An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
What's really amusing is that under pure floating rate theory reserves are *irrelevant*.
In reality they are useful to allow needed real activity to complete in any sort of liquidity crunch.
But if you think you need them for any other purpose then likely you are doing banking wrong.
Don't let your banks lend your money into existence to complete *financial* transactions and let entities in your currency area who borrow in a foreign currency go bust.
They also like the "strong dollar" like we are having right now...
They constantly play a "mine is bigger than yours" type thing....
They want their currency "strong", they want a "balanced budget", they want a trade surplus, etc... this makes them look "strong".... all these people in the policy area are damaged goods and pathetic human beings and lack a form of basic confidence...
They look at the NIA numbers ex post and these accounting results effect their mental dispositions... it MAY motivate them to action as far as what they think they should do to "help" the situation...
I would bet if the truth could be known, that nazi spawn (human damaged goods) guy Schable is probably feeling pretty good about Germany's trade balance right now, likes Germany's fiscal result, but is pissed that the EUR is in the toilet ... the current EUR/USD is like a thorn to him right now, really sticking in his craw..
Probably going all around thinking "if we were still on the DM then our currency would be strong too...the rest of EZ is bringing us down..."
I just posted links to a post by Michael Pettis and another by F. William Engdahl on this. The Engdahl post shows how people really do believe this. The Pettis post shows how most people, including many economists don't understand this because they don't understand the underlying accounting.
You made some good points, but would love your views on a few others.
In some past videos, you made the point, as have other MMTers, that the US will of course eventually lose its reserve status. As you point out, US foreign policy regarding Russia, China, Iran... the list is too long... will provoke a reaction such that the US dollar will lose its reserve status.
I have a couple of questions, and I welcome any comments on this.
1. I've heard MMTers say that whether the US dollar is or isn't the reserve currency is irrelevant.
Are there no advantages at all to be had in the world of modern money from issuing the reserve currency? Or is this just more outdated pre-modern money thinking? My sense is that without the reserve currency, US power will start to unravel.
2. The reserve status apparently is divorced from the US petrodollar strategy, and in any case the petrodollar is nothing but a "numeraire" and means nothing.
Which raises the question, why does the US go to such lengths to ensure oil is priced in dollars? Among many eminent economists, Michael Hudson, for instance, argues that the reserve status is linked to the petrodollar and things will not be pretty without it.
Is this just another case of everyone in high office not understanding how modern money works? Or is something else going on?
3. Perhaps I have misunderstood, but I assumed a reserve currency could only be issued by running a deficit. How else would the rest of the world get the dollars if not through US deficit spending?
So how was the US capable of issuing the reserve currency after the second world war when it was running surpluses? Or is this a case of being able to run a surplus but not for long? Somewhat like being able to run a surplus but eventually causing a recession?
@John and the rest, my take is that reserve status benefits Wall Street because everyone in the world wants to hold dollars and trade in dollars. The government is in Wall Street's pocket, hence the government wants to maintain the reserve status.
Reserve status also gives the US government leverage over other countries. "Do as we say or we'll crash your economy."
If the dollar lost reserve status and if the Sauds stopped accepting dollars for oil, Wall Street might loose some business (boo hoo hoo), the price of oil might go up, but American manufacturing might benefit. I'm not seeing it as the end of the world, just as it was not the end of the world when the pound lost reserve status.
"Reserve currency" is an artifact of the gold standard that no longer exists. There are no "reserves." It is no longer correct to call settlement balances "reserves."
We should just call things what they are — settlement balances in the payment system and savings balances. The former exist only in demand type deposits at a central bank and the latter only as savings-type accounts at a central bank.
So=called "reserve currencies" are currencies that trading partners are willing to save in, or at least enough are willing to save in them to provide a highly liquid and stable market vehicle.
Those savings get passed around with great flexibility in the market for US Treasuries for instance. Yields shift with changing saving desire. when saving desire increases in a particular vehicle, that is, purchasers desire to hold that vehicle, the price is bid up and the yield falls, and vice versa.
