photosynthesis, through which plants, algae and some bacteria use sunlight to turn inorganic carbon back into organic molecules. These new molecules are the raw material from which almost all living things on Earth are made; the sunlight stored within them is the source of all the energy that is released through respiration when those living things are eaten.

These flows create a system in what is called dynamic equilibrium; if you push it away from current conditions, it pulls itself back. If atmospheric carbon-dioxide levels go up, the rate at which carbon dioxide dissolves into the “sinks” provided by the oceans and plants will also, all things being equal, go up. This reduces the surplus, restoring the status quo. Until the 19th century this dynamic equilibrium had kept atmospheric carbon-dioxide levels pretty stable for most of the 10,000 years since the end of the most recent ice age.

The plants-and-food branch of the carbon cycle, though, is not quite perfect. Like the little bit left in the corner of the sardine can that you can’t get out, not all the organic matter made through photosynthesis gets used by creatures that respire. Some ends up buried in sediments instead.

The amount of carbon which leaks out of the biosphere this way is tiny compared with the flow returned to the atmosphere. But the leak has gone unstopped for a very long time, and that has allowed the Earth’s crust to build up a significant store of organic matter. Now human industry’s use of the most concentrated and readily available deposits of these fossil fuels has returned to the carbon cycle in a couple of centuries a fair fraction of what was stashed away over hundreds of millions of years. It is the addition of this new source with no new sink that has knocked the cycle out of whack.

The world’s seas and plants have tried their best to keep things in equilibrium, responding to rising levels of carbon dioxide by stashing more away in the biosphere and oceans. They suck up roughly half of all the extra carbon dioxide that industry puts into the atmosphere. But that is as much as they can do. And so the amount in the atmosphere grows.

This intensification of the carbon cycle has side-effects. Plants fed with extra carbon dioxide tend to grow more, if circumstances allow. Current estimates suggest the global rate of photosynthesis is 3-7% higher than it was 30 years ago; satellite images show the Earth is getting greener. Such “carbon-dioxide fertilisation” has improved the yields of some crops, and the growth of some forests and other ecosystems. This is not enough to compensate for the damage climate change does to agriculture by higher temperatures and altered rainfall. But, on balance, it is hard to see it as much of a problem.

The same cannot be said of the increased flow into the ocean sink. More dissolved carbon dioxide makes seawater more acidic. How bad this acidification will prove is open to debate. But the process will probably be very damaging to some ecosystems, including reefs already stressed by rising temperatures. Even if fossil-fuel use were not warming the climate, this acidification would in itself count as a frightening global change.

The growth of the two carbon sinks is also, left to itself, unsustainable. Warm water absorbs less carbon dioxide than cold water. So as the oceans warm their ability to offset emissions weakens. As to the land sink, higher temperatures speed up microbial respiration, especially in soils, more reliably than higher carbon-dioxide levels speed up photosynthesis.

The Paris agreement of 2015 calls for increases to the atmosphere’s carbon-dioxide level caused by fossil fuels to end by the second half of this century. Even if that deadline is not met, some mixture of policy, catastrophe and/or resource depletion will eventually bring the rise to an end. The flows of carbon between the atmosphere, oceans and biosphere will then come back into balance.

But the equilibrium thus restored will not be the pre-industrial one. The carbon-dioxide level will settle down not far short of whatever the 21st century’s peak level turns out to be. Which means that temperatures will stay high, too—with all that entails for crops, ice caps and the like.

This plateau will eventually subside. The erosion of the Earth’s crust exposes silicate minerals that react with carbon dioxide, eventually producing solid carbonate minerals from which the carbon cannot readily escape. But this “chemical weathering” works on a much longer timescale than the sinks. Geochemists think it would take 1,000 years for a post-fossil-fuel carbon-dioxide level of around 550 parts per million to be brought back below today’s 415ppm towards a mid-20th century level of 315ppm.

Going backwards

What, though, if the Anthropocene transitioned from a past dominated by anthropogenic carbon sources to a future characterised by anthropogenic sinks? There are two reasons why this might be appealing. One is that some fossil-fuel emissions may be very hard to eliminate from the economy. If they could be counterbalanced by “negative emissions” that take carbon dioxide out of the atmosphere at a similar rate, the Paris goal of stopping any further increase to the carbon-dioxide level would be far easier to meet.

The second attraction of the idea stems from the other Paris goal, that of keeping the global temperature increase, compared to pre-industrial times, well below 2°C. Doing this simply by reducing emissions would require much steeper cuts than any seen to date, and they would have to continue for decades. If the world developed negative-emission technologies, more gentle emissions cuts in the near future could be made up for by negative emissions later on, which would bring the carbon-dioxide level back down from its excessive peak.

