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The US is squandering its two most important privileges

5 35
28.05.2025
Harvard University.

In 1965, then-French finance minister Valéry Giscard d’Estaing came up with the “mot juste” for describing the way that the supremacy of the dollar provided the foundation for the financial supremacy of the US. The fact the dollar was so dominant in international transactions gave the US, d’Estaing said, an “exorbitant privilege.” Because every country needed dollars to settle trade and backstop their own currencies, foreign countries had to buy up US debt, which in turn meant that the US paid less to borrow money and was able to run up trade and budget deficits without suffering the usual pain. The exorbitant privilege of the dollar was that the US would be able to live beyond its means.

It’s always been an open question as to how long that privilege would last, but President Donald Trump’s harsh tariff policies, paired with a budget bill that right now would add trillions to the budget deficit, might just be enough to finally dislodge the dollar. Annual federal deficits are already running at 6 percent of GDP, while interest rates on 10-year US Treasuries have more than doubled to around 4.5 percent over the past few years, increasing the cost of interest payments on the debt. As of the last quarter of 2024, 58 percent of global reserves were in dollars, down from 71 percent in the first quarter of 1999. The dollar may remain king, if only because there seems to be no real alternative, but thanks to the US’ own actions, the exorbitance of its privilege is already eroding — and with it, America’s ability to compensate for its fiscal fecklessness.

But the dollar isn’t the only privilege the US enjoys. Since the postwar era, America’s best universities have led the world. Harvard, Princeton, MIT, CalTech — these elite universities are the foundation of the American scientific supremacy that has in turn fueled decades of economic growth. But also, by virtue of their unparalleled ability to attract the best minds from around the world, these schools have given the US the educational privilege of being the magnet of global academic excellence. In the same way that the dollar’s dominance has allowed the US to live beyond its means, the dominance of elite universities has compensated for the fact that the US has, at best, a mediocre K-12 educational system.

And now that privilege is under........

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