Harold James on Weightless Globalization THE DOLLAR-GOLD50TH ANNIVERSARY: DELINKING Robert Zoellick on the Last Fifty Years Fred Bergsten Behind the Scenes With John Connolly The Magazine of International Economic Policy SUMMER 2021 • $18 The Secret Meeting in 1971 that Changed the World THE INTERNATIONAL ECONOMY EDITORIAL ADVISORY BOARD THE MAGAZINE OF INTERNATIONAL ECONOMIC POLICY MARIO DRAGHI THE RT. HON. LORD LAWSON OF BLABY Prime Minister of Italy Former Chancellor of the Exchequer, U.K. Founder, Editor, and Publisher JEAN-CLAUDE TRICHET CARLA A. HILLS Former President, European Central Bank Former U.S. Trade Representative David Smick ALAN GREENSPAN ANDREAS DOMBRET Former Chairman, Federal Reserve Former Member of the Executive Board, Managing Editor Deutsche Bundesbank, and Former Member of Angela C. Wilkes MIGUEL MANCERA the Supervisory Board, European Central Bank Former Governor, Banco de México JÜRGEN STARK GEORGE SOROS Former Chief Economist, European Central Bank Executive Editors Soros Fund Management MANUEL JOHNSON Robert W. Merry ROGER B. PORTER Former Vice Chairman, Federal Reserve Owen Ullmann Harvard University ADAM S. POSEN ANATOLE KALETSKY Peterson Institute for International Economics Gavekal Dragonomics Cover Artist JOSEPH S. NYE, JR. MAKOTO UTSUMI Doug Thompson Harvard University Former Vice Minister of Finance, Japan HANS-WERNER SINN HORST KÖHLER Editorial Assistants Ifo Institute Former Managing Director, International Monetary Fund Josef J. Neusser, Jean Wells LAURA D’ANDREA TYSON University of California, Berkeley IL SAKONG Institute for Global Economics Contributing Editors JEFFREY SACHS Former Minister of Finance, Korea Columbia University MELVYN KRAUSS Rob Johnson - Capital Markets PAUL KRUGMAN Hoover Institution Princeton University PHILIP K. VERLEGER, JR. Yoichi Funabashi - Japan MOHAMED EL-ERIAN PKVerleger LLC Chief Economic Advisor, Allianz Philipp Hildebrand - Europe KLAUS C. ENGELEN MARTIN N. BAILY Handelsblatt Brookings Institution Klaus C. Engelen - Germany GERD HÄUSLER JOHN B. TAYLOR Former Director, International Capital Markets, Philip K. Verleger, Jr. - Energy Stanford University International Monetary Fund Former Member of the Bundesbank Council BARRY EICHENGREEN Steve Hanke - International University of California, Berkeley HARALD MALMGREN Commodities Markets GARY CLYDE HUFBAUER The Malmgren Group Peterson Institute for International Economics GINA DESPRES Voldemaras V. Kanchas - Eastern Europe and CIS Countries KENNETH S. ROGOFF Capital Research & Management Co. Harvard University NORMAN BAILEY Susan Ariel Aaronson - Trade JAMES K. GALBRAITH University of Haifa University of Texas at Austin ALAN REYNOLDS TADASHI NAKAMAE Cato Institute Nakamae International Economic Research EDWARD N. LUTTWAK MICHAEL J. BOSKIN ENL Associates Stanford University CESAR CONDA JEFFREY E. GARTEN Former Assistant to the Vice President for Yale University Domestic Policy STEVE HANKE PEDRO PABLO KUCZYNSKI Johns Hopkins University Former President of Peru The International Economy is published quarterly by The International Economy Publications, Inc., Suite 200, 220 I Street, N.E., Washington, D.C. 20002. Postage paid at Washington, D.C., and at additional mailing offices. Volume XXXV, Number 3 © 2021 by The International Economy Publications, Inc. All rights reserved. Postmas- ter: Send address changes to The International Economy, Suite 200, 220 I Street, N.E., Washington, D.C. 20002. SUBSCRIPTIONS: One year (four issues), U.S. $72, U.S. and foreign; first-class air mail, U.S. and Canada add $15 a year; foreign air delivery, add $60 a year. MANUSCRIPTS AND LETTERS: Send to the Managing Editor, The International Economy, Suite 200, 220 I Street, N.E., Washington, D.C. 20002. Ph: (202) 861-0791, Email: editor@ international-economy.com. SUMMER 2021 THE INTERNATIONAL ECONOMY 1 The Magazine of International Economic Policy Summer 2021 Volume XXXV, Number 3 THREE DAYS AT CAMP DAVID: THE FIFTIETH ANNIVERSARY 4 From the Founder Statecraft in search of a vision. 8 The Weekend That Changed the World TIE Founder and Editor David Smick interviews Jeffrey Garten, author of the new book Three Days at Camp David: How a Secret Meeting in 1971 Transformed the Global Economy, which argues that there are many parallels between August 1971 and August 2021. The currency move was only part of the story. 