Enabling the wrong behaviors

From Links to Consider, 4/10 by Arnold Kling.  The subheading is:  Sam Hammond on economic diversification; Erik Torenberg on equality vs. meritocracy; Niccolo Soldo on how the Ukraine War is going; Michael Shermer and David Brin on AI and other topics.

Sam Hammond writes,

Both the Dutch disease and the middle-income trap stem from the failure of an economy to properly diversify, and in many ways the contemporary U.S. economy exhibits symptoms of each. Following the collapse of the Soviet Union, the U.S. adopted an explicit strong-dollar policy, only rather than export oil, we exported the safety and stability of dollar-denominated assets like Treasury securities. The U.S. dollar now denominates two-thirds of international foreign currency reserves, 90 percent of foreign-exchange trades, and trillions of dollars in private assets held abroad.[42] This makes the U.S. the most attractive economy in the world to park one’s excess savings, which we absorb in the form of our ever greater public and household debt.[43] Where a petro state might invest in pipelines and refineries, the U.S. invested in Wall Street — the de facto pipes of global finance. In the mid-1990s, the U.S. corporate sector thus transitioned from being a net borrower to being a net lender, while aggregate investment in tangible assets like structures and equipment withered on the vine.

He is actually quoting himself from this paper.

Basic economic theory says that a country should exploit its comparative advantage. Instead, to “diversify” the economy is inefficient.

The U.S. has a comparative advantage as a safe financial haven. We have the world’s strongest military and a stable government. Thus, we have a comparative advantage in producing debt, primarily government debt. That is not necessarily a good comparative advantage to have.

It is a very convenient advantage to have, but as Kling notes, "not necessarily a good comparative advantage to have."  It would be good if we had confidence in our capacity to generate responsible utilization of the advantages as a reserve currency.  We do not have that confidence and it is not clear that the advantages are being used responsibly.  Rather, it appears that it enables our political leadership to avoid hard trade-off decision they ought to be making.