David Wessel: Globalization Study Moves Past Rhetoric

While I've had issues with material on the Wall Street Journal's editorial page, and today is no exception, I want to be careful to separate what goes on there from what gets presented elsewhere in the WSJ.

David Wessel's Capital column is not on the editorial page, and it does not belong there. I don't always agree with everything he says, and I don't always disagree either, but I never get the impression that facts are twisted to sell a preconceived notion:

Globalization Study Moves Past Rhetoric, by David Wessel, WSJ: Most of the policy briefs, working papers and trade-association reports that cross a columnist's desk slide easily into the trash can or onto the read-someday pile.

But a recent study on globalization, commissioned by the Financial Services Forum, an association of the chief executives of 20 huge financial companies, ranging from American International Group and Citigroup to UBS and Wachovia, stands out.

The analysis, written by a former member of President Clinton's Council of Economic Advisers, a former member of President Bush's and a former Bush Commerce Department official, says:

(1) Globalization is good for the U.S. economy. (No surprise coming from a bunch of financial firms that make money doing business across borders.)

(2) Gains from globalization aren't evenly shared. (A little surprising, but in the past couple of years, there has been a willingness among business to publicly acknowledge that economic reality.)

(3) To avoid a backlash against globalization, governments and businesses must come up with new ways to spread its benefits more widely and assist those hurt by all sorts of economic change. (Very surprising, more like a Democratic candidate's talking points than a report issued and promoted by an outfit led by Citigroup Chief Executive Charles Prince and Don Evans, the former Bush commerce secretary.

What's Going On? Business interests with a strong stake in globalization ... see rising public anxiety about globalization as a threat. And they realize that preaching the gospel of comparative advantage isn't going to win the debate.

"The mounting opposition is in response to the other side of globalization -- outsourcing of jobs, economic dislocation, anxiety and fear," the forum said ... early this year. "Making the case for trade and globalization requires...a list of specific, meaningful, practical, cost-efficient, and effective public- and private-sector responses to the reality that while the aggregate benefits of free trade and globalization are tremendous, it can sometimes bring with it painful dislocations for individuals, families, towns, regions, even entire industries." ...

Some business executives, prodded by politicians such as House Ways and Means Chairman Charles Rangel, finally are realizing that trade-friendly Democrats will be overwhelmed by trade skeptics unless there is something tangible to offer workers worried about their livelihoods and their children's. A new Pew Global Attitudes survey finds Americans generally optimistic about the next five years, but only 31% expect their children's lives will be better than their own; Europeans are even more pessimistic. By contrast, 81% of the Chinese expect their children to do better.

The Financial Services Forum report is, in part, a response to that. The specifics are intriguing ... because they move beyond inadequate approaches such as making the failing Trade Adjustment Assistance program for dislocated workers a tad more generous.

Among the Proposals: Raise taxes on winners to share benefits of globalization more widely. Replace TAA and unemployment insurance with a big new program for displaced workers that offers wage insurance to ease the pain of taking a lower-paying job. Provide for portable health insurance and retraining. Create a way for communities to ensure their tax base against big factory closures. Eliminate tax hurdles for businesses that do what International Business Machines is proposing: Offer 50 cents for every $1 (up to $1,000 a year) that workers set aside to pay for training. ...

Grant Aldonas of the Center for Strategic and International Studies think tank, one of the report's three authors [said] "...We are renegotiating the social contract in America, but we're letting it be done by the United Auto Workers and Delphi, and leaving a lot of others out -- including the poor and the businesses on the leading edge."

Mr. Aldonas and his co-authors, Dartmouth's Matthew Slaughter and Harvard's Robert Lawrence, ... say the U.S. need not accept as inevitable the steady widening of the gap between economic winners and losers, an inequality that threatens to produce barriers to trade, investment and immigration that will hurt U.S. prosperity. ...

Now the question is whether business will go beyond talk. As C. Fred Bergsten ... puts it: "They haven't gone to the mat and talked to Charlie Rangel and Democrats who are wavering, if not worse, and said, 'We want to support a meaningful program of wage insurance, and we'll be willing to give up some of our beloved tax breaks to pay for it.' "

One troubling sign: Although forum chief executives issued statements blessing the new report, not one has been willing to talk to a Wall Street Journal reporter about it.

One thing that bothers me about the whole inequality debate is the presumption that the winners deserve their incomes because it reflects their contribution to the firm, i.e. it is the wage that would be earned in well-functioning competitive markets, with the reward is equal to the person's marginal contribution to the firm. Thus, the analysis often begins with the idea that any tax takes away someone's hard-earned income and redistributes it elsewhere.

