Excerpt from Trade Wars Are Class Wars

Matthew Klein and Michael Pettis explain what the US should do to address its extreme inequality, degraded infrastructure, and (because of the dollar's role as reserve currency and US financial system inventiveness) current account deficit:

"In the short term, America's first objective should be to shift the burden of absorbing unwanted financial inflows from the U.S. private sector to the federal government. American households and companies should not be pushed to borrow more than they can afford out of misguided concerns about the budget deficit or the level of government spending. As we have shown, the fact that the United States must absorb a permanent financial account surplus means that the only way to prevent rising American unemployment is with some combination of higher private borrowing and higher government borrowing. That is why, in the near term, U.S. Treasury debt should be issued as needed to accommodate the desires of foreign savers. Lower payroll taxes, larger standard deductions on income taxes, and a better social safety net, particularly for health expenses, would all help generate the necessary budget deficits while simultaneously ameliorating the unequal distribution of income.

"It would be even better if the federal government absorbed foreign financial flows by directly or indirectly increasing investment in much-needed American infrastructure, particularly public transit and green energy... Federal spending could also help sustain demand for American manufactures even if the domestic market remained swamped by gluts from abroad... the United States should also find a way to accommodate the legitimate desires of certain governments to protect themselves from crises without having those governments accumulate emergency savings denominated in dollars... These measures, however, are mainly short-term stopgaps. They are not enough to resolve the underlying problems in the global economy. The United States would still remain the world's dumping ground for the world's excess savings and the surplus production that comes with it. The open global trading system will remain under threat as long as elites in the major surplus economies remain committed to a system that continuously squeezes the purchasing power of their workers and retirees.

"If we want to end the trade wars before they further damage the global economy and undermine international peace, we must therefore address the twin problems of income inequality and the world's unhealthy dependence on the U.S. financial system."