When global trade is more or less in balance, then saving desire is low, whereas when there are large net exporter and correspondingly large net importers then saving desire is high. These conditions have different effects on economies, .e.g, employment, prices, etc.
A country that issues a "reserve currency" as a global saving vehicle in a liberal global economy doesn't get a rate advantage because it issues a "reserve currency" owing to an agreement or treaty . It gets a low rate because the world desires to save using that currency as a globally desirable saving vehicle having high liquidity and stability.
Holders of the currency have an option. They can prefer demand accounts that provide less interest or savings accounts that provide higher interest but bear interest rate risk.
If the world could just get its collective mind around what's actually going on with the monetary system, most of these issues would just be revealed as pseudo-problems and they would disappear into thin air on that recognition.
In principal, this is a self-adjusting system. Where it is not is the result of asymmetries that can be addressed specifically.
Unfortunately, "free trade" agreements assume away asymmetries to the advantage of the haves and disadvantage of the have-nots. Emerging nations may need handicaps to participate competitively in a liberal world economy.
Reserve status also gives the US government leverage over other countries.
Use of political power economically (economic warfare) is antithetical to a liberal global economy. The US is undermining its advocacy of liberalism by undertaking such a transparently political strategy, just as naked aggression undermines the liberal ideal militarily.
The US is acting in a contradictory way and sending mixed messages. This is counterproductive and undermining US soft power, as well as liberal enterprise the US promotes as the ideal.
"The US is undermining its advocacy of liberalism by undertaking such a transparently political strategy, just as naked aggression undermines the liberal ideal militarily."
Presumably, you're being sarcastic? The world's so crazy that I can't tell anymore. If the US is liberalism incarnate, give me conservatism, whatever that is.
"The US is acting in a contradictory way and sending mixed messages. This is counterproductive and undermining US soft power, as well as liberal enterprise the US promotes as the ideal."
More sarcasm, right? Not contradictory at all. Economic and financial leverage is soft power. Tomahawk cruise missiles, daisy cutters, napalm and depleted uranium landing on peasants is the hard power.
Dan's comments ring true. The reserve issuer can crush others when needed, and Wall Street benefits. And with financial companies accounting for 40% of all corporate profits, that's reason enough.
As for the US-backed depraved Al-Saud family, they're recycling the dollars back into the US. If they spent the money on Russian Migs or Eurofighters or even Volvos instead of F-15s, we might wake up to Obama informing us that Saudi Arabia is at the heart of jihadi terrorism (true but not the reason he would say it).
The UK pound lost its reserve status, yes. Maybe it's a bit of a stretch to say that the UK economy went downhill because of this loss, but it surely contributed to it.
John, liberalism entails free markets, free trade and free capital flows in addition to free elections and Governments are not supposed to intervene in economics, since that imbalances the system.
Use of political power economically is economic warfare. Ii is a form of aggression in the context of liberalism. It is designed to make life so difficult for the targeted population that they will force the government to adopt policies that the US favors in order to lift sanctions, or bring about regime change in order to install a US favorable government.
Clausewitz, On War: "We see, therefore, that war is not merely an act of policy but a true political instrument, a continuation of political intercourse carried on with other means. What remains peculiar to war is simply the peculiar nature of its means." Chapter 1, Section 24, in the Princeton University Press translation (1976)
Economic and financial leverage is soft power. Tomahawk cruise missiles, daisy cutters, napalm and depleted uranium landing on peasants is the hard power.
The basis of US soft power has until recently been the liberal ideals of the founding documents that translated Enlightenment social and politic philosophy into political reality.
Ask the people in sanctioned countries whether the US is using hard power or soft power. Sanctions are not simply inconveniences that are annoying. They are designed to take down an economy and create massive social unrest sufficient to spur the population to force the government to change policy or else change the regime to one that will.
"The basis of US soft power has until recently been the liberal ideals of the founding documents that translated Enlightenment social and politic philosophy into political reality."
