Chris Meissner on the History of Globalization

Chris Meissner is a professor of economics at University of California at Davis and is the author of the recent book One from the Many: The Global Economy Since 1850. In Chris’s first appearance on the podcast he discusses the historical bend towards greater globalization, how we should really define the global economy, the impact of the Great Financial Crisis on globalization and populism, the scope of globalization from the 1820’s to today, the validity of the China Shock, the United States’ current move away from globalization, and much more. 

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This episode was recorded on February 19th, 2026

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]. 

David Beckworth: Hi Macro Musings listeners, this is your host David Beckworth with some very exciting news. We recently announced that Macro Musings has full-length video of each episode going forward. The full-length videos are posted on our YouTube channel @MacroMusingsDavidBeckworth. There is a link to that channel in the show notes, and it would mean the world to me if you subscribed and shared it with others. Not only will that channel have full length videos, but it will also have some fun behind the scenes content. Additionally, the full-length video from each episode will also be posted on our X account @Macro_Musings. So, make sure you are following that account as well. We are so happy to give you even more macro bang for your buck. Now on to the show. 

Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University. I’m glad you decided to join us.

Our guest today is Christopher Meissner. Chris is a professor of economics at the University of California at Davis, and a leading economic historian of international finance and trade. Chris also is the author of a recent book that really helps us make sense of where we are on this journey of globalizations through Earth’s history. His book is titled One from the Many: The Global Economy Since 1850. He joins us today to discuss it and its implications for Macro Musings listeners in 2026. Chris, welcome to the podcast.

Christopher Meissner: Thanks. Great to be here.

History Tends Toward Globalization

Beckworth: It’s great to have you on. As I mentioned to you before we started the show, I first heard you present this book and some of your research at a Hoover Monetary Policy Conference. It was amazing—big sweep of history. Moreover, it has a theme that really hooked me, and that is this theme of globalization. Is it inevitable? Is it over? Are we just going through some bumps in the road? I’m someone who likes to believe that the long arc of history bends toward globalization. I’ll pull it up here again. If you read this book, it’s hard not to walk away and believe that is, in fact, the case.

Meissner: Oh, yes. Definitely. Over the last, let’s say, 12,000, 15,000 years, we’ve done nothing but progress in terms of integration. Now, it hasn’t always been linear and upwards. It’s highly dependent on policies and cultures and, most of all, technology. I would say, over a long enough horizon, globalization is a survivor, it’s a winner. There’s good reason for that. There’s so many benefits to be had from greater integration.

I think over the last 200 years, we’ve really seen what globalization can do, and in many cases, reap the benefits from greater integration. It would be hard to see too much backsliding over the long run. Now, over the short run—and that’s something we could talk about in a moment—but over the short run, there can be bumps in the road, of course.

Beckworth: When I think back to Adam Smith when he wrote The Wealth of Nations—which is coming up, I believe, on its 250-year anniversary this year—he wasn’t prescribing policy. He was observing these tendencies. He observed specialization in markets. He observed this natural tendency for humans to want to make themselves better off. If you took 100 Macro Musings listeners and threw them on an island, you wouldn’t have to tell them to specialize. They would eventually figure it out to survive.

I think this is part of human nature and it should give us hope going forward, that even some of the challenges we’re going through now with the trade policy, some of the trade issues, the long arc of history does bend toward globalization. Maybe later I’ll read some excerpts from your book that really nail that down. 

Beckworth: Chris, tell us, how did you get into economic history and working on globalization history?

Meissner: It was a series of coincidences, I think. I did my undergraduate degree at Washington University where I started in the economics major. About halfway through, Doug North won the Nobel Prize. That attracted my attention to the field of economic history. Doug North really wanted to explain the big question, which is why some countries are so rich and some so poor. He was very open minded. He brought in political economy. He brought in history. He brought in even Karl Marx to a degree. That really turned me on to the field of economic history.

After that, I was fortunate enough to do my PhD at UC Berkeley where I had a fabulous set of mentors, including Barry Eichengreen, Brad DeLong, and Christina Romer, amongst others. I learned so much from them about the global economy. They connected me to Michael Bordo, with whom I’ve worked on a number of papers. We’re now lifelong friends. I’ve learned a lot from him. I also connected with Jeff Williamson along the way.

Finally, when I started at Berkeley, there were 40 of us in our cohort in the first year. It was an enormous class. It was a very exciting time to be at Berkeley. I just learned from so many people in my class. There were so many people who were interested in economic history at Berkeley at the time, and international and macro. I really benefited from those spillovers. I’m very lucky to be here and to be able to study what I enjoy, which is the global economy over the long run.

What Is the Global Economy?

Now, it is easy, though, Chris, to be a little down and out about globalization right now. As you know, we’re in an administration that started a trade war. It’s a trade war that goes up and down like a yo-yo. We’re not sure from one week to the next what it’s going to be. I just want to highlight some of the articles, some of the commentary on this. If we go back last year to Liberation Day in early April—and that was a big shock, these big numbers, stock market tanked, the Treasury market tanked, and I think it was the treasury market eventually encouraged the president to dial back—just to get a flavor of what some people were thinking, what I’ve been thinking and been worried about. Here’s an article by Anne Krueger, great trade economist. You probably know her. She had an article last April, right after the Liberation Day. It was titled, “Trump’s Tariff Chaos Could Reverse 80 Years of Economic Progress.” That’s heavy. 