But for the incomes where inequality is rising most - those at the very top of the income distribution - this is a questionable claim. The idea that the salary of a CEO or hedge fund manager is set by competitive markets, or even approximately so, seems unlikely, or at least open to serious question. It should not just be assumed in these debates.

If the incomes of the winners are higher than they would be in a competitive market, then many of the arguments against taxing their "hard-earned money" melt away. For example, if a person would earn $1,000,000 in a competitive market, but because of market imperfections earns $1,200,000 instead, is it unfair to tax away the extra $200,000?

At a 33% tax rate in a competitive market, after-tax income would be $667,000, i.e. the competitive income of $1,000,000 minus 33%. At the non-competitive income of $1,200,000, it would take a tax rate of around 44% to leave the person equally well off (i.e. $1,200,000 - 44% of $1,200,000 =  approx. $667,000).

For this reason, I would argue that tax rates such as the 44% rate in this example are not as high as they might seem. Part of the tax simply levels the playing field, i.e. taxes away the income in excess of the competitive level, and the tax rate is then 33%, not 44%, on the part of income that would be earned in a competitive market.

Update: Free Exchange at the Economist has a different take on this issue.

Comments

[Meh]

I'm glad to see that some people at least are realising the repeating bromides about Ricardian comparative advantage isn't helpful.

One reason, as they mention, is that politics tends to operate on a shorter timescale than "ceteris paribus, things work out in the long run" so eventually there is a need to address the political reality that medium term disruptions to the economy will be unpopular.

But the other, more important reason is that there is nothing in Comparative Advantage about distribution. Only a sense that aggregate wealth increases. There is certainly nothing about internal distribution, as it treats the internals as a black box.

But crucially (and I invite everyone to try it yourself, write a multi-product model with mobile capital and fixed labour and run it) there is nothing in Comparative Advantage about the distribution of aggregate trade gains between nation states either. Trade can create an aggregate increase in wealth, but in a world of mobile capital that wealth gain in no way is automatically distributed equally between trading partners.

[Brenda Rosser]

It is important to focus on ALL of the issues now confronting everyone on the globe. Climate change, peak oil, global resource depletion and extinction.

Neoliberal globalisation is over anyway.

Go to the Teach-In entitled 'Confronting the Global Triple Crisis' in the Lisner Auditorium, 730 21st, NW, George Washington University, Washington DC.

It's on 14-16 September 2007. 60 speakers and 25 workshops.

Wish I could go but it's hard to travel such a distance from Tasmania, Australia.

Very worthwhile speakers like David Korten, David Suzuki, David Pimental, Vandana Shiva...

Power down folks. Start growing root crops in your lawns and quickly because the change will come fast. Introduce yourself to your neighbours and promise to help them if they're struggling in anyway. Ask them to grow complimentary food.

http://www.powerofcommunity.org/cm/index.php?option=com_weblinks&catid=2&Itemid=23

Use the good side of globalisation. Online networks for local currencies. websites that teach you how to grow particular crops and make things etc. See:
http://www.howtopedia.org/en/Special:Allpages

Crops can be grown intensively along railway lines, in parks, in pots. It's easy to grow far more of any crop than you will can eat.

'Live simply so that others may simply live.'

says...

prof thoma, i've the greatest respect for you but aren't you also engaging in the same variety of hand-waving in saying that some top level incomes are above a competitive equilibrium. i am all for sloganeering and myself hate it when some people make more money than seem to deserve. but who are we to argue that the pay of CEO or hedge fund managers are excessive. wouldn't you be offended if you wanted to pay your plumber more than the standard rate.

i know that you are pointing towards political rent-seeking towards some of the huge incomes and i agree with you there. but you really want the same politicians(of whatever stripe) to legislate pay equality who were corrupt to begin with.

[save_the_rustbelt]

The US government is not a neutral observer - the government is pushing policies that enriches some and punishes others - so,what free market?

The financial firms see a backlash coming (Sandy Weill int he NYT presented as a representative of the new gilded age).

Self-preservation.

[DRR]

I find it increasingly amazing that the people who are the primary beneficiaries of global economic integration, can't seem to think of any way they might stave off the backlash. Instead they just hand-wring over the increasingly bitter sentiment of the rabble and dreamily ponder if there was only some way they could be placated.

Despite escalating rhetoric, Americans really aren't class conscious populist warriors. You want to keep the peasants from storming your manor? Then SHARE THE WEALTH!! A lot of money has been made in the last 10 or so years, only it's all gone to a narrow group of people. If the vast swath of the American people were even getting 20 cents for every dollar reaped from economic globalization, such that their wages were rising or incomes steadily increasing I bet you most would be singing "We are the World" even if technically they'd still be getting royally screwed. It's not that hard. Pay them more. Give them a share of the pie so that they have a reason to be excited about what you get excited about.