Until recently? When has that ever been the case? Name one administration! No US administration has ever lived up to the noble ideals of its founding documents.
No country believes in free markets, free trade and free capital flows and free elections. Certainly no rich country. Although the richest countries demand this of the poorest countries, they do the polar opposite. It's motherhood and apple pie propaganda.
Holy mackerel, the US doesn't live up to its alleged ideals at home! Every US administration has been bloody awful, with some worse that others. It's a public relations exercise to drone on about liberal ideals.
In fact, I can't think of a country that hasn't appealed to those very values it is trying to snuff out. What else can they say? Looking teary-eyed and waxing lyrical about values is more impressive than stating the truth: "We're a bunch of imperialist maniacs."
Don't think I'm picking on the US (and it goes without saying I mean US administrations, which have all been disgraceful). My own country, the UK, is not only disgraceful but quite rightly considered a joke by every other country in the world.
"Ask the people in sanctioned countries whether the US is using hard power or soft power. Sanctions are not simply inconveniences that are annoying. They are designed to take down an economy and create massive social unrest sufficient to spur the population to force the government to change policy or else change the regime to one that will."
Quite right. I use the term in the way the US uses the term. Soft power, according to every US government I can remember, means everything other than military force.
It doesn't mean persuasion. If the US is incapable of persuasion, which is almost always the case, it uses soft power (e.g. crushing sanctions), and when that doesn't work it'll bomb the recalcitrant country back to the stone age, with its UK poodle humping the US leg all the way.
John, this is the line that the US ls selling. Yes, selling. The vendors are NGOs that are arms of the deep state that are paid to convince unfree peoples that their governments are repressive and need to be changed so that they too can live the Western lifestyle. They don't explain to them, however, that the Western lifestyle is based on debt servitude. But most of the population of the free world hasn't figured that out yet either.
Soft power is a concept developed by Joseph Nye of Harvard University to describe the ability to attract and co-opt rather than coerce, use force or give money as a means of persuasion. Recently, the term has also been used in changing and influencing social and public opinion through relatively less transparent channels and lobbying through powerful political and non-political organizations. In 2012, Nye explained that with soft power, "the best propaganda is not propaganda", further explaining that during the Information Age, "credibility is the scarcest resource".[1]
Nye coined the term in a 1990 book, Bound to Lead: The Changing Nature of American Power. He further developed the concept in his 2004 book, Soft Power: The Means to Success in World Politics. The term is now widely used in international affairs by analysts and statesmen. For example, in 2007, CPC General Secretary Hu Jintao told the 17th Communist Party Congress that China needed to increase its soft power, and the US Secretary of Defense Robert Gates spoke of the need to enhance American soft power by "a dramatic increase in spending on the civilian instruments of national security – diplomacy, strategic communications, foreign assistance, civic action and economic reconstruction and development." In 2010 Annette Lu, former vice-leader of the Taiwan (Republic of China), visited South Korea and advocated the ROC's use of soft power as a model for the resolution of international conflicts.[2] General Wesley Clark, when discussing soft power, commented that "it gave us an influence far beyond the hard edge of traditional balance-of-power politics."[3]
According to the 2014 Monocle Soft Power Survey, the USA currently hold the top spot in soft power, being followed by Germany in second place.[4] The top ten is completed by the UK, Japan, France, Switzerland, Australia, Sweden, Denmark, and Canada.
In essence, soft power is getting others to adopt one's preferred policy out of the desire to emulate rather than being forced. The US has been #1 in soft power chiefly because freedom (liberalism).
But I am unconvinced by Nye's description that peaceful emulation is what is being sold. Forceful emulation, yes. Corrupting foreign elites is nothing new. It is perhaps the third oldest profession.
Nye's Harvard professorial sensibilities would have us believe that something along these lines happens:
"Wouldn't you rather be like us," some monstrous secretary of state, will blabber.