Here’s another one. This is a little bit more recent. This is actually earlier this year. This is a Washington Post article. Then come to the present. It says, “Trump Is Breaking the Old Global Order: Allies Brace for Economic Risk.” There’s still this concern that, “Man, we’re doing maybe some serious damage.” Then one more article. This is the BBC: “How Tariff Disruptions Will Continue Reshaping the Global Economy in 2026.” 

There seems to be a lot of change afoot. Even if we point to things like Mark Carney’s speech, he talked about it’s time to break off from the US and get this middle-income country coalition. They’re now talking with China. There’s reasons to worry, but your book, again, paints this picture that eventually it does bend back. Again, that’s why I love it so much. Maybe we should step back and ask a very basic question, what is the global economy?

Meissner: Sure. This book is very much a product of my teaching here at UC Davis. I inherited a class which was called “Global Economic History.” The way it used to be taught was that you would survey the experience of a handful of leading countries and compare and contrast. I thought when I inherited this class, it would be time to change that up a little bit and study the global economy as an entity unto itself.

There’s a lot of reasons for that. It does get a little boring to study the nth country and each experience in detail. More than that, the global economy is relevant today and in the past. Second, interdependence, it’s just a fact of life. Our planet is small. We interact locally, but we interact globally. Studying interdependence in labor markets, capital markets, and commodity markets is of the utmost importance.

I don’t really think you can get a handle on those interdependencies and the importance of them by just studying each country in isolation. I wanted to present a narrative that stepped back and looked at the global economy as an entity unto itself rather than do a series of comparative studies chained together. That’s not a terrible thing to do. I wouldn’t hate on anyone who took that line in their research. Being a comparativist can be a good thing, but this was an attempt to do something a little different in that vein.

Beckworth: It’s great timing. 2024 is when it came out. Next year, we get a president who completely changes course. Man, this is the kind of book people want to read at this very moment. What is the bigger context, bigger historical pattern, and where is it going to go? Now, in your book, you begin with basics. What is globalization? What’s the global economy? You say the global economy is an entity unto itself. There’s some emergent order that grows on its own. Tell us what you mean by that.

Meissner: Sure. Every day economies are interacting, whether it’s in the global currency market or commodity markets. People are moving around the world hourly, transacting and doing business deals. It’s just inescapable that all of those tiny actions add up to something that’s bigger than just the sum of the parts. You mentioned Adam Smith, who might have been one of the first economists to theorize that those interactions can make us better off.

Subsequent exploration and investigation of research has typically shown that to be the case. On average, we are better off from these interactions. Whether it be trading financial assets or trading oil for automobiles, or luxury spa services for cobalt, those are transactions which make the participants better off. There’s just so many ways to think about the intersection of all these economies in the globe and how important and crucial they are to our standard of living. The long-run trajectory of each and every economy out there, as these interdependencies reverberate back into these local economies, I think it’s really important to think about those.

Beckworth: Do you see any changes in this pattern? Has it become different because of digital services, or is it just the same pattern, just a different application?

Meissner: That’s an interesting question. I think the global economy of the 21st century is vastly more complicated in many ways than it was in, say, the 19th century in the first wave of globalization. Today, we have vertical specialization and global supply chains. We have international banks and multinationals that scour the world looking for places to operate and do deals. It is certainly more complicated, but I think that there is a theme that ties this all together and makes the 19th-century period of globalization relatable to people today and vice versa. Trade and integration stand as a method by which we could make ourselves better off.

It is inherently something we want to do, as you mentioned, as humans. Whether it be offshoring one task in the production of iPhones, or sourcing your wheat from Ukraine or Argentina in the 19th century like the British did, those trades are there for a reason. They make the participants better off. They give them something they couldn’t otherwise have had if they had relied solely on local production and local sources of demand. I think there’s that commonality, even though the world is vastly more complicated today.

Beckworth: One of the themes you develop in your book is who wins, who loses from globalization. Even as a whole we might benefit. Clearly, there’s some people who fall behind. I’m curious as I think about this, you’re both a trade person, you’re an historian, so you’ve thought long and hard. You’ve written several books, some articles.

One thing that’s always been fascinating to me is it’s easy for us to get worked up against foreigners when it comes to trade—Americans versus the Chinese—whether it’s goods or services, but we don’t get worked up about interstate trade. If I’m in the state of Tennessee, I don’t get worked up that we’re running a trade deficit with another state in the United States.

In principle, it’s the same thing. We run trade deficits. I run trade deficits in my life, with my grocery store. Why do you think we become more aware of it, more cognizant of these trade patterns at the national level? Is it just simply because we identify with the nation state? Why does it become a big deal at the state level? 

I bring this up because you, as a historian, know throughout history that the US itself has emerged such that the South stole a lot of manufacturing jobs back in the 1930s and the ’40s from the North. Those, of course, went overseas eventually. Even within the US, there’s been these structural changes that you could point a finger out and say, “Hey, those Southerners, they took our manufacturing jobs.” Maybe there was, I don’t know. Maybe you know this history better than I do. You don’t see it as much, at least it seems to me, as you do international trade concerns.