Some forms of negative emission look fairly benign: farming in ways that make the soil richer in organic carbon; restoring degraded forests and planting new ones. More ambitious is the idea of harnessing photosynthesis to industry; growing plantation crops, burning them to generate electricity and sequestering the carbon dioxide given off underground, rather than letting it out into the atmosphere, an approach called bioenergy with carbon capture and storage, or beccs.

Then there is the idea of stripping carbon dioxide out of the atmosphere with renewably powered open-air chemical engineering: “direct air capture”, or dac. And there is also the possibility of helping along the chemical weathering process by grinding up silicate rocks into fine dusts, thus speeding up the reactions that store carbon dioxide away in stable minerals.

There are two big problems with these ideas. One is the scale at which they need to operate to make a difference. Imagine that in 2060 the world had, through a vast effort, renounced 90% of its fossil-fuel use. To offset the remaining recalcitrant 10% would still require a sink capable of soaking up about 1bn tonnes of carbon a year. The industrial systems for taking carbon dioxide from the air currently on the drawing board operate at barely a thousandth of that scale. Creating such a flow through photosynthesis would require a plantation about the size of Mexico.

This leads to the second problem. Imaginary backstops are dangerous. If countries build negative emissions into their thinking, they will cut emissions more slowly on the basis that any overshoot can be mopped up later. But they will not necessarily undertake the huge efforts required to make those negative emissions a reality. The Anthropocene fact that humans are now integral to the processes of the planet does not mean that they can change those processes without great effort—let alone just through wishful thinking.

Matthieu Favas, "Geopolitics and technology threaten America’s financial dominance,"The Economist, May 7, 2020, https://www.economist.com/special-report/2020/05/07/geopolitics-and-technology-threaten-americas-financial-dominance

Geopolitics and technology threaten America’s financial dominance

In January an American former general spoke at a gathering of senior global financiers. Used to thinking about strategy and hard power, he warned that America is dealing poorly with its most complex array of threats since the cold war—from Iran and Russia to the novel coronavirus. But he also spoke of a much less visible threat: how, through its aggressive use of economic sanctions, America is misusing its clout as the predominant financial power, thereby pushing allies and foes alike towards building a separate financial architecture. “I’m not sure of the decider-in-chief’s appreciation for how the financial system works,” he said. That a former general would be thinking about the global financial system says much about how significant that danger has become.

The system is made up of the institutions, currencies and payment tools that dictate how the invisible liquidity feeding the real economy flows around the world. America has been its pulsating centre since the second world war. Now, though, repeated missteps, and China’s growing pull, have begun to tear at the seams. Many assume the status quo is too entrenched to be challenged, but that is no longer the case. A separate financial realm is forming in the emerging world, with different pillars and a new master.

The hegemon-in-waiting financially, as geopolitically, is China, whose rapid rise is tugging away at the system. The country today accounts for 15.5% of global gdp, up from 3.6% in 2000. Its economy, the world’s second-largest, is deeply woven within the fabric of global trade. Yet it weighs little in the financial system. China sees correcting this asymmetry as crucial to gaining great-power status. “The dollar dominance is being hollowed out from underneath,” says Tom Keatinge of rusi, a think-tank. The covid-19 crisis threatens to give centrifugal forces a decisive boost.

The system’s first pillar was laid in 1944 with the founding of the World Bank, the imf and the global monetary order at Bretton Woods, New Hampshire. Having supplied weapons to allies throughout the war, America owned most of the planet’s gold, in which it priced its wares. Much of Europe and Asia lay in ruins. The interwar system of floating exchange rates had proved dysfunctional. It was thus decided that all currencies would be linked to the dollar, and the dollar tied to gold. That made the greenback the world’s new reserve currency. Two decades later the rising economic heft of Japan and Germany, coupled with vast money-printing by America during the Vietnam war, made the pegs untenable. The system disintegrated, but the “dollar standard” survived.

In the 1970s America also gained sway over the plumbing system that underpins global payments. American banks, then barred from operating outside state borders, teamed up to develop interbank messaging systems and nationwide atm networks. Lenders also clubbed together to form credit-card “schemes”—associations setting the rules and systems through which members settle payments in plastic. Those worlds merged when two major card networks (soon rechristened Visa and MasterCard) bought the two largest atm firms to expand overseas. By allowing individuals to shop anywhere, cards and cash machines became the dominant infrastructure for moving small sums of money across the world.