"Not really, I'm afraid. We'd rather be like us, only richer," the opposite number from a poor country will respond.
"Oh, alright then. Sounds reasonable enough," the secretary of state replies.
When in fact the last line would be something along the lines of:
"Oh, and how do you propose to do that, you dumb shit? No access to lucrative markets. No access to the kind of education and technology that will lift you out of your pathetic condition. But all is up for grabs once you privatise, liberalise and deregulate your economy. If you play along, there's a nice commission in it for you. The former prime minister of Pakistan was known as 'Mr Ten Percent'. If you don't play along, we'll turn your shithole of a country into a hellhole. And as for you personally, do the names Mossadegh, Lumumba and Allende mean anything to you?"
PS. Tom, I say all this as a very liberal social democrat! My country's political parties, foreign policy, economic and social policies, etc make me sick to my stomach. If I lived in the US, I'd have opened my veins by now. I have nothing but admiration for all the progressives and liberals in the US. What a tough job!
American soft power was the real thing post WWII when the world looked up to the US as the beacon of freedom and the savior of the free world.
Then Truman instituted the CIA as a clandestine service whose name suggested that its purpose was chiefly intelligence. But unlike most other Intelligence agencies globally, the CIA and associated US clandestine operations like the DIA were operationally oriented as well as analytically. This was the beginning of the US deep state that provided continuity to foreign and military policy through the State Department and Pentagon as the US counterpart of the Russian nomenklatura. While the nomenklatura was drawn from the Communist Party, the US top bureaucracy was drawn from the Establishment that represents the interests of the ruling elite in government.
There are two branches of the CIA presently, operations and intelligence, that the current director wants to merge since the CIA is now an operational arm of hybrid warfare rather than primarily involved in intelligence gathering and analysis.
Various NGOs (AID, NED, were developed as arms of the CIA for the purpose of not only propagandizing in foreign countries but also funding and directing fifth columns in targeted countries. Some of the funding is back through the clandestine agencies and some directly through congressional appropriation to create an apparent distinction between the NGO and the clandestine agencies.
Over time, it began to become more and more obvious that the US pushing of its "soft power" in this way was really clandestine operations under the aegis of the operational arm of the clandestine service. This was not extension of soft power as much as black operations.
I live in England (land of royalist simpletons). We have a general election in just over three weeks. It's all too horrible for words. I can't think of one decent policy that any of the parties have proposed. Which reminds me to look into whether the Natural Law Party is still selling galactic peace. Their proposals for, er, galactic peace all seemed to be centred on the practice of yogic flying (!), which at least had the merit of originality: https://www.youtube.com/watch?v=438UKM1Av1g
The centre has moved so far to the right, that more often than not the Labour Party (a neoconservative warmongering cult which pretends to represent working people), is more rightwing than the Tories, especially if it means war, and their bloodlust is insatiable.
Just when I thought things couldn't get any worse, things just got worse. Hillary Clinton just announced her candidacy for president. I was hoping she would forget or something.
Unless the Democrats can get a better candidate (but it's her turn, I hear so-called progressives wail), which can't be too difficult, I think it is incumbent on everybody in all fifty states in 2016 to vote for someone like Jeb Bush or Chris Christie. They'd be far less worse than Hillary Clinton, who seems to me is itching to start world war three, and possibly four if she gets a second term.
Even that Bob Roberts-style gormless religious maniac Mike Huckabee would be a better president than Hillary Clinton. He'd be a lot of fun too.
Anyway, I can't wait for the Mitchell and Wray textbook to come out. Hopefully, it'll clear up all these little questions about things like the advantages of a reserve currency.
18 comments:
Well said, Mike.
Tho I wonder if our powers that be BELIEVE that reserve status is important and strive to maintain it?
What's really amusing is that under pure floating rate theory reserves are *irrelevant*.
In reality they are useful to allow needed real activity to complete in any sort of liquidity crunch.
But if you think you need them for any other purpose then likely you are doing banking wrong.