Meissner: Trade is definitely dependent on—and integration more generally—building coalitions. Sometimes those coalitions form and they’re more pro-integration than at other times. We may be living through a reorientation right now where the coalitions have changed, where there’s an attempt to build a new coalition that tries to stifle the global economy.

That wasn’t uncommon in the past either. Whether it’s on the international scene, we could think about Germany in the 1870s with Bismarck. We can think even about our own country in the late 19th century where the battle over trade policy was quite the thing. It was one of the central debates of the time. The coalitions sometimes line up for free trade and sometimes they line up for limiting trade. It really takes a skilled politician and a little bit of luck.

Over the long run, I think there are other forces that matter besides just the politics and the interest groups, technology being the main factor and driver here. Whether it’s the 19th century, and we’re talking about the steamship and the railroad and the telegraph, or the 20th century when we’re talking about the container ship and now the internet and satellite telephones and eventually AI. Technologies are another big driver. Those are very hard to suppress. Trade policy is important, but technology is a big driver of integration as the long run shows.

Beckworth: That reminds me, President Trump has been pushing hard, of course, for tariffs, for decoupling from China. Is it fair to say he’s been frustrated in his efforts? Because China, in particular, seems to be the one country he hasn’t been able to push around, because there is this incredible interdependency. It’s not as easy as this view that you mentioned, maybe an old view, 1800s, we imported finished products. We don’t do that anymore. We import inputs, and it’s so interconnected.

I believe in South Texas, there’s cars that go across the border multiple times before they’re finished being produced. It’s not just a car that comes in, it’s a part, then it goes back and forth. Is that part of the issue as well? It’s so integrated that maybe it’s futile at some level for people like President Trump to really want to decouple from the global economy?

Meissner: I think that’s right. It’s a very robust, complicated, intricate system that won’t be knocked off with one simple rise in tariffs. There’s too much at stake and it’s just too much of the fabric of the global economy. Back to your other question, the stakes are high now. There’s been a change in outlook. I think some thought leaders and politicians have led us to believe that we’re not in a win-win situation. That we’re in a strategic competition now between great powers, and if we don’t do something to protect ourselves, then we will face great losses.

It’s a little bit reminiscent of the rivalry between Great Britain and Germany in the late 19th century and the early 20th century, which honestly didn’t turn out very well. The Germans were very fearful that their supply of crucial inputs would be cut off, and that their markets would be taken by their commercial rivals. They really acted to protect those sources of supply and demand, and that really heightened the intensity of interstate rivalry. I think we can relate to that nowadays.

It’s been somewhat interesting to watch the transformation from this view that we had in the ’90s, that liberalization would transform the world and create more democracy and world peace, to a world where greater integration has made us fearful of our trade partners. Whether that’s a real shift in the economic fundamentals or something we just have in our head as a collective paranoia, it is hard to say.

There’s no doubt that we want to protect our national security. Whether we have to go so far as to slap 20%, 30% tariffs on the entire world to do that, I don’t think that’s quite right. It could itself lead to further disintegration and mistrust. It’s an interesting moment to live through in light of history.

Great Financial Crisis

Beckworth: For sure. Now we want get into your book, because you go through these periods of globalizations, but you mentioned the present. Let me just temporarily jump ahead to this period we’re in and the past few decades and ask a question I was going to ask later. That is, do you think if we had not had the Great Financial Crisis, then maybe some of this rhetoric, this us versus them, this zero-sum thinking would be less, if not minimized?

Are we bearing the scars of a financial crisis? Maybe there’s other things as well. You mentioned technology, social media. We isolate on platforms and news vacuums, but I’m just wondering if you see an inordinate role for the Great Financial Crisis in derailing us from that view we had in the 1990s and 2000s?

Meissner: That’s a very interesting question. First of all, there’s no doubt that the growth of commodity trade, goods trade slowed down in the wake of the Global Financial Crisis. Basic measures of integration, like how much is traded relative to world production have really plateaued in the wake of the great recession. On the other hand, the other types of trade, like asset trade, capital flows, they haven’t slowed down as much. Services trade has kept on chugging away. It’s a little hard to say what is going on there. 

Part of the response to the recession and the Global Financial Crisis was more restrictive trade policy. I think Simon Evenett at the Global Trade Alerts Project had been talking about that in the 2010s, so there was that. There’s also just a political dynamic. When these big shocks happen and income shocks happen, it’s very easy for politicians to come in and play off the insecurity, play off the unemployment to rally people around the flag, as you mentioned, and to gain by trying to build a new coalition. 

I don’t think we fully understand the connection between that shock and the interaction between that and the technologies that you mentioned and the politics, but these shocks have happened before. In the 1870s, there was a significant financial crisis that led to pretty serious backsliding in many countries in terms of integration. That was all about reordering the political systems. We’ve seen this kind of thing before. Globalization definitely slowed down after the 1870s in many respects, especially in commodity trade. Other aspects of globalization kept chugging along. Capital markets stayed integrated. People kept moving across borders. Trade didn’t totally collapse. It just slowed down.

Beckworth: Again, this idea that the global economy, globalization is a force so much bigger and powerful than even politicians like Donald Trump understand, or we understand, and even if there’s an increase in zero-sum thinking, it’s running up against a force that may be far more powerful than it. 

