Perry Mehrling on Trump's Echoes of the Nixon Shock

Tracy Alloway (0:00)

Hey there, Odd Lots listeners. The following episode was recorded May 2nd on the Princeton campus. Obviously, some things have changed since then, but I still think it's a very interesting and relevant conversation. So take a listen.

Perry Mehrling (0:17)

Bloomberg Audio Studios, podcasts, radio, news.

Tracy Alloway (0:33)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:37)

And I'm Joe Weisenthal.

Tracy Alloway (0:38)

Joe, do you feel like you are hearing the term exorbitant privilege a lot more than you used to?

Joe Weisenthal (0:46)

Yes.

Tracy Alloway (0:47)

Is that a loaded question? Maybe it is.

Joe Weisenthal (0:49)

Yes. You heard it a lot, you know, large budget deficits, right? Those were explainable, or people claimed that they were explainable because of something called exorbitant privilege. I've never totally known what that term means, but obviously, with some of the policy volatility in the United States, which is a very nice way of putting it, you hear it again, and whether it can last or whether it can be exhausted.

Tracy Alloway (1:10)

So, I had the same reaction to you. I started thinking about it, like, why are we hearing this over and over again? And then I was curious, when we first started using that term, and I think to your point about what exactly this means, we first started using it in the 1960s and sort of going into the early 1970s. Yes, and it was this idea that because we had built the financial system around the US dollar, vis-à-vis Bretton Woods, which we've talked about on the show, that the US was in this privileged position where it felt like people in other countries were basically subsidizing the US lifestyle.

Joe Weisenthal (1:46)

The constraints that typical countries might face in terms of spending don't, to the same extent seem to apply to the United States. In general, when it comes to talking about the dollar, I find that there's just a lot of sloppy definitions thrown around. People talk about dollar strength, but they're not always clear whether they're talking about dollar euro as an exchange rate, or dollar share of transactions, or dollar share in reserves, or the global reserve currency, or the global safe haven assets. Lots of fuzzy defined terms that unsatisfies me.

Tracy Alloway (2:17)

That's totally fair. I don't get as mad at fuzzy terms because we don't have all day. Like, do we have to define everything into like obsolescence? No. But anyway, speaking of someone who probably also doesn't like fuzzy terms, to your point, we have the perfect guest to talk about all of this. And I guess a big moment that keeps coming up on our show quite a few times over recent episodes and that is the Nixon shock.

Joe Weisenthal (2:40)

The Nixon shock, right. Because people look at the tariffs that Trump announced on April 2nd and you reach for historical analogies about the changing relationship between the US and the rest of the world in part via trade and part via currency. And so much to mine from the past.

Tracy Alloway (2:56)

So we have the perfect guest and we're actually at the perfect event to do this as well. So we're at Princeton University.

Joe Weisenthal (3:02)

That's right. We came down here. We did a podcast, which either if you're listening to this, either it's going to come out or you'll have already heard it, depending on the sequence. We're at a conference. Brendan Greeley invited us down, a conference on currencies and what is a currency and so forth.

Tracy Alloway (3:17)

How to write a biography of a currency.

Joe Weisenthal (3:19)

That's the name of the conference. Anyway, yes, a perfect guest at the perfect context to talk about the dollar.

Tracy Alloway (3:24)

Okay. We do have the perfect guest. We're going to be speaking with, he's a long time, Odd Lots guest.

Joe Weisenthal (3:29)

Yes.

Tracy Alloway (3:29)

Although he hasn't been on for a while.

Joe Weisenthal (3:31)

It's been a few years.

Tracy Alloway (3:31)

Yeah. We're speaking with Perry Mehrling, a professor of International Political Economy at the Pardee School of Global Studies over at Boston University. Perry, thank you for coming back on the show.

Perry Mehrling (3:41)

Happy to be here.

Joe Weisenthal (3:42)

Great to catch up with you in person.

Tracy Alloway (3:44)

Okay. I'm just going to jump in with the exorbitant privilege question because this keeps coming up. Is the US dollar's role in the global financial system a net positive or a net negative for the country?

Perry Mehrling (3:58)

Well, I guess it depends on who you ask.