America’s most important exports are under attack

The trade numbers say that America’s largest exports are industrial products such as refined petroleum and aircraft.

In a real sense, though, our most important exports are intangible ones: political stability and the rule of law.

Combined with our sophisticated and liquid financial markets, these characteristics make the United States uniquely suited to serve as a haven for the accumulated savings of individuals, companies and central banks from around the world.

As University of Wisconsin economist Menzie Chinn puts it, we enjoy “a quasi-monopoly on the production of safe assets, in the form of sovereign debt.” America exploits this monopoly power by selling government bonds at more advantageous interest rates than would be possible otherwise.

Congress must act soon after it returns next month to preserve that monopoly — to avert the impending exhaustion of the federal government’s legal borrowing authority, lest the United States default on any of its obligations.

This situation once again reminds us that investors all over the world rely on the full faith and credit of the United States — which is the hard-earned product of our long history as a civilized democracy whose courts can be relied upon to enforce contracts impartially.

If we couldn’t import financing so cheaply, then we would have to save more and consume less. We might have to sell other countries more aircraft, or wheat, or some other good or service that’s harder to make than a federal promise to repay.

To be sure, this is a mixed blessing. Our quasi-monopoly on safe assets tempts, and enables, the United States to live beyond its means, which can be as much of a luxury as it sounds; over time, though, it can also distort the economy.

A prudent safe-asset-monopolist nation would hedge by reducing its long-term structural budget deficits and, hence, its need to borrow. Congress has not taken such steps for decades, however, which is part of the reason that we face another…

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