Davos System

The number of globalist establishment talking heads tut-tutting over threats to the Liberal International Economic Order (LIEO) seem to be never ending: Xi, Biden, Summers, Lagarde, Khalid al-Falih, Kerry (actually half of those who came to mind are American, huh?). The LIEO involves a set of trade, currency, and institutional relationship that have helped to form the international system since World War II, most notably starting with Bretton Woods in 1944.

However, these so-called luminaries are beneficiaries of the LIEO system, they work in the system, they talk about the system, they may be considered leaders of the system, and they may even feel deeply about the system, but they don’t understand the system. Now what is meant by that? It means that they don’t understand that the LIEO because it differentially generates costs and benefits, the balance of which changes over time. Specifically, after WWII the United States was sitting pretty with pretty much all the world’s wealth. Great position, but one can’t expect that to last. A dynamic has developed over the past 70 years now in which American politicians travel the world dispensing advice and wealth to adoring and appreciative crowds, which is fun for the American politicians and the foreign crowds, but not so fund for the American taxpayers. So long as America had most of the world’s wealth, it all worked out; but now that it no longer does, the dynamic has come to an end. That is the problem.

The costs associated with American preeminent leadership—that is, hegemony—also include global environmental degradation that will eventually limit the combination of economic and population growth. Already large migration flows are resulting due to the inability of geographic regions to support the populations they generate. Traditionally LIEO counties accepted American hegemony so long as they were paid for their allegiance. For example, European countries became welfare states with the money they didn’t have to pay for defense because the Americans provided their defense. Once again, this can no longer be the case, which is especially problematic with a resurgent Russia. The dynamic of the LIEO adjusting to the reduced ability of the United States to provide wealth transfers, foreign aid, and defense to LIEO members will dominate international relations for years to come. Where it will end, nobody knows.

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