Most books on economics—whether academic tomes or bestselling pop-econ reads—are built around a simple goal: to explain the relationships between variables (like inflation, interest rates, unemployment, and GDP) based on historical data, with the hope of making sense of the past and maybe even predicting the future. That sounds reasonable. After all, economics is often seen as the science of interpreting patterns and relationships.
But there’s a major problem at the heart of this approach. One so big, it can make many of these explanations either misleading or flat-out wrong.
Not all countries are the same. And only one country has the global reserve currency.
This matters. A lot.
The U.S. Dollar Exception
The United States issues the global reserve currency. This means that most international trade, finance, and central bank reserves are denominated in U.S. dollars. It gives the U.S. an unparalleled advantage: it can borrow in its own currency at lower rates, run persistent trade deficits, and still attract global capital.
No other country has this privilege. And that changes everything.
When economists propose general rules—like how deficits affect interest rates, or how inflation responds to monetary policy—they often assume that these rules apply universally. But they don’t. A country like Argentina or Turkey simply cannot behave like the U.S. and expect the same results. The structural role of the dollar means the U.S. operates on a different economic playing field.
Why the Models Break
Economic models often rely on past data. They try to connect dots between variables over time. But the idea that these same patterns will repeat is flawed—not just because history never exactly repeats, but because the context in which those variables operate is not constant.
If your model assumes a neutral world where all countries issue debt in their own currency, have equal access to capital markets, or have symmetric relationships with inflation and interest rates, you’re building on sand.
The reality is that most countries are highly constrained by external factors—especially their reliance on the dollar. When the U.S. Federal Reserve raises interest rates, the effects ripple globally, often triggering capital flight, currency depreciation, and debt stress in emerging markets. But within the U.S., the same action has a far more contained (and sometimes even beneficial) impact.
One-Size-Fits-All Economics Doesn’t Work
This isn’t just an academic point—it has real-world implications.
- Policy advice that ignores the unique position of the U.S. can lead developing countries down dangerous paths.
- Historical analysis that doesn’t account for the dollar’s role can misread the causes and consequences of economic events.
- Predictions based on U.S. patterns often fall apart when applied elsewhere.
It’s not that economic relationships don’t exist—but that they are context-dependent, and the context of being the issuer of the global reserve currency is powerful enough to distort or even reverse expected outcomes.
What Needs to Change
Economists—and especially those writing for broader audiences—need to be more upfront about the limitations of their models and theories. They must ask: Who does this apply to? Under what conditions? What assumptions am I making about monetary sovereignty, global capital flows, or the currency hierarchy?
Because if we keep pretending that all countries play by the same economic rules, we’ll keep getting blindsided by reality.
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