Instead a scooping of people making off like gangbusters, everyone else is treading water and they wonder why everyone is so bitter.

[robertdfeinman]

Let's not be distracted by the distortions at the top. Let's say we restore some degree of wealth fairness. To take an extreme example, lets say we reduce the wealth of the top by 75%. This is similar to what the British did over about a century by means of death duties. Since we are Americans we'll do it quicker, say a decade or so.

You can chose any combination of the following (plus add your own): estate tax, revise capital gains tax, close loopholes, make the income tax more progressive, remove provision which resets the basis for capital gains at death, expand the EITC. The net effect will be that there will be say $200-300 billion more in the federal treasury at the end. We spend this amount in Iraq each year.

So the economic benefits of wealth equalization won't be that great. There may be social benefits since the wealthy now control too many of the levers of power. Imagine what the intellectual landscape would look like at this moment if Scaife's funds weren't available. I don't see the undo influence of the wealthy being discussed much, however.

This leaves the rest of the problems still unaddressed: overpopulation, aging populations in the developed world, resource shortages, lack of basic research on alternative energy sources, inadequate planning for climate change and an unwillingness to combat impending pandemics. Take away all Bill Gates' money and give it the US treasury and these problems will still exist.

Picking on the greedy at the top may satisfy one's sense of justice, but won't solve the world's problems. (I'm not saying we shouldn't do it, especially because of their undo political influence.)

[Alex Tolley]

Brenda Rosser:
Crops can be grown intensively along railway lines, in parks, in pots. It's easy to grow far more of any crop than you will can eat.

What data do you have to support such a claim? In temperate climates it takes about an acre to feed a family of 4, and certainly the average person living in a city or suburb does not have access to even a fraction of this land area, nor is there enough marginal land in cities to make any difference.

[ken melvin]

After we've 'leveled the playing field', what's the net? Are the billions being raked off at the top by a few greater than the those being lost by the millions a the low end?

[wjd123]

Does anyone care what business has to say about globalization anymore. What they have said has all been carefully crafted cherry picked information to lead us down their primrose path of free trade. When the nation won't go a step further they offer up some of their tax cuts to help workers effected by free trade. How big of them. How do we know anymore what workers are effected. When those at the bottom take home smaller paychecks the communities they live in have to get by with less.

And what is with the insinuation that trade policy written by Auto Workers and Delphi will leave out the poor. The only policy business has had toward the poor is open borders when globalization fails the poor in other countries. That would make the policy of business "cheaper workers for us."

Last of all, I've heard enough from Don Evens to know that when he signs on to something to assign whatever it is to the trash can. Which is what David Wessel should have done with this proposal: throw it in the waste can with all the rest of businesses' literature on free trade and globalization.

Yes business has a stake in globalization and deserve a seat at the table when policy proposals are being considered. But their dishonesty about free trade has earned them the child's chair at the end of the table. Time for the rest of the stakeholders who have been shut out of the board room to have their say and for business to listen.

[Brenda Rosser]

Alex Tolley said:
"What data do you have to support such a claim? In temperate climates it takes about an acre to feed a family of 4, and certainly the average person living in a city or suburb does not have access to even a fraction of this land area, nor is there enough marginal land in cities to make any difference..."

Yes, I agree that many people in cities, like New York, will have to move out into the countryside. The land will need to be freed up from corporate agribusiness especially.

It's not that long ago that people in Australia did this. There are photos of the first pioneers in my home town district who lived in tents initially. It seems plausible (these days) for many country folk to offer accommodation for the first 12 months in their houses to facilitate a move to rural areas and a chance for people to build simple dwellings and establish or expand existing gardens.

In my childhood I lived next door to my grandmother who raised 15 chooks, had an orchard and a vegetable garden. All on far less than an acre and it provided a lot of food for grandma, her two adult sons, my mother, myself and 5 other children plus the neighbours. There was space for more food production in this small area if more people had participated in growing food but it was a very casual part time (hobby-like) thing for 3 adults. Certainly not considered a serious job. My father used gardening as a form of recreation after work.

http://www.powerofcommunity.org/cm/index.php?option=com_weblinks&catid=2&Itemid=23

[Alex Tolley]

Brenda:

From John Jeavons (lives north of San Francisco and is a pioneer in intensive farming).

"It takes about 15,000 to 30,000 square feet of land to feed one person the average U.S. diet," he says. "I've figured out how to get it down to 4,000 square feet. How? I focus on growing soil, not crops."

source: http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2002/04/13/HO126062.DTL

1 acre = 43,560 square foot.

So given best practices, this requires between 1/3 and 2/5 acre for a family of 4 (4 x 4000)/43560.