A revolution soon ensued in large-value transfers. In the old “telex” system, a cross-border payment between banks required the exchange of a dozen messages in free text, a process prone to human error. In 1973 a group of banks joined to create swift, an automated messaging service assigning a unique code to every bank branch. It became the lingua franca for wholesale payments.

New technology boosted America’s banks, which became better equipped to follow clients overseas, and its capital markets, helped by the digitalisation of paper assets. Having rebuilt, savings-rich Japan and Germany parked their dollars in treasury bonds. A housing boom spawned asset-backed securities. Between 1980 and 2003, America’s stock of securities grew from 105% to three times gdp, forming the international springboard for its investment banks. After a regulatory big bang in the 1990s, they merged with commercial banks. By 2008, 35 firms had become the big four—Citigroup, Wells Fargo, JPMorgan Chase and Bank of America—the last prong of America’s financial dominance.

America’s pull within the system remains huge. When disasters strike, the dollar surges. It is still the world’s safest store of value and its chief means of exchange. That makes the institution that mints it the metronome of global markets. In 2008 America’s Federal Reserve avoided a general cash crunch worldwide by offering “swap lines” to rich-world central banks, allowing them to borrow dollars against their own currencies. When panic gripped markets again this March, the Fed expanded the offer to some emerging countries. In April it widened it further, allowing most central banks and international institutions to exchange their American debt securities against greenbacks, thus stalling the stampede.

The world’s financial plumbing remains under America’s thumb, too. swift’s 11,000 members across the world ping each other 30m times daily. Most international transactions they make are ultimately routed through New York by American “correspondent” banks to chips, a clearing house that settles $1.5trn of payments a day. Visa and Mastercard process two-thirds of card payments globally, according to Nilson Report, a data firm. American banks capture 52% of the world’s investment-banking fees.

All change

Three things are driving change. First, the “push” factor of geopolitics. America’s centrality allows it to cripple rivals by denying them access to the world’s liquidity supply. Yet until recently it refrained from doing so. The financial system was seen as neutral infrastructure for promoting trade and prosperity. The first cracks appeared after 2001, when America started using it to choke funding for terrorism. Organised crime and nuclear proliferators soon joined the list. It persuaded allies by presenting such groups as threats to international security and the integrity of the financial system, says Juan Zarate, a former adviser to George W. Bush who designed the original programme.

Sanctions are now increasingly used in conjunction with other restrictions to throttle China. The Department of Commerce maintains a jumble of lists of entities with which other firms cannot deal. One of them, the “unverified” list, bans exports to companies about which the ministry has questions. It has grown from 51 names in 2016 to 159 in March. Chinese entities make up two-thirds of additions. Other departments are also racing to be seen as the toughest on China.

In the short run the opaque nature of the whole system maximises the impact of sanctions. But it also creates a strong incentive for others to seek workarounds, and technology is increasingly providing the tools needed to build them.

Such advances result from the second driver of the new trends: the “pull” factor of attempts to meet the needs in emerging economies. Tech firms have sights on the world’s 2.3bn people with little access to financial services. Helped by plentiful capital and permissive rules, they have created cheap-to-run systems they are starting to export. Some also aim to enable commerce in regions where credit cards are rare but mobile phones common. Propped up by their huge home market, China’s “superapps” run ecosystems in which users spend their way without using actual money.

It helps that many emerging markets, not just China, are keen on a rebalancing. Most borrow abroad, and price their exports, in dollars. America was once the biggest buyer. Whenever the dollar rose, demand would follow, making up for costlier debt. But a stronger dollar now means China, their chief trading partner, can afford less stuff. So demand falls just when repaying loans gets dearer. And the stakes have risen: emerging markets’ stock of dollar debt has doubled since 2010, to $3.8trn.

The third factor helping insurgents is covid-19, which could lead to a tipping-point. Already hobbled by rising tariffs, global trade is likely to fragment further. As disruption far away causes local shortages, governments want to shorten supply chains. That will give regional powers like China more room to write their own rules. The economic fallout in America—not least the fiscal impact of its $2.7trn stimulus measures—could dent confidence in its ability to repay debt, which underpins its bonds and currency.

Most important, the crisis harms other countries’ trust in America’s fitness to lead. It ignored early warnings and botched its initial response. China is guilty of worse—its own missteps helped export covid-19 in the first place. Yet it managed to curb cases fast and is now broadcasting a narrative of domestic competence. America’s ability to guarantee global prosperity is the glue that holds the financial order together. With its legitimacy badly hit, renewed assaults on the system seem inevitable. On the front line are the dollar-system’s foot soldiers, the banks.