12 From Dick Nixon to Joe Biden Fifty years of global economic triumph and disappointment. By Robert B. Zoellick 16 Bretton Woods 1971–2021 The birth of the new age of modern markets. By David C. Mulford 20 Nixon, the Dollar, and the Emerging New Money Revolution The emergence of weightless globalization. By Harold James 24 1971 and the Undermining of Fed Independence Today the U.S. central bank’s sense of a shared mission with the administration has been internalized. By Roger Lowenstein 26 Oil and August 15th An unintended consequence of the three days at Camp David: the complete reconstruction of the global petroleum system. By Philip K. Verleger, Jr. 28 The Reincarnation of John Connally Could Trump’s crude, bullying global shocks play the same role as the Connally/Nixon shocks did in 1971? By C. Fred Bergsten 2 THE INTERNATIONAL ECONOMY SUMMER 2021 30 A Highly Symbolic Act Though symbolic, the 1971 changes were a major catalyst for development of the European Monetary Union and the euro. By Otmar Issing 32 The Nixon Shock and the Trading System The difference between the Nixon and Trump experiences. By Douglas Irwin 34 Gold, the Dollar, and What Comes Next The greenback may be felled not by a pair of giants, but by a swarm of midgets. By Barry Eichengreen 36 The Late 1990s Fatal Hubris How the Camp David decisions produced policies that failed to recognize capitalism’s intertemporal nature. By Bernard Connolly GLOBAL MARKETS TODAY 38 View from the Beltway The case for humility: The experts grapple with understanding inflation. By Owen Ullmann 43 What About the Risk of a Bursting Asset Bubble? The global economic policy world is in the midst of a debate over the risk of inflation, including the definition of the word “transitory.” But what about the risk of the bursting of an asset bubble? More than twenty noted observers share their views and rate the risks. A symposium of views 55 Is the Dollar in Trouble? If the dollar continues to deteriorate, and as east Asian countries peg their currencies to the Chinese currency to maintain exchange rate stability, the greenback could lose its key currency status by the end of the 2020s, just as it did in Europe in the 1970s. By Gunther Schnabl 57 The Economic Profession’s Artificial Narrative The increasingly anachronistic capital versus labor debate. By Seth Levine and Elizabeth MacBride 60 “Crypto” Is Losing The issues are climate and trust. But the crypto community is fighting back. By Chi Lo DEPARTMENTS 78 Letter from Berlin German Election Scorecard. The bursting of the Greens’ Baerbock bubble and the emergence of the CDU’s Laschet. But the Greens aren’t going away. By Klaus C. Engelen SUMMER 2021 THE INTERNATIONAL ECONOMY 3 FROM THE FOUNDER Statecraft in Search of a Vision n early 1987, nine months before the stock mar- him Washington, D.C. He responded: “The global fi- ket crashed, we began to explore the idea of this nancial system is too heavily influenced by the London magazine. The thought was to produce a journal crowd. Your publication can be helpful by bringing in that would serve as a bulletin board for proposed new voices.” changes to the international economic statecraft. As the meeting was about to end, Pöhl said that IWe were newcomers to the global economic poli- the evolving process of defining and refining a global cy world that was still heavily anchored by a tight and financial “statecraft” was so important that he, as sit- closed relationship between the U.S. Federal Reserve ting president of the Bundesbank, would agree to chair System and the Bank of England. Yet the global financial markets were changing. The floating exchange rate system, in place since the early 1970s, was under attack. A soaring dollar against the yen We launched The International in response to the economic conditions of the mid-1980s (including the collapse of inflation) was threatening to bring about an international trade war. The status quo Economy precisely because we believed in currency affairs was unsustainable. Meanwhile, the Bank of England had become less important in a new world where Germany and Japan had emerged as eco- the global economic statecraft needed nomic powerhouses. We nevertheless remained unsure about the recep- tion a new publication would receive in this exclusive, to evolve with the changing times. rarified world. So we flew to Frankfurt to seek the ad- vice of one of the major figures in European policymak- ing, Bundesbank President Karl Otto Pöhl. Seeking out Pöhl’s advice made sense. He had come to central bank- our publication’s editorial advisory board, assuming we ing from the field of journalism. were interested. We were interested. As we entered his office, to our surprise the head Of course, those years represented a golden era in of Europe’s most powerful central bank began with one policy coordination and cooperation. With the Cold War question: “Would the magazine be run from Washington, raging, the free world’s policy leaders were bound to- London, or New York?” He was pleased when we told gether not only by economics but by a common set of 4 THE INTERNATIONAL ECONOMY SUMMER 2021 From the Founder values that still lingered forty years after the end of World War II. So we launched The International A Troubling Question Economy precisely because we believed the global economic statecraft needed to evolve effrey Garten’s book Three Days at with the changing times. Indeed, less than Camp David is an illuminating, fun a decade after our publication’s launch, the Jread. Turn its pages and you are almost Soviet Union dissolved and large parts of certain to ask yourself, “Where are today’s the world, led by China and India, joined the versions of those gifted, heavyweight stra- capitalist community.