Reading Diamond's "Collapse", the section on Australia suggests that the soils are generally very poor, except in a few areas. This makes me suspicious that even in sunny Oz that intensive farming is going to work without a lot of effort. In temperate climates, like northern Europe and USA, Canada etc, the yields will be lower. Europeans certainly don't have the space to move out into the country, and existing land would have to be acquired from the farmers to do this. I really don't see this as a viable approach unless you are thinking about significant depopulation.

[Brenda Rosser]

Alex Tolley said:
"..Europeans certainly don't have the space to move out into the country, and existing land would have to be acquired from the farmers to do this. I really don't see this as a viable approach unless you are thinking about significant depopulation..."

I don't know about Europe. It would probably be worth reading about the Irish famine of the 1840s. Millions of people living on potatoes and not much else. The dangers of monoculture crops (disease) and Government policies of genocide.

Beef and lamb would have to go.

Artichokes grow in absolute abundance; others?. Nut trees? (they take a while to produce) Chickens provide fertiliser, meat and eggs. Guinea pigs? Miniature fruit trees for small yards. Crab apples seem more promising than apples here. Black and red currants and blueberries.

Need to do an assessment of the resources with permaculture people. Plenty of scope for 'comparative advantage' in food trade. I remember hearing one Cuban say that it takes a while to establish a food forest there but once its done there's very little labour involved. Just pick the produce.

Things grow faster where it's hotter but are in danger of burning in mid Summer. Shadecloth will be in great demand.

[Alex Tolley]

One thing that bothers me about the whole inequality debate is the presumption that the winners deserve their incomes because it reflects their contribution to the firm, i.e. it is the wage that would be earned in well-functioning competitive markets, with the reward is equal to the person's marginal contribution to the firm. Thus, the analysis often begins with the idea that any tax takes away someone's hard-earned income and redistributes it elsewhere.

But for the incomes where inequality is rising most - those at the very top of the income distribution - this is a questionable claim. The idea that the salary of a CEO or hedge fund manager is set by competitive markets, or even approximately so, seems unlikely, or at least open to serious question. It should not just be assumed in these debates.

If the incomes of the winners are higher than they would be in a competitive market, then many of the arguments against taxing their "hard-earned money" melt away. For example, if a person would earn $1,000,000 in a competitive market, but because of market imperfections earns $1,200,000 instead, is it unfair to tax away the extra $200,000?

I think these statements conflate a number of effects. Incomes, especially for hedge fund managers, artists and other similar "winner takes all" professions are not set competitively, nor should they be. Should JK Rowling really be expected to forgo income because she can sell her books abroad, not just in the UK or even in her local community? She took the risk of creating novelty, and in her case won (although most authors fail).

What seems to be being advocated is that the approximately pareto distribution of incomes is steepening and that this should be corrected by forced flattening downwards with taxes on the upper end.

An alternative approach is to reduce wage competition for the bulk of the workforce, not by protectionism, but by making it easier for a segment of the population to make their own opportunities outside of the standard wage structures without taking potentially crippling risks. This requires reducing the risks of doing so, such as universal healthcare, some baseline guaranteed income that is not deducted when individual income is increased and other similar measures.

In other words, let's accept that some of the poor to negative real income growth in the US is due to competition from low wage countries and that US workers are forced to accept lower wage growth due to coercion, since there are few viable alternatives. If we make the system less coercive, a larger subpopulation will try their hand at striking out in a different direction which in turn will lessen competition between the remaining workforce.

Certainly you may wish to tax the better off to pay for this, but let's not say that this is justified because they didn't earn their incomes really, and should be penalized.

[Objectivist]

No one's income is a reflection of a perfect market. There is no such thing as a competitive market. If there was, no one would make any money and we would all starve. Additionally, what you are saying means that we should raise taxes by 20% or more on all union workers, since they have a wage premium over un-unionized (i.e competitive market) workers of at least 10%.

[sa]

well said objectivist.

[Paul]

Brenda Rosser's agrarian fantasy (... many people in cities, like New York, will have to move out into the countryside) is just that -- a fantasy. While the hard-core envio-nuts would like to see us all living in villages pre-industrial revolution style, most of us have no interest in this bizarre notion. I don't want to live on a farm and grow my own food. I like my cell phone, my computer, my international travel, my Ecuadorian bananas and so on. Unlike Brenda, I understand the value of specialization and I think that farm animals stink! If you want to make my behavior more "green" then tax me for the carbon I consume and the waste that I produce. I'll pay the taxes and adjust my behavior accordingly but do not involve me in your ridiculous agrarian fantasy.

[malcolm]

Let me add a few kind words about David Wessel: it's not enough to say he's not a partisan hack; he consistently gets the economics correct. I can't say that about most of the journalists who cover economics as there beat. He is a model for other journalists as far as I'm concerned.

[wjd123]

The only way that Objectivist's proposal makes any sense is to believe that there is a wage market set by supply and demand and that the results are just.

