Two Crises, Two Bubbles: Jeffrey Sachs on a Hegemony That Won't Admit It's Over

Sachs frames the moment as a double crisis: a crisis of the United States and a crisis of the West. The core of the US alliance ran the world for two centuries and no longer does — a crisis for them, not for the world, not for our living standards: a crisis of power. The US declared itself sole superpower after 1991 and is programmed — in foreign policy, politics, media — to protect a hegemony that no longer exists. Europe's behavior he finds stranger: it cut itself off from the energy that fueled its economy, and 80 years after losing its empires still has an imperial mentality — a mayor turned prime minister puts on the imperial mantle and heads to Kiev. Multipolarity itself is benign: China's rise is good for living standards, Russia's return good for the world; the zero-sum mindset is the problem, not the facts. The political class answers with angst: grandiosity, no admission of weakness, almost nothing truthful in any government word. The geopolitical bubble has stoked a financial bubble — valuations depend on keeping both alive (Bessent's open hand, Trump's rhetoric, the seven magnificent companies) — while a public that cannot get a doctor's appointment or afford gasoline is dragged along by a class committing the sunk-cost fallacy.

Sachs returns to July 1914: Europe was in a glorious economic and scientific era — no scarcity driving Britain and Germany apart; Keynes's Economic Consequences of the Peace captures the age. The war puzzles historians: no deep reason — two blocs clashed at industrial scale, each expecting a one-month war. After 1815 the concert of Europe kept a hundred years of peace, broken when Kaiser Wilhelm II dismissed Bismarck and built a fleet to rival Britain. Today's anti-China alliance, he argues, rests on reasons weaker even than 1914's near-zero ones: China is not Kaiser Wilhelm. Since 1949 its foreign-policy logic is 'you messed with us for a century — never again'; its economic logic, 'we don't want to be impoverished.' China has fought no war in 46 years (the last: a one-month Vietnam affair, 1979) and arguably one overseas base (Djibouti), against around 750 US bases in 80 countries. Meanwhile the Shanghai Cooperation Organization meets in Bishkek — ten countries, 42% of world population and 34% of output at purchasing power parity, against the G7's 9% and 28% — and Eurasia wants peace and trade. Russia-China is smart complementarity, not convenience; Europe gave it up. Even Iran's image is a cartoon: Persia was the first great multinational empire 2,500 years ago; its officials carry the gravitas of a 5,000-year-old civilization.

Part of the story, Sachs says, is so-called economic statecraft — part of the American imperial toolkit since the containment of the 1940s, and tremendously enlarged in the early 2000s, when Washington realized it could use the dollar payment system as the enforcement mechanism, not just blockades of technology and trade. Since then the US has weaponized the dollar: confiscating $300 billion of Russian assets or Venezuelan, Iranian, North Korean assets, and imposing extraterritorial sanctions by threatening banks abroad — do any transaction with Iran and your entire dollar-based business is at risk. That is the basis of the sanctions regime and of the economic D-Day idea. What its authors don't understand is that you don't need dollars to settle international transactions; Sachs has himself mechanically advised countries on starting new currencies. It worked for a while because of inertia, but China, Iran and Russia have figured it out, and BRICS can accelerate it. Trump's direct threat — if you don't use the dollar we'll destroy you — shows the fragility: if you have to threaten, you have already lost. A few technicians from China, Russia and Iran getting together could stabilize Iran's currency; the current financial unrest is the legacy of the lag in moving to non-dollar payments.