First Wave of Globalization: 1820–1914

Let’s segue into your book, and again, the history of trade and globalization. Again, I really encourage listeners to get it because it puts things in perspective. You can take a deep breath. “Here’s where we are on this journey.” You talk about some ancient history, but you really start with this first great wave of globalization. It starts in several places. Is it 1820 or 1850 when you would start it?

Meissner: I think some of the technologies that are going to push the first wave of globalization come around the 1820s and 1830s, but by 1850, we’re in full swing.

Beckworth: The first wave is, let’s say, 1820 until 1914, World War I. Tell us about that period. What triggered it and what did we learn from it?

Meissner: It’s the first wave of globalization that basically ushers in a new level of prosperity for, really, many countries, not all, but many countries. How did it do that? What were its sources? First of all, we had major technological changes. I mentioned them earlier: the steamship, the railroad, the telegraph. We had a real change in orientation in the 1840s and 1850s.

There was a move toward lower tariffs and trade barriers. The repeal of the Corn Laws in 1846 was a landmark event. The Cobden-Chevalier Treaty of 1860 and subsequent spread and diffusion of such free trade treaties, at least in Europe. Those types of factors were the prime drivers of this first wave of globalization, which really kicked into high gear in the 1850s and ’60s.

Other things mattered—empire, shared monetary policy regimes, international financial system got integrated through London—but the real drivers were these big technological changes that shortened distances and eased communication costs.

Beckworth: What role did this shared monetary system have that you talked about? I’m thinking in particular of the classical gold standard. That really doesn’t kick in until 1870 to 1914. Was that an important part of the story, or just icing on top of the cake in terms of spurring forward this wave of globalization?

Meissner: The emergence of the gold standard is an interesting story. I’ve looked at it in my PhD. My job market paper was about the diffusion of the gold standard as a regime. Marc Flandreau has done very interesting work on the topic. One thing we found in my joint work with Ernesto Lopez Cordova, a couple of decades ago now, was that countries that shared a monetary regime, that locked their exchange rates in, perhaps via the gold standard in the late 19th century, tended to trade more. That was a finding reminiscent of Andy Rose’s finding that countries in a monetary union tended to trade more.

The mechanism there was just lower exchange rate volatility and reduced uncertainty. Certainly, after the turbulent 1870s, the gold standard became the most favored regime of many countries, including, not insubstantially, Britain. If you could lock into the gold standard, you essentially assured yourself an exchange rate that would be stable against many leading economic countries. That really helped boost international trade. 

Prior to 1870, that wasn’t so much the case because we had bimetallism, which was run and organized by France. Again, you should definitely consult the work of Marc Flandreau on this, amongst others. Exchange rates weren’t as volatile between silver and gold standard countries before, but afterwards, they became very uncertain.

If you were trying to trade with a silver-using country and you were on gold, your exchange rate could fluctuate pretty dramatically. That was probably trade reducing over time. It was a logical choice for countries that wanted to participate in the international global order of trade at that period.

Beckworth: Chris, somewhere on my bookshelf back here, I’ve got a book called Golden Fetters by one of your professors at Berkeley, Barry Eichengreen. It was a really great read, really eye-opening for me. One of the takeaways I took from it—I want to hear your thoughts on this—is this idea that why did the classical gold standard work so well compared to the interwar. The interwar was a big mess, we’ll come to it in a minute in our conversation.

One of the reasons I got from Barry Eichengreen was that during that time, 1870 to 1940s, in that period, politicians were willing to allow the gold standard to work, to follow the rules of the game. If the price level was too high and gold was flowing in a certain direction, you just rolled with it. If that meant during a recession or a boom, that was just the rules of the game and you followed through. Whereas by the period of the interwar gold standard, politicians became more sensitive. There was this enfranchisement of the populace. You couldn’t just roll with the rules of the game. Is that a fair reading of his work? Does it hold up?

Meissner: That’s a very interesting argument. Obviously, I’ve been influenced by that argument and I think it’s right. I would say that there were many violations of the rules of the game, including amongst the leading countries of the time. I think the thesis in Barry Eichengreen’s work and the general idea is that in the long run, there was credibility.

Financial markets, whether they saw a violation or not of the rules of the game, and in many times and in many places they did see violations, they still expected countries to take the right action in the long run. Capital markets were stabilizing in this period, and they worked to stabilize exchange rates, much like a target zone would work today or a very credible exchange rate regime.

That credibility was founded, like you said, on the politics. The idea that governments could get away with raising the interest rate or sacrificing internal balance for external balance in the long run and markets believed that that was the only game in town, and that really helped make the gold standard what it was: extreme stability, especially among the core countries. The exchange rates between France, Germany, the US, and Britain between 1880 and 1914 were just locked in solid, less than half a percentage point movement at any one time. Very low volatility, very great stability, not a lot of turbulence in currency markets. It was pretty amazing.

Beckworth: There’s this famous, I believe, Economist article that was written right before World War I, that you could be drinking your morning tea or coffee in Great Britain and you could read the newspaper and you knew that commodities were flowing in and gold was flowing. It’s just a wonderful time, but it all comes to an end in World War I. Tell us what happens to this interwar period, this collapse of 1918 to 1938, not just the gold standard, but globalization in general.