The reason that union workers make more is because they have more bargaining power. Non union members benefit from the free rider effect.

Union members already pay more taxes because they make more. In penalizing them with a 20% tax increase because they make more would end up penalizing non union free riders. All labor would suffer.

And there is a qualitive difference between punishing union members because their barganing power affords them health insurance, pensions, and enough for their labor to afford a decent life, in other words a stake in society as opposed to mulimillion dollar executives who can leave these worries behind them and all to often act as though they are above the norms of society instead of tied to them.

[Lafayette]

FSF : "The mounting opposition is in response to the other side of globalization -- outsourcing of jobs, economic dislocation, anxiety and fear," the forum said

Fright of the day

Looking closely at the conclusion above boils it down to jobs exiting the US – in a country and at a time when it knows one of its lowest historical unemployment rates.

It is amazing the number of reasons that mankind can drum up to feed a natural bent for anguish and fear. Global warming anyone? Long–term food poisoning (genetically modified foods)? Air pollution? Natural radon seeping through your house? An obesity of epidemic proportions? Bird flu? Global financial meltdown? Al Qaeda? …. ad nauseam (sic!)

The difference between all the above “dangers to mankind and life as we know it” today and a hundred years ago is that the above get bantered about much more so by the media than a hundred years ago. Was life really ever any different?

I came across an original copy of a book written in 1876 by a Frenchman in Paris who was reviewing, from a closer perspective than we have today, events surrounding the American Revolution. At one point there is a passage about British hat furriers petitioning the King's government to forbid the importation of finished fur hats into England from the US. They were so “cheap” that they were putting English furriers out of work. In fact, the furriers were leaving England to … set up production in the US. Sound familiar?

The more the world changes, the more it remains the same - given a sufficiently large perspective.

Take the boob-tube and throw it out the window. It thrives on the moment, bumps it with a trumpet, and moves on to the next moment- a few commercials later. How tiresome that can be.

[Icarus]

There are a few assumptions, from the quasi-left, which intrigue me...First, Globalization is at its high peak, and, second, that Income redistribution within western nations is a salve to the inequalities of the newly international division of labor. Neither are true.

Globalization, with its current incarnation enabled by advances in information technology, is at an infant state. The multinational companies which one speaks of like faceless behemoths, struggle to understand their supply chain, their profitability, and their labor strategies. I work in this field, and I'm constantly amazed how blindly many operate. Simply understanding high level metrics is an impossible task for these companies. They have so much to learn, so much to transform, levels of leanness to aspire towards. Just like Walmart revolutionized retail by understanding and controlling its supply chain costs, other companies, in various industries will have to follow. Globalization will progress as these MNC's better adapt to the information they can construe from massive amounts of data. We/They are infants at this.

Then, the re-distribution of income...I've never understood the idea that gains made by certain sectors of an economy, and its labor force, should be redistributed to others who lost from the globalization process. Should Henry Ford, and his famous enterprise, have subsidized the lives of laborers in the buggy whip economy? Did every displaced carriage maker deserve some of the Model T profit? I've never had such a concept of nation...I don't know why we would stop redistribution, in theory, at national borders.
Silicon Valley has been profitable, alarmingly profitable to some, for a few decades. Do they somehow owe Flint, Michigan, even though there's no direct connection between a semiconductor business' gains, and an auto company's losses?
Who redistributes to whom, and why?
We are not offered guarantees of gainful employment anymore, and suggesting that we should is a dangerous, and slightly proposterous idea. We take risk when we enter a labor force, we take risk when we go to school, and we take risk when we start families. Unless those risks are managed, guarantees of results are problematic.
Can we tell a person to study in school, or else, their efforts if deemed subpar, will disqualify them from social benefits? Sounds silly, I know. Can we tell a low wage laborer, that, they cannot afford a family, and will not receive state benefits for such additions? Again, sounds like big brother.
But, we want to tell the hard working succesfull cadres of workers in globalized and competitive fields, that they somehow owe people they have little to no connection to, a piece of their paycheck.

Forget the CEO's...their share of the pie is not large enough to change daily life for the masses. The bulk of the gains from Globalization have gone to the Techno-Managerial elite, a professional/educated caste, in competitive industries. This group is very racially mixed (check the freshman class at a top university, like UC Berkeley, and you'll see few whites and blacks (in relation to their population distribution in the nation), and many more asians and women.

This professional caste just don't care about 'middle america'. They're globalized for one...they care much more for their nations of origin. And, there's little in terms of a shared history or culture which binds these groups. The coasts and the middle of america are separate nations, in many respects...or, better said, the principle of nationhood matters little. Outside of a manipulated sense of patriotism after 9/11, rarely do these groups ally together...and, I'd venture to guess...they rarely sit at the same dinner table.

