A New Version of the Resource Curse

This is indirectly related to public higher education funding, but it’s one of those ideas that just won’t stop scratching at my head to be let out. I’d love to hear from my wise and worldly readers about what you think of it.

On an episode of Marketplace last week, the journalist Brendan Greeley connected two dots that I had never thought to connect. This gets a bit wonky, but it’s worth the effort.

The first idea is the resource curse, a well-established concept in political science that holds that countries with an abundant resource often lag economically behind countries that don’t. In countries with those resources, power tends to concentrate among those who own the resource, rather than those who are the most productive. That has a downward effect on productivity over time. It also has a distorting effect on politics, as those who hold state power are accountable (at first) only to a few oligarchs. Oil is the textbook case; OPEC isn’t exactly rife with thriving democracies.

Countries that have managed to avoid the resource curse, such as Norway, typically developed strong democratic institutions before the resource was discovered.

The counterexample to the resource curse is a country like Japan. Japan has very limited natural resources but developed into an advanced industrial power quickly. Its politics aren’t perfect, but it’s generally considered a democracy.

So far, nothing new.

The second is that the U.S. dollar is the global reserve currency. Again, this is well established. Because it’s the currency most widely used for international trade, other countries find it useful to keep lots of dollars on hand. That enables the U.S. to run significant trade and budget deficits over decades without any major consequence. We can find buyers for dollars even when the dollars are used for transactions in which the U.S. plays no part. That’s a massive privilege. It enables us to flood the economy with dollars without worrying overly much about system collapse.

(Stephanie Kelton and the modern monetary theory school would argue that flooding the economy with dollars has historically been the most effective way to keep the economy humming along. I’m not sure how that works when the dollars move overseas.)

What stopped me in my tracks was when Greeley connected the dots by suggesting that the U.S. is falling victim to the resource curse, and that the resource in question isn’t oil or gold or coal. It’s dollars. Our status as the global reserve currency is the rough equivalent of a gusher that spews dollars.

Hmm.

If that’s true, then we’d expect to see those with catastrophically high fortunes having the most access to political power. (Check.) We’d expect to see a disconnect between productivity increases and wage increases. (Check.) We’d expect to see growing returns to capital and declining returns to labor. (Check.) We’d expect to see growing inequality and political conflict. (Check.) And we’d expect to see democratic institutions increasingly hollowed out. (Check.)

Hmm.

One might object that the idea of the resource curse originally referred to natural resources, which money is not. That’s true, but I suspect it’s irrelevant. The issue is the concentration of valuable resources in very few hands. Whether the resources in question are liquid carbon or fiat currency is not the issue. American dollars are needed around the world, but only America can produce them. We’re the Saudi Arabia of currency.

The resource curse is tough to escape. It can happen through the rapid devaluation of the resource, like what happened to the value of whale oil when kerosene lamps came along. Seen in that light—sorry—the sudden interest in cryptocurrency makes a kind of sense. If, say, Bitcoin or something similar were to displace the U.S. dollar as the global reserve currency, we’d be in a world of economic hurt. It’s enough to make one wonder about the goals of someone proposing a “strategic Bitcoin reserve.”

It can also happen through political violence. That’s often a case of the cure being worse than the disease.

Or it can happen through an assertion of democratic power. Norway has (so far) escaped the curse by subjecting the gains of its oil to public direction. It can be done. It requires a broad-based coalition of people committed to the rule of law, a norm of basic respect for all and an allergy to concentrated power. That feels like a tall order, and it is. It would direct some of the gusher toward public services and some toward the middle class, likely over the pained howls of the extremely wealthy. But I’d much rather live in that world than in one with addled billionaires changing public policy on a whim, or one in which most people’s savings and salaries are suddenly as worthless as whale oil.

Wise and worldly readers, I’d love to get your thoughts on this. I’m on Bluesky (@deandad.bsky.social), and you can reach me by email at deandad (at) gmail (dot) com. What do you think? Is the U.S. dollar our own version of the resource curse?