Interwar Period: 1918–1938

Meissner: The interwar period is a period of great instability. It started in the 1920s with an attempt to resurrect the global order of the late 19th, early 20th century prior to the war. Really, economies, policymakers wanted to reintroduce the gold standard, wanted to bring back global international trade and capital flows. But, alas, that never really materialized.

Tariffs went up in the 1920s. Exchange rates were pretty unstable. It was pretty shaky. Immigration was also limited, notably by the United States in the early 1920s. That, plus great financial difficulty due to the reparations burden imposed on Germany and the other central powers after the war, really created a recipe for instability. 

Now, by the late 1920s, things had gotten a little more stable. The gold standard had come back. Winston Churchill, in 1925, brought Great Britain back onto the gold standard at the old parity. Keynes was adamantly against that. He thought it was the wrong parity, the wrong move. The gold standard was a barbarous relic and all that. Churchill was adamant that this was a good choice. He made a good choice and that, like in the harbor, all boats would rise together with a rising tide. That would be the way the gold standard worked.

I don’t know if Churchill was trolling us or whether he was manipulating us, but he forgot to mention what happens when the tide goes out. The tide started to go out in 1930 after the US had raised interest rates in 1928 and the stock market crashed. The world faced a recession. Then the United States raised tariffs, with the Smoot-Hawley tariff, which raised tariffs by about 50%, bringing us back to something more like the US had had prior to World War I.

This led to retaliation. And financial crises were pretty prevalent in the early ’30s, most notably in the summer and spring of 1931. Countries devalued their exchange rates and competitive devaluations and destabilizing speculation just made things a whole lot worse. The early ’30s were very turbulent and led to an extreme collapse in globalization. Both financial flows and trade really collapsed to almost zero.

Beckworth: Let’s do a counterfactual history. Let’s go back to the earlier ’20s. Again, this is after World War I. Obviously, trade collapses during World War I, but they’re trying to resurrect it, as you mentioned. Let’s say the UK goes back on the gold standard at a more reasonable exchange rate. It recognizes all the inflation and money creation during this period.

Number one, it returns at a more reasonable exchange rate to gold, the pound to gold exchange rate. Number two, I want to invoke Doug Irwin, who blames France. Really interesting story, that France hoarded the gold, so it wasn’t playing by the rules of the game. Instead of letting gold flow out, France was actually hoarding, which led to this deflation. The US, he argues, to a lesser extent also did this.

Gold is supposed to, again, flow across borders and equilibrate price levels. Market forces would do this, but these countries were intervening—France in a major way. Let’s say, again, UK pegs at a reasonable rate; France and the US, they don’t do all this. Could we have seen a more sustained period? Would we have avoided the worst of the late 1920s, 1930s, had these other choices been made?

Meissner: That’s a very interesting question. I view France as the China of the late 1920s, a very undervalued exchange rate, accumulating huge surpluses, and basically turning those trade surpluses into a massive accumulation of A, gold, and B, sterling bonds. It turns out that when Britain went off the gold standard in 1931, it virtually bankrupted the Bank of France.

That was obviously not on anybody’s bingo card at the time when they readopted the gold standard in the way they did. We see these situations arise where there’s surpluses and deficits. I think one question might be, are they inherently unstable? Not necessarily, I would say, but when shocks do come, they can exacerbate things. Relative to what happened, this counterfactual, it could have reduced perhaps the deficits and surpluses a little bit.

I think the real shocks that occurred and the nominal and the monetary shocks that occurred, especially because of the banking panics and financial crises and because of financial contagion, and just the sheer adherence to the gold standard throughout the early 1930s by many countries, which just deepened and prolonged the Depression, I think those were bigger challenges. The surpluses and deficits weren’t probably helpful and led to a little bit of animosity between countries and economies.

I think the more fundamental problem in the Depression was the monetary shocks and real shocks. On top of that, we had the trade war, which, for a country like the United States, maybe didn’t matter as much. For the small open economies of the day that really relied on global demand and foreign markets for their demand, the trade war was just terrible, a major source of the downturn for them.

Beckworth: We want to move on to the next period, but before we do, Chris, I got to tap into an interesting article you wrote for the Journal of Economic History titled “Austerity and the Rise of the Nazi Party,” published in 2021. We’ll provide a link to it, but tell us the summary of that article because this is tied, I believe, to the Great Depression and what we’ve been talking about.

Meissner: Right. That’s a very troubling episode in history, a case of austerity. We looked at the case of Germany. In the early 1930s, the German government fell apart. There was a lack of decisiveness. It was very hard to get anything done. The chancellor at the time, Heinrich Brüning, was basically running the country between 1930 and ’32 by executive order. He felt it important to cut spending and raise taxes to balance the budget. These fiscal policies, I don’t think they helped revive the economy, although at the time, the Keynesian approach to stimulus wasn’t quite how we think about it today.

They didn’t do any favors for the economy, but they also just really upset people. I think some of these tax rises were quite regressive. They hit the lower tax brackets harder. Civil servants’ pay was docked numerous times, and all of that added up to a lot of political dissatisfaction. Unfortunately, it seems to be the case that the districts and states that were most hit by Brüning’s austerity tended to increase their vote share for the National Socialists, the Nazi Party, more. It’s a troubling episode that connects austerity to the rise of fascism. It’s astounding to me that no one had studied this before, econometrically, the way we did it.