Redistribution requires a sense of nationalism...which, in day to day life, is growing more and more untenable. Individualism has its victims, and the flag and nation is part of that.
So, the political will to redistribute from a more ethnically variegated managerial class, to a much more homogenous struggling working class, in a separate part of the nation...is impossible to imagine.

As for the normative reasons to redistribute...another quandry. Do we compare a lawyer in San Francisco, to a machine worker in Ohio, and speak of fairness in wage rates? Is this even possible. And, based on those differences, make an argument about the fairness of wealth distribution, which is really a comment on the health of a nation?
Perhaps another comparison makes sense...how does that machine worker compare to similar workers in other nations?

In the US, a janitor can live in a 1 bedroom apartment, drive a car, and purchase food at a grocery store (assuming one income for one person). S/He may have to share that apartment, and it may be a used car, and coupons are involved in the grocery purchasing, but, nevertheless...even for $12/hour, once can live such a life in many cities. Again, I'm assuming that the wages are intended for one person.
In other nations, a janitor may live in a shanty town, have no means of private transport, and never shop in a retail environment.
What trade, and the productivity of American capital, enables...is this difference in lifestyle. Our ghettoes are superior to normal areas of many large cities, especially when you consider the growth of mega slums and shanty towns across the globe.

Also, the reduction in the costs of goods, enables utility, that abstract concept of econ 101, to go up.
All sorts of stats exist about the stagnancy of wages since the early 1970s. There's little dispute...but, what about utility? Money is a path towards utility, and, we've raised the stakes.
Kids in the ghetto play Sony Playstation. This is a horribly interesting sociological fact. How much utility, however debilitating for other pursuits, is offered at such a low cost? Pennies a day...that's why its so addictive, and people may even enter a 'Technology Trap', akin to the Poverty Trap often written about.
A whole chicken at Walmart costs $4...the cost of food is a fraction of what it was 100 years ago.

Now, the difficulty is the costs of proper family life and child rearing. Low end labor is not paid enough to successfully do that...and to some, that is a fact which the poor have to understand how to work with, and not ignore, and later complain. If someone makes $10/hour, they should not, and essentially can not, have a family. They have to wait for years, save some money, find a partner, save more together, and maybe, in their late 20s, or 30s, have 1 child. By that time, they should be making at least $15/hour, after hopefully obtaining a skill...and then, they can live a hyper-planned lower middle class life.
This is the only path to eventual prosperity which Capitalism, and it's Globalized incarnation can offer. Doing the opposite, is profligate in this logic. Having children without savings accrued, or a skill set developed, is economic suicide. And, there's little the nation, or state can do, to alleviate those risks.

A person's wage rate is determined by the cost of replacing them. It's not a competitive market which really determines this, but, the practicality of retention and attrition. How long does it take to find another Neurologist for a hospital? Is there a person waiting to take the job for $1 less? If not, the wage rate will increase to that level...
If there is a person willing to take the job for even a penny less, the opposite happens. When Walmart opened in the bay area a few years ago, 11,000 people lined up to pursue a few hundred jobs.
One could argue that it's simply not 'fair' to pay someone such a rate, because, all labor is inherently worth more...but, that argument isn't a reasoned argument...it's a hopeful plea for compassion, and no business works that way, and never will. So long as we want to maximize our utility at every price point, the producers of goods/services will react accordingly, and should.

Maybe the CEO of Enron didn't "deserve" a half a billion dollar payday...but, ask yourself this...If Enron's net worth increased by over $100 billion on his watch...what is 'fair compensation'? Does A-Rod deserve $25 million per year, or, should part of that be given to the peanut vendor? If we voted democratically, perhaps. But, we don't. We vote with our dollars...and we pay to see A-Rod. Companies will pay for leadership which can drive growth (or at least, a perception thereof). Of course, there is risk involved...and a market for contracts. A-Rod could get injured, and a CEO could make horrendous decisions...but, they still get their negotiated compensation. But, if/when that happens, information is sent to those markets which gauge compensation for labor, and adjustments in perceptions are made.

Who deserves what is a tough question...

[reason]

Icarus...
A long and interesting comment, but I beg to disagree with some of it.

First I think you are misunderstanding the compensation debate. The argument is that segments of the population are being disadvantaged by politically decided changes in the environment, that benefit other segments. It is easy to justify such changes by saying that in NET the whole society benefits and if the winners compensates the losers everybody is better off. But if such compensation doesn't happen then this argument is null and void. And if in a democracy people start to think the NUMBER of losers exceeds the number of winners, the perception that this is what has happened becomes problematic.