Don't let your banks lend your money into existence to complete *financial* transactions and let entities in your currency area who borrow in a foreign currency go bust.
Dan imo yes they do...
They also like the "strong dollar" like we are having right now...
They constantly play a "mine is bigger than yours" type thing....
They want their currency "strong", they want a "balanced budget", they want a trade surplus, etc... this makes them look "strong".... all these people in the policy area are damaged goods and pathetic human beings and lack a form of basic confidence...
They look at the NIA numbers ex post and these accounting results effect their mental dispositions... it MAY motivate them to action as far as what they think they should do to "help" the situation...
I would bet if the truth could be known, that nazi spawn (human damaged goods) guy Schable is probably feeling pretty good about Germany's trade balance right now, likes Germany's fiscal result, but is pissed that the EUR is in the toilet ... the current EUR/USD is like a thorn to him right now, really sticking in his craw..
Probably going all around thinking "if we were still on the DM then our currency would be strong too...the rest of EZ is bringing us down..."
rsp
https://www.treasury.gov/ticdata/Publish/mfh.txt
http://www.treasury.gov/resource-center/data-chart-center/IR-Position/Pages/03272015.aspx
I just posted links to a post by Michael Pettis and another by F. William Engdahl on this. The Engdahl post shows how people really do believe this. The Pettis post shows how most people, including many economists don't understand this because they don't understand the underlying accounting.
Mike,
You made some good points, but would love your views on a few others.
In some past videos, you made the point, as have other MMTers, that the US will of course eventually lose its reserve status. As you point out, US foreign policy regarding Russia, China, Iran... the list is too long... will provoke a reaction such that the US dollar will lose its reserve status.
I have a couple of questions, and I welcome any comments on this.
1. I've heard MMTers say that whether the US dollar is or isn't the reserve currency is irrelevant.
Are there no advantages at all to be had in the world of modern money from issuing the reserve currency? Or is this just more outdated pre-modern money thinking? My sense is that without the reserve currency, US power will start to unravel.
2. The reserve status apparently is divorced from the US petrodollar strategy, and in any case the petrodollar is nothing but a "numeraire" and means nothing.
Which raises the question, why does the US go to such lengths to ensure oil is priced in dollars? Among many eminent economists, Michael Hudson, for instance, argues that the reserve status is linked to the petrodollar and things will not be pretty without it.
Is this just another case of everyone in high office not understanding how modern money works? Or is something else going on?
3. Perhaps I have misunderstood, but I assumed a reserve currency could only be issued by running a deficit. How else would the rest of the world get the dollars if not through US deficit spending?
So how was the US capable of issuing the reserve currency after the second world war when it was running surpluses? Or is this a case of being able to run a surplus but not for long? Somewhat like being able to run a surplus but eventually causing a recession?
@John and the rest, my take is that reserve status benefits Wall Street because everyone in the world wants to hold dollars and trade in dollars. The government is in Wall Street's pocket, hence the government wants to maintain the reserve status.
Reserve status also gives the US government leverage over other countries. "Do as we say or we'll crash your economy."
If the dollar lost reserve status and if the Sauds stopped accepting dollars for oil, Wall Street might loose some business (boo hoo hoo), the price of oil might go up, but American manufacturing might benefit. I'm not seeing it as the end of the world, just as it was not the end of the world when the pound lost reserve status.
"Reserve currency" is an artifact of the gold standard that no longer exists. There are no "reserves." It is no longer correct to call settlement balances "reserves."
We should just call things what they are — settlement balances in the payment system and savings balances. The former exist only in demand type deposits at a central bank and the latter only as savings-type accounts at a central bank.
So=called "reserve currencies" are currencies that trading partners are willing to save in, or at least enough are willing to save in them to provide a highly liquid and stable market vehicle.
Those savings get passed around with great flexibility in the market for US Treasuries for instance. Yields shift with changing saving desire. when saving desire increases in a particular vehicle, that is, purchasers desire to hold that vehicle, the price is bid up and the yield falls, and vice versa.