I think it was on people’s minds that the recession and the Depression were terrible for reactionary parties like the Nazis. Really linking the austerity at the micro level to these vote shares was an eye-opener and a warning sign that austerity could backfire in many cases, so you’ve got to be careful there.

Beckworth: Just to be clear, there’s been other work that’s been done showing the Great Depression, and particularly stories tied to this international gold standard, gave rise to the Nazis. You’re saying on top of that, or amplifying that, was this austerity, and it’s closely tied to the regions that voted more heavily for the Nazis.

Meissner: Sure. We’re not saying that it’s the only cause for the rise of the Nazi Party. There were many things going on, but what we have is a sizable effect of districts that faced harsher cuts in spending and bigger rises in taxes tended to increase their vote share for the Nazi Party faster in the crucial elections of 1930 and 1932, when the Nazi vote share went from something well under 10%, not even a threat early on, to something like 38%, 42%, enabling Hitler to make a coalition and to eventually seize power. 

It’s not the only thing that’s going on, for sure. The recession is playing a role, international reparations, the hyperinflation left its scars, many factors, unemployment, and even the media environment, where, reminiscent of today, things became more polarized. Austerity certainly didn’t help. Marginally, it may have made a difference in many places.

Beckworth: We do want to move on, but since you raised it, the hyperinflation, that’s from the early 1920s. I want to bring this up because it’s striking to me—and I’ve talked to other people on the podcast, but you’ve studied this. I want to get your take on it. It’s striking to me how many Germans and even people outside Germany still look at the hyperinflation as the cause of the rise of the Nazis. You mentioned it left a scar, so maybe it had some role. Have you observed this idea that we’ve got to avoid hyperinflation, otherwise we’re going to get something like a fascist state, like the Nazis, as opposed to the important role the Depression played? It seems to be a misweighting of what really drove the story there. One, have you seen this? Two, how do you explain it?

Meissner: Right. It’s a little hard to say. I think people have tried to connect the hyperinflation, which occurred between 1921 and 1924, to the rise of the Nazi Party and the electoral system in the early ’30s, but it’s a little bit of a stretch. It’s about a decade later. It’s not having an immediate causal effect. If it occurred, it’s through some memory. Again, I would say that the local deflationary process, the trade policies, the burden of reparations, and even austerity, as we’ve been talking about, probably played a bigger role. They were more immediately on the minds of German voters at the time. I think the connection between the hyperinflation and the rise of the Nazi Party is pretty tenuous as far as I’ve seen.

Post-War Bretton Woods Arrangement

Beckworth: All right. Let’s go to the next part of the story of globalization. It’s post-World War II. We have the Bretton Woods. We have IMF and GATT that comes out of it. I was fortunate enough recently to go to New Hampshire and visit that Bretton Woods Hotel. You get to see the room where these different dignitaries, famous people, stayed, Keynes and Henry Dexter White, I believe. It was really fascinating to go there. Let’s talk about that. How did that post-World War II Bretton Woods arrangement set in place what happens up until, let’s go through the ’70s. It sets in mind a Bretton Woods arrangement that really shapes what we look back at now.

Meissner: The Bretton Woods arrangement came out of the planning done by FDR and Winston Churchill. It was an attempt to remedy some of the problems of the 1930s, namely, destabilizing speculation and the idea that debtors should bear the burden of adjustment when there were these imbalances, things we’ve been talking about. They set this system up. It was a dollar-based system. Countries pegged their currencies to the dollar, and other things happened. The capital was controlled. There were strict limits on movements of international capital that controlled this destabilizing speculation. Countries were able to adjust their exchange rate peg and maybe even tap the IMF in cases of extreme imbalance. Two things. It didn’t work very well in practice for the smaller countries.

There were many, many currency crises in the period, readjustments of the exchange rate parity. As these imbalances built up, that was the only way countries could get out of it. Second, there was a systemic flaw, perhaps. That’s known as the Triffin dilemma, where with the dollar backing all currencies and the dollar backed itself by gold, we have a little problem. Either there’s too many dollars, and we have global inflation, and the US is just running these huge deficits, or we have the United States not printing enough dollars, and we have global deflation. Neither of those sound particularly attractive. In the first case, people worried about the convertibility of the dollar into gold. In the second, they worried about fundamental economic instability and depression. That, plus the imbalances built up. 

By the 1970s, the system just really wasn’t workable. Countries saw the writing on the wall. It wasn’t viable for small countries, and the US, at the center of the system, really didn’t want to be constrained by it either. They took the plunge and de-anchored the system. In 1971, Nixon closed the gold window and said, “We’ve had enough of the gold standard,” really ending this idea that the dollar should be backed by a commodity like gold or anything else. We’ve gone along for 50 years, and the world hasn’t ended. I think it was an interesting, challenging experiment at the time.

It was probably leading to great and heightened uncertainty at the moment, but I think we’ve survived it. I would say one other thing. There’s an interesting footnote to this. The 1950s and ’60s were a period of extreme financial stability in some sense. International banking crises and twin crises, when we have currency and banking crises coupled together, debt crises, those had been vanquished. The restrictions on capital movements and the financial repression of the time coming out of the war, those were great for financial stability, but the tradeoff was that probably economic growth was a little bit slower than it could have been, and allocation of capital was probably a little worse than it might have been. It seemed to be the reasonable tradeoff at the time.