Given that the decisions made were POLITICAL in the first place, your argument about individualism is beside the point. Surely, within a democratic country it makes sense to choose an environment in which the outcomes are satisfactory for a majority of the population. Deliberately choosing an environment in which outcomes are worse for a majority of the population suggests there is something wrong with either your democracy or your perception of reality.

Secondly, it is not clear (and a whole other debate) what form the compensation should take. I would hope that a solution can be found that is in general agreed to be relatively equitable and non-distorting.

Thirdly, I fail to find anywhere in your comment (or in Mark's for that matter) the word quasi-rent. I thought it was the crux of the issue.

[ken melvin]

Seems to me we have democracy as long as we allow Capitalism and free markets to decide when it should be that we have a democracy where free markets and capitalism can exist in the form and to the extent we choose.

[wjd123]

There are a few assumptions, from the quasi-left, which intrigue me...First, Globalization is at its high peak, and, second, that Income redistribution within western nations is a salve to the inequalities of the newly international division of labor. Neither are true.

Icarus,

I don't know who the quasi-left are? The article by David Wessel was about businesses coming to the realization that globalization had reached a point where the problems caused by it were threatening its continuation in democratic countries: politicians would have to act or be replaced by those with anti-globalization sentiments. There was nothing in the article about globalization reaching its "high peak." If anything the implication was that this might be as far as globalization can be taken if we don't address the problems it is causing. "As far as one can go" can be a long ways from the peak of the mountain.

I be more concerned about how globalization is trending: economies of scale eating up the competition. Just a century ago we passed laws breaking up monopolies. How are monopolies going to be broken up internationally without international government. Globalization is running ahead of the international institutions we need to control it. That is another good reason to impede its progress.

I think today's lack of international governments weakens your argument against nationalism. You may be right that nationalism is being weakened by the international division of labor but around what principles is the international division of labor organized. What rules and regulations is international labor subject to? and just who has the power to enforce those rules and regulations?

Most western nations have rules and regulations about how business will be conducted. Are we to allow this economic morality to be undermined by globalization. Here the free association of labor is allowed in China it is not, and even if China passed laws allowing for it they would be Potemkin laws. The Chinese government can enforce what laws it deems necessary since the only checks and balances the Chinese government is subject to is the protest of its people. We saw how that was treated at Tiananmen Square. I see no reason why western nations should have their economic morality undermined because the Chinese government wants to hang on to its political power. The political problems of the Chinese government shouldn't be carried on the backs of western workers.

[gordon]

This post has obviously opened a big can of worms. Without attempting to resolve all the issues raised, I might just point to a couple of relevant things. First, increasing inequality of wages goes together with decline of unionisation - see this paper by Card et al. We should ask ourselves: Is Wage Compression a Bad Thing? Card et al. are clear about their own conclusions: "By linking the decline in unionism to the dramatic increase in wage inequality in the United States
since the 1970s, our research strongly confirms that the ongoing decline in private sector unionism indeed
had socially undesirable consequences."

Second, the idea of redistribution of "undeserved" income has a long history - death duties, unearned income tax surcharges, etc. To me, this concept is closely linked to what J.K. Galbraith called "the bezzle" - see The Great Crash, Ch.8. In business cycle peaks, Galbraith suggested, embezzlement soars, and in troughs it shrinks. I'm happy to include the sorts of malfeasance involved in insider trading, stock puffing, Enron-style manipulation and audit malpractice in what J.K.G. called embezzlement - after all, he was writing in 1954, before most of the current forms of business fraud had been invented. On that basis, I think there are good grounds for a high rate of tax at the top. If it is objected that honest people would be disadvantaged by this policy, perhaps new grounds for disputing a high assessment of tax due could be introduced: that the income was honestly obtained.

[wjd123]

gordon,

Don't forget the executives who are currently under investigation for back-dating their stock options. As I recall the number of executives being investigated ranges in the thousands.

[Icarus]

Gordon,

Unearned rents...this is a very tough question. Sure, the Worldcoms and the Enrons suggest a culture of malfeasance. But, this (despite the ire of the left) is a case of exception, not day to day reality. The vast majority of corporate culture lives within legal boundaries, and, our sense of 'unearned rents' have to address these revenues/profits.

As for the "Death Tax", or Estate Tax...again, why is this considered "unearned rents", which implies some sense of malfeasance on the part of they who receive. We have a fundamental right to private property, and private transactions. The idea that the State/Nation is an arbiter of private transactions sounds proposterous. The effect of such a policy would be the further Off-Shoring of wealth. If I've saved a few million dollars, through income and capital gains which have already been taxed, why can't I leave it for my children? I have a right to transfer my wealth to whomever I choose to...my wealth should not be redistributed to those whom I have no desire to redistribute it to. If that possibility is impeded by a "Death Tax", I, like many, would simply tranfer my wealth to a nation more hospitable to wealth. Our economy would suffer significantly, including increased interest rates, through such a policy.
Plus, again...Why is that tranfer of Private wealth under the purview of a centralized government. The taxman should not have such power.