When global trade is more or less in balance, then saving desire is low, whereas when there are large net exporter and correspondingly large net importers then saving desire is high. These conditions have different effects on economies, .e.g, employment, prices, etc.
A country that issues a "reserve currency" as a global saving vehicle in a liberal global economy doesn't get a rate advantage because it issues a "reserve currency" owing to an agreement or treaty . It gets a low rate because the world desires to save using that currency as a globally desirable saving vehicle having high liquidity and stability.
Holders of the currency have an option. They can prefer demand accounts that provide less interest or savings accounts that provide higher interest but bear interest rate risk.
If the world could just get its collective mind around what's actually going on with the monetary system, most of these issues would just be revealed as pseudo-problems and they would disappear into thin air on that recognition.
In principal, this is a self-adjusting system. Where it is not is the result of asymmetries that can be addressed specifically.
Unfortunately, "free trade" agreements assume away asymmetries to the advantage of the haves and disadvantage of the have-nots. Emerging nations may need handicaps to participate competitively in a liberal world economy.
Reserve status also gives the US government leverage over other countries.
Use of political power economically (economic warfare) is antithetical to a liberal global economy. The US is undermining its advocacy of liberalism by undertaking such a transparently political strategy, just as naked aggression undermines the liberal ideal militarily.
The US is acting in a contradictory way and sending mixed messages. This is counterproductive and undermining US soft power, as well as liberal enterprise the US promotes as the ideal.
Tom,
"The US is undermining its advocacy of liberalism by undertaking such a transparently political strategy, just as naked aggression undermines the liberal ideal militarily."
Presumably, you're being sarcastic? The world's so crazy that I can't tell anymore. If the US is liberalism incarnate, give me conservatism, whatever that is.
"The US is acting in a contradictory way and sending mixed messages. This is counterproductive and undermining US soft power, as well as liberal enterprise the US promotes as the ideal."
More sarcasm, right? Not contradictory at all. Economic and financial leverage is soft power. Tomahawk cruise missiles, daisy cutters, napalm and depleted uranium landing on peasants is the hard power.
Dan's comments ring true. The reserve issuer can crush others when needed, and Wall Street benefits. And with financial companies accounting for 40% of all corporate profits, that's reason enough.
As for the US-backed depraved Al-Saud family, they're recycling the dollars back into the US. If they spent the money on Russian Migs or Eurofighters or even Volvos instead of F-15s, we might wake up to Obama informing us that Saudi Arabia is at the heart of jihadi terrorism (true but not the reason he would say it).
The UK pound lost its reserve status, yes. Maybe it's a bit of a stretch to say that the UK economy went downhill because of this loss, but it surely contributed to it.
John, liberalism entails free markets, free trade and free capital flows in addition to free elections and Governments are not supposed to intervene in economics, since that imbalances the system.
Use of political power economically is economic warfare. Ii is a form of aggression in the context of liberalism. It is designed to make life so difficult for the targeted population that they will force the government to adopt policies that the US favors in order to lift sanctions, or bring about regime change in order to install a US favorable government.
Clausewitz, On War: "We see, therefore, that war is not merely an act of policy but a true political instrument, a continuation of political intercourse carried on with other means. What remains peculiar to war is simply the peculiar nature of its means."
Chapter 1, Section 24, in the Princeton University Press translation (1976)
Economic and financial leverage is soft power. Tomahawk cruise missiles, daisy cutters, napalm and depleted uranium landing on peasants is the hard power.
The basis of US soft power has until recently been the liberal ideals of the founding documents that translated Enlightenment social and politic philosophy into political reality.
Ask the people in sanctioned countries whether the US is using hard power or soft power. Sanctions are not simply inconveniences that are annoying. They are designed to take down an economy and create massive social unrest sufficient to spur the population to force the government to change policy or else change the regime to one that will.
Tom,
"The basis of US soft power has until recently been the liberal ideals of the founding documents that translated Enlightenment social and politic philosophy into political reality."
