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In the late 1960s, the Dutch economy changed dramatically in a relatively short period of time after the discovery of natural gas deposits in the North Sea. In 1964, the country exported very little gas. Ten years later, they exported 74 million tonnes of oil.
As Michael Elmann of the University of Amsterdam showed in the late 1970s, gas exports increased the value of guilders, and windfall taxes allowed Dutch people to increase social spending. This squeezed manufacturers outside the oil sector at both ends. Costs have risen at home, and exchange rates have made exports difficult.
In the Netherlands, the obvious advantage – a sudden boom in natural gas exports – has turned into a disadvantage: a blow to domestic manufacturing. By 1975, production in the Dutch clothing industry had dropped by 15%. For footwear, it has decreased by more than 50%.
We are now calling this phenomenon “Dutch disease.” It is a useful way to analyze the countries in which products are exported. Because it explains why they struggle to turn exports into a diverse and productive economy of their homes.
Currently, we consider diseases in the Netherlands to be a developing world phenomenon. Because developing countries tend to be diverse and productive in manufacturing sectors with strong value. However, adopting the US over the past 25 years can help us consider the current account deficit as the strongest and most permanent export.
Until this year, people all over the world have consistently wanted dollar-denominated assets. And Americans are happy to give people all over the world what they wanted.
Americans are opportunistically debating each other beyond their debt levels. Democrats tend to be better at finding ways to pay for the program. But broadly, paying attention to what Americans are doing, not what they say, the US has discovered debt as a natural resource around 2000 and has since exported it.
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The United States has Dutch disease. Its exports are in dollars. It is about stopping treating America as if it were magical and making sure it is not affected by the same forces as other countries.
The dollar has lost about 8% of its value in the last six months, updating the old debate on whether holding global reserve currency is an exorbitant privilege or an exorbitant burden. The simplest answer, of course, was a privilege for the US to issue $3.6 billion in debt. However, some of the literature on Dutch disease helps us understand how privilege can be a burden.
In the 1990s, development economists began to record low growth in countries with strong commodity exports. In 1999, Aaron Tornell, now at UCLA, and Philip Lane, now the chief economist of the European Central Bank, provided a theoretical framework to explain what happened. They argued that exporting goods changed the budgeting process. After the wind is blown away, the powerful group fights to get new spending.
If the country has strong institutions and social solidarity, this grab for this expenditure fails. In weak institutions, it succeeds. Instead of going to something that will increase productivity, such as roads and schools, new spending goes to strong groups as an unproductive gift.
Tornell and Lane called this the “Volatier effect.” They applied it to data in Nigeria, Venezuela and Mexico, but if you accept that the US is not magic, these questions can also be easily asked. How greedy is that powerful group? How strong is that institution? The answers for the order are as follows: It’s not as strong as we thought it would be.
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Voracity Effect helps explain the boldness of Gobmack in Donald Trump’s so-called “Big Beautiful” bill. In the past, Republicans have tried to offer tax cuts for the rich as a policy of releasing productive investments. They even tried to model the idea as a process known as “dynamic scoring.”
But even the dynamic costs of the BBB seemed embarrassing. The party shrugged. The wealthy were greedy. The bill’s top priority logic, up to its name, is as follows: I’m doing this because I can. That’s at least honest. The US can rent, and the most powerful group will take what they can.
American institutions do not reach this challenge, and they are not until they suddenly confront the theoretical framework that the United States has had to think about since at least 2000.
