US Dutch disease – the US$

The Dutch Disease (sometimes know as ‘the resource curse’) refers to an economic phenomenon where a country’s economy experiences negative effects due to a sudden increase in revenues from natural resources, such as oil or minerals. The name makes reference to Holland and the discovery of vast quantities of natural gas during the 1960s in that country’s portion of the North Sea. The subsequent years saw the Dutch manufacturing sector decline as the gas industry developed. The major problem with the reliance on oil is that if the natural resource begins to run out or if there is a downturn in prices, once competitive manufacturing industries find it extremely difficult to return to an environment of profitability.

Most people have thought that the Dutch disease occurs strictly in a developing country as more developed economies tend to be diverse and productive, with strong value-added manufacturing sectors. For the US economy its current account deficit over the past 25 years has been its strongest and most enduring export. Since 2000 the US discovered debt and sold various types of debt securities, such as Treasury bills, Treasury notes and Treasury bonds to investors. As a natural resource it has been exporting the US dollar debt which is currently $36trn – see graphic. Since the start of the year the US dollar has lost approximately 8% of its value

The Dutch disease in countries like Nigeria, Venezuela and Mexico has come about by the earnings from a natural resource being spent on unproductive areas of the economy and powerful groups with political allegiances. This is instead of more productive areas including infrastructure, education and other areas of business which the country can fall back on when their particular resource runs out. Strong governmental institutions are required for a country to make best use of their natural resource. Norway is a good example in that its robust legal and regulatory framework ensures that oil revenues are managed transparently and that various interest groups cannot capture disproportionate shares of the rent.

Norway’s sovereign wealth fund has been actioned with the establishment of a natural resources fund (NRF) which is governed separately from the executive. A law has been created that if the finance minister does not declare, within a period of time, the total revenue from oil paid into this fund each year, he/she could face up to 10 years in prison. Also the use money in the NRF has to be approved by the parliamentary system. This ensures that they have the means to prepare for life after oil. The concern is if power comes with the chance to get rich by corruption and stealing form the state, the competition for office can become violent.

In the US the eagerness to take on debt – Big Beautiful Bill – will cost of $3.4trn over 10 years with the benefits going to the wealthy. In the past the Republicans have presented tax cuts as a way of increasing productive investment which supposedly has a trickle down effect for lower income groups. Unlike Norway, America lacks a robust legal and regulatory framework and institutions with a disciplined fiscal rule. An economy that lacks a strong legal-political institutional infrastructure and is populated by multiple powerful groups can lead to the economy experiencing Dutch disease.

Source: Does the US have Dutch disease – Brendan Greeley – FT 12-7-25

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