Beckworth: I guess it depends on your risk preference. If you want to take the risk, live with the possibility of something bad happening, or just be really stable and secure, you look back at that period differently. Richard Nixon goes off of gold, and I’ve come across many people who would say, “Oh, that was the worst decision we ever made as a country.” The reality is, as you just highlighted, we were already cheating on the relationship. We were already running big deficits. Going off the gold just sealed the deal. It’s like a divorce. It signifies what is already reality.

It’s not as if Richard Nixon was some magical moment to change the world. It was already in a system that wasn’t working. There was imbalances. That brings us to the modern period, and you have several chapters at the end talking about hyper-globalization and also the emergence of a Bretton Woods II system. Let’s walk through what is Bretton Woods II. Then how does that tie into what you call hyper-globalization that’s emerged during this period?

Meissner: Sure. Bretton Woods II is not my terminology. Peter Garber and Michael Dooley came up with this. David Folkerts-Landau, in a famous paper from the early 2000s, highlighted this. It was pretty amazing that without an internationally planned system like Bretton Woods I, we saw the reemergence of pegged exchange rates, countries that tied their currency to the dollar, and in this case, namely, it was China, but other emerging markets, too. We saw imbalances rise. We saw US deficits and accumulation of dollar liabilities. A deterioration in the net foreign asset position of the United States. 

It was all quite reminiscent of Bretton Woods I. Peter Garber and his co-authors said, “This is very sustainable. Really, this undervalued exchange rate that China has, pegged against the dollar but probably too low, is really helping it develop. By the way, the United States is getting a great deal out of this. Capital is coming in at a lower interest rate than it otherwise would. We’re getting to consume now and pay later. What could be better?” We got locked into that.

Obviously, China is very important for understanding the recent phase of globalization. On the trade side, after 2001, when the United States established permanent normal trade relations with China, trade with China just exploded. Exports from China rose massively, creating so many jobs for China and really helping alleviate poverty and just a surprising amount of economic growth in China. Trade integration was the flip side of these financial imbalances.

For a while, it was going along pretty well, and it was pretty stable. It didn’t crash out the way Roubini envisioned a dollar crash and a massive financial crisis. We did have a financial crisis, but the dollar actually strengthened. We didn’t swing back to surplus, but our deficit did shrink for quite some years and just faded out. Some semblance of that system is still visible today, but it’s not as crucial as it once was for various reasons. A lot of other things going on.

China was crucial to this wave of hyper-globalization. Many other countries benefited from these new technologies and offshoring and just participated in global value chains. China wasn’t the only story out there. There’s a lot of integration happening in Europe, in Southeast Asia, and the Middle East. It’s a bigger story than just China, but it is crucial to understanding this period.

Beckworth: China, definitely a big part of the story, but so was technology, the internet, cargo ships. There’s a lot of things happening all at once that, in my mind, would have led to a similar outcome, no matter how you rearrange the pieces. By that, I mean, at some point, China was going to re-enter the world’s economy. You could maybe time it differently. You could think about it, maybe being more careful or thoughtful. 

When I hear all these conversations, it’s us against China, to me, this is an inevitable adjustment that had to take place. Moreover, I look at all the humanity that’s been elevated, not just China itself, but in Asia. A billion people lifted out of poverty. That, to me, again, goes back to this big theme of globalization. It’s a beautiful thing. Now, again, there are some people who do get left behind and crushed by it, and some who get ahead. In the aggregate, we’re better off. 

The China Shock

That leads me to this question I’ve been dying to ask you: Where do we stand on the consensus of the China shock? This famous paper that came out that attributed a whole lot of job losses in the US to China entering the WTO, the early 2000s, disruptions. I’ve seen a lot of pushback against that article since then, that there’s a number of things they may have misinterpreted. Maybe summarize the article, and then where the literature now stands on how to properly think about this development.

Meissner: Indeed, it’s been an influential article. This paper, by Gordon Hanson and David Autor, showed that places that were more exposed to Chinese import competition seem to have higher job losses in the late ’90s and early 2000s. I think their bottom line was that about 25% of the job losses in manufacturing in the United States could be attributed to increased integration and trade with China. Now, there’s been a lot of pushback, as you’ve mentioned. If you run some sensitivity tests and do some other fancy econometric work, you find maybe those results aren’t quite as statistically significant as they thought.

Let’s go bigger picture a little bit and think about how trade works. It turns out that trade theory always predicted that certain sectors could lose out. Trade is not necessarily a Pareto gain, especially internally. Internationally, it might be win-win, but internally, there’s always some adjustment that has to take place. What the studies have shown is that while we may have lost some number of jobs to Chinese import competition and global import competition more generally, we’ve gained a lot of jobs in other sectors. There’s been this period of transition, and we’ve gained a lot of jobs because of trade.

We’ve also gotten access to cheaper consumer products and inputs that have made our companies more productive and globally competitive. The Autor-Dorn-Hanson view of the China shock and the China syndrome leaves out the other side of the equation, the gains that were reaped because of globalization. I think that it’s important to remember those issues when we talk about this.