Until recently? When has that ever been the case? Name one administration! No US administration has ever lived up to the noble ideals of its founding documents.
No country believes in free markets, free trade and free capital flows and free elections. Certainly no rich country. Although the richest countries demand this of the poorest countries, they do the polar opposite. It's motherhood and apple pie propaganda.
Holy mackerel, the US doesn't live up to its alleged ideals at home! Every US administration has been bloody awful, with some worse that others. It's a public relations exercise to drone on about liberal ideals.
In fact, I can't think of a country that hasn't appealed to those very values it is trying to snuff out. What else can they say? Looking teary-eyed and waxing lyrical about values is more impressive than stating the truth: "We're a bunch of imperialist maniacs."
Don't think I'm picking on the US (and it goes without saying I mean US administrations, which have all been disgraceful). My own country, the UK, is not only disgraceful but quite rightly considered a joke by every other country in the world.
"Ask the people in sanctioned countries whether the US is using hard power or soft power. Sanctions are not simply inconveniences that are annoying. They are designed to take down an economy and create massive social unrest sufficient to spur the population to force the government to change policy or else change the regime to one that will."
Quite right. I use the term in the way the US uses the term. Soft power, according to every US government I can remember, means everything other than military force.
It doesn't mean persuasion. If the US is incapable of persuasion, which is almost always the case, it uses soft power (e.g. crushing sanctions), and when that doesn't work it'll bomb the recalcitrant country back to the stone age, with its UK poodle humping the US leg all the way.
John, this is the line that the US ls selling. Yes, selling. The vendors are NGOs that are arms of the deep state that are paid to convince unfree peoples that their governments are repressive and need to be changed so that they too can live the Western lifestyle. They don't explain to them, however, that the Western lifestyle is based on debt servitude. But most of the population of the free world hasn't figured that out yet either.
Here is Wikipedia on soft power:
Soft power is a concept developed by Joseph Nye of Harvard University to describe the ability to attract and co-opt rather than coerce, use force or give money as a means of persuasion. Recently, the term has also been used in changing and influencing social and public opinion through relatively less transparent channels and lobbying through powerful political and non-political organizations. In 2012, Nye explained that with soft power, "the best propaganda is not propaganda", further explaining that during the Information Age, "credibility is the scarcest resource".[1]
Nye coined the term in a 1990 book, Bound to Lead: The Changing Nature of American Power. He further developed the concept in his 2004 book, Soft Power: The Means to Success in World Politics. The term is now widely used in international affairs by analysts and statesmen. For example, in 2007, CPC General Secretary Hu Jintao told the 17th Communist Party Congress that China needed to increase its soft power, and the US Secretary of Defense Robert Gates spoke of the need to enhance American soft power by "a dramatic increase in spending on the civilian instruments of national security – diplomacy, strategic communications, foreign assistance, civic action and economic reconstruction and development." In 2010 Annette Lu, former vice-leader of the Taiwan (Republic of China), visited South Korea and advocated the ROC's use of soft power as a model for the resolution of international conflicts.[2] General Wesley Clark, when discussing soft power, commented that "it gave us an influence far beyond the hard edge of traditional balance-of-power politics."[3]
According to the 2014 Monocle Soft Power Survey, the USA currently hold the top spot in soft power, being followed by Germany in second place.[4] The top ten is completed by the UK, Japan, France, Switzerland, Australia, Sweden, Denmark, and Canada.
In essence, soft power is getting others to adopt one's preferred policy out of the desire to emulate rather than being forced. The US has been #1 in soft power chiefly because freedom (liberalism).
Tom,
Thanks for that. Clears many things up.
But I am unconvinced by Nye's description that peaceful emulation is what is being sold. Forceful emulation, yes. Corrupting foreign elites is nothing new. It is perhaps the third oldest profession.
Nye's Harvard professorial sensibilities would have us believe that something along these lines happens:
"Wouldn't you rather be like us," some monstrous secretary of state, will blabber.