Beckworth: I had on the podcast a while back Scott Lincicome from Cato. He’s real big in this space. He tells the story about there are certain parts of America that did recover just great from the China shock. They were hit hard even before China. He gave the example of Greenville and Spartanburg, these two cities in South Carolina. They used to be massive textile centers. They were losing even before China hit the scene, but China really decimated them. Well, now they’re big power exporters. A lot of FDI came in—I believe BMW, Michelin—and they’re actually exporting a lot to the rest of the world. They’re able to turn themselves around.

In my mind, when I think to the extent trade does harm particular parts of the country, the question shouldn’t be about trade. It should be more about, “Why can’t these regions adjust?” I want to be very clear. There’ll be some people who never adjust. Maybe it’s an older person who never can learn a new skill or adjust to the new industry, but some of them do. In my view, what I see as something that’s been a problem that has harmed some of these parts of the country is housing, not able to move to a part of the country where there are jobs.

Some of the shock absorbers we want to be there aren’t there. How do you view that? Why did some parts of the country maybe harm more than others when there is trade like this?

Meissner: Absolutely. I think it’s important to recognize that trade and integration is this great tool and technology, if you will, to elevate economies and our standard of living. If we misuse the tool or don’t put the proper safeguards in or put in a safety net, we can end up getting hurt a little bit. If you use the power saw and didn’t have your safety goggles on, you could get a little shrapnel in your eye, or if you weren’t wearing personal protective equipment, you could face some danger. I think that this narrative of the failures of globalization is not so much a narrative about trade, per se, and integration, per se.

I think it is a story about the failure of our political system and our willingness to implement these guardrails and the safety net that really worked for people. That’s what it should be there for. Certain places have done better, like you mentioned. They’ve been more dynamic. They’ve brought in experts. They’ve used their human capital to rebuild, reorient, and be flexible. Not every place could do that. I think it’s worthwhile stepping in to share some of those gains from trade with the interests of the members of society that haven’t gained as much. I think that would be of utmost importance.

I think that the data internationally or even within the country really shows that the countries that have done best and places that have done best from globalization have enhanced the safety net and been as flexible as they could be to reorient themselves. I think we need to learn how to do that better. That way, we can really harness these gains from globalization and not suffer too much of the downside.

Beckworth: For sure. We want humanity to thrive, and we’ve got to build in the shock absorbers, the tools, the ability to handle the creative destruction that it brings along the way. I want to again circle back to my thesis that you confirmed in this book, and that is a long arc of history bends toward more integration, more globalization, although there’s bumps on the road, and maybe these detours take time. We talked about the interwar detour. That lasted quite a while. Overall, I love the way your book ends. We’re going in a direction of more integration, ultimately better improvement for humanity.

Detour from Globalization

Let’s dial back a little bit from that big picture view to where we are today. We’ve had a new president, new trade policies, and he’s affecting not just the US but the rest of the world. There have been these changes taking place, friend-shoring, industrial policy. How serious are they? Is it a small bump in the road? Is it an actual detour? Are we taking another county road to get back on the highway farther down the road? How should we think about this? It is true President Trump won’t be around forever. There might be another administration who goes back. Have we done any permanent damage that’s going to affect the trajectory of globalization, even if it does continue?

Meissner: No one can know the future with great precision, but let me venture a guess. I would say the US is in the mood to hunker down right now and to secure its safety and stability and reconsider its strategic position in the world. I think that seems to be the coalition right now. If we have to pay for it through higher tariffs, that seems to be the voice of the day, the way things are going. Now, the United States is one economy of many, echoing the theme from my book. 

If we look at the rest of the world, I don’t think that the global economy is seen as that much of a threat. Certainly, within Europe, the European Union remains large and important, and integration there, notwithstanding the Brexit issue, is going along as it’s gone in the last 30 years.

China is all for the global economy. Their exports aren’t slowing down, and they’re cutting trade deals, most recently, one with Canada. The European Union is signing trade deals, most recently with India. The whole world out there has not given up on the global economy. One of the major players, the hegemon, if you will, the lynchpin of the international system after World War II, has gone into retreat. Do we need it to maintain global trade? I would say not necessarily. I think, like Mark Carney says, “Yes, it might be time for the other countries to get together and work without us.” We’re just one country out of 200 and some in this world. Our share of global output is terminally in decline. We’re becoming a smaller part of the world. I think there’s great hope for the global economy, even if the United States doesn’t want to play ball. 

The other thing I would say, and coming back to technology, we are, as you know, in a moment of great technological change. Here I’m thinking of artificial intelligence, AGI. This technology is going to transform not only our own economy, but the global economy in many ways. We have yet to see how it’s going to play out. I am sure that it’s going to have great effects and probably all the positive for integration, as many technologies that have come before it have. We shall see, but I have a more optimistic outlook for the global economy than maybe many other people would have right now.

Beckworth: I love that optimistic outlook. I think you’re absolutely right. There’s these forces that are innate to humanity that will move forward. Moreover, it’s the US that’s hibernating, but the rest of the world is still moving forward with trade, as you mentioned. Moreover, all of these waves of globalization that you’ve mentioned were all really underscored and supported by technology and innovations. This has got to be something new that’s also going to push forward. Listeners and watchers of the video, if you want to get more on this, be sure to check out Chris’s book. It is titled One from the Many: The Global Economy Since 1850. Chris, thank you so much for joining the podcast. 

Meissner: Thanks so much. Great to have done it.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetarypolicy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth, and follow the show @Macro_Musings.