"Not really, I'm afraid. We'd rather be like us, only richer," the opposite number from a poor country will respond.
"Oh, alright then. Sounds reasonable enough," the secretary of state replies.
When in fact the last line would be something along the lines of:
"Oh, and how do you propose to do that, you dumb shit? No access to lucrative markets. No access to the kind of education and technology that will lift you out of your pathetic condition. But all is up for grabs once you privatise, liberalise and deregulate your economy. If you play along, there's a nice commission in it for you. The former prime minister of Pakistan was known as 'Mr Ten Percent'. If you don't play along, we'll turn your shithole of a country into a hellhole. And as for you personally, do the names Mossadegh, Lumumba and Allende mean anything to you?"
PS. Tom, I say all this as a very liberal social democrat! My country's political parties, foreign policy, economic and social policies, etc make me sick to my stomach. If I lived in the US, I'd have opened my veins by now. I have nothing but admiration for all the progressives and liberals in the US. What a tough job!
@John, I enjoy your comments and your dry humor. May I ask what country you are living in, since apparently you haven't opened your veins just yet?
American soft power was the real thing post WWII when the world looked up to the US as the beacon of freedom and the savior of the free world.
Then Truman instituted the CIA as a clandestine service whose name suggested that its purpose was chiefly intelligence. But unlike most other Intelligence agencies globally, the CIA and associated US clandestine operations like the DIA were operationally oriented as well as analytically. This was the beginning of the US deep state that provided continuity to foreign and military policy through the State Department and Pentagon as the US counterpart of the Russian nomenklatura. While the nomenklatura was drawn from the Communist Party, the US top bureaucracy was drawn from the Establishment that represents the interests of the ruling elite in government.
There are two branches of the CIA presently, operations and intelligence, that the current director wants to merge since the CIA is now an operational arm of hybrid warfare rather than primarily involved in intelligence gathering and analysis.
Various NGOs (AID, NED, were developed as arms of the CIA for the purpose of not only propagandizing in foreign countries but also funding and directing fifth columns in targeted countries. Some of the funding is back through the clandestine agencies and some directly through congressional appropriation to create an apparent distinction between the NGO and the clandestine agencies.
See Former CIA Agent Tells: How US Infiltrates "Civil Society" To Overthrow Governments by Philip Agee, for example.
Over time, it began to become more and more obvious that the US pushing of its "soft power" in this way was really clandestine operations under the aegis of the operational arm of the clandestine service. This was not extension of soft power as much as black operations.
Most Americans remain unaware of this.
Dan,
I live in England (land of royalist simpletons). We have a general election in just over three weeks. It's all too horrible for words. I can't think of one decent policy that any of the parties have proposed. Which reminds me to look into whether the Natural Law Party is still selling galactic peace. Their proposals for, er, galactic peace all seemed to be centred on the practice of yogic flying (!), which at least had the merit of originality: https://www.youtube.com/watch?v=438UKM1Av1g
The centre has moved so far to the right, that more often than not the Labour Party (a neoconservative warmongering cult which pretends to represent working people), is more rightwing than the Tories, especially if it means war, and their bloodlust is insatiable.
Just when I thought things couldn't get any worse, things just got worse. Hillary Clinton just announced her candidacy for president. I was hoping she would forget or something.
Unless the Democrats can get a better candidate (but it's her turn, I hear so-called progressives wail), which can't be too difficult, I think it is incumbent on everybody in all fifty states in 2016 to vote for someone like Jeb Bush or Chris Christie. They'd be far less worse than Hillary Clinton, who seems to me is itching to start world war three, and possibly four if she gets a second term.
Even that Bob Roberts-style gormless religious maniac Mike Huckabee would be a better president than Hillary Clinton. He'd be a lot of fun too.
Anyway, I can't wait for the Mitchell and Wray textbook to come out. Hopefully, it'll clear up all these little questions about things like the advantages of a reserve currency.
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