WJD123...

"Most western nations have rules and regulations about how business will be conducted. Are we to allow this economic morality to be undermined by globalization."

I fear any description of "western nations" as the arbiter of morality. Our history since the transition from feudalism to capitalism is one of colonial violence, exploitation, and de-industrialization. None of the mantras of Neo-Liberalism hold...The Asian Tigers protected key industries, the US exterminated an indigenous population, Europeans competed for colonial territories. The idea that a nation can develop with pure market policies is not evident in our collective history.
What China/India/Other nations go through now, however tragic for many of their poor. India attempts to control child labor, but, does so without any teeth in the law. There's little in terms of solutions here, and, I'm not sure our "morality" helps. Are 'we' open to the obverse?...Can other nations demand changes to our legal structure based on US sociological maladies. To give an outrageous example...given that almost 50% of women in the US testify to some event of rape in their lives, can other nations demand our cosmetics and fashion industry to alter marketing strategies, and downplay sexuality? Whose values would gauge the arguments?

"Globalization is running ahead of the international institutions we need to control it. That is another good reason to impede its progress."

Is controlling Globalization a quesiton of a law/order problem stemming for a logic of continued inequality?...or, is that very inequality the issue. Marx was clear about the effects on wage rates if the countless masses continue to replicate...sadly, we're only sliding further on that path. This implies that inequality will only worsen, and will lead to complex changes in immigration/emmigration in the near future.
Does an individual have a "right" to live/work in the city/state they were born in? Who provides that "right"?

We seem to be slipping towards a state of continued contingency with work and capital. There are no guarantees, and labor strategies must adapt to that reality. China will introduce another 100 million people into the factory labor force in the coming decade. India will struggle to attempt the same. There, sadly, are so many people in the globe who want $5/hour jobs, and some will have college degrees. And, in their home countries, such a wage may provide a middle class lifestyle. The product of that labor will be cost competitive, if trade is allowed.
We, the consumer, benefit...at least in the short run. The question is what do the 'losers' from constant globalization deserve from their birth nation. I'm not sure they "deserve" anything...I just want to hear the logic of why.

[Lafayette]

meh : I'm glad to see that some people at least are realising the repeating bromides about Ricardian comparative advantage isn't helpful.

I couldn’t disagree more. Ricardian CA is alive and doing very well indeed, politicians or not. The world abounds with examples, most of which are badly understood.

Particularly when advantage is shifted from a situation where that advantage was once favourable for a considerable post-war/Cold War period - and, both those paradigms having changed, the advantage is now unfavourable as new world players offer manufacturing capacity.

Difficult pill to swallow, that fact, but don’t blame the messenger. Ricardo never confined his theory to the pristine hills and dales of 18th century England. It was meant to be global in scope.

meh: But the other, more important reason is that there is nothing in Comparative Advantage about distribution. Only a sense that aggregate wealth increases. There is certainly nothing about internal distribution, as it treats the internals as a black box.

What is it precisely that “distribution” changes in terms of comparative advantage? What internals?

Explain yourself. The cost of producing goods has both absolute and comparative advantages in the context of comparative prices of those goods in two different nations as expressed in their exchange rate.

The comparative advantage of the US changed considerably recently with the fall of the dollar, and exports have bounded recently precisely as they should have. Not in all sectors however.

It would appear, therefore, that comparative advantage is explaining that exchange rates, if manipulated, can change comparative advantage – as for the Chinese who obtain the comparative advantage of low labor costs by maintaining a fixed exchange rate. (Though disputable since only an order of magnitude change in exchange rates could make Chinese products cost as much as those produced in developed economies.)

But, suppose this were a “fact” -- then why does the Philippines, to which China is approaching in terms of average wage costs, not have the same comparative advantage? Due to an artificially high exchange rate? I doubt the Philippine authorities would buy that argument.

Not ALL comparative advantage can be explained by the “natural ability” of a country to specialize in the production of a product – which is why Spain produces wine and Scotland scotch – and the reverse is unlikely to happen anytime soon.

But most of it IS still based in intrinsic ability, most often manifested in technological innovation.

For instance, to compete with Boeing, the "cost of entry" to sufficiently large economies of scale was a hurdle to most aircraft companies. Three or four international companies found the hurdle to costly. Only one made the persistent investments to change Boeing's inherent advantage in technology.

Airbus finally took more than 50% of the commercial aircraft market away from Boeing, but only after it changed considerably its comparative disadvantage to a comparative advantage with a long period of sustained technological investment.

[wjd123]

Icarus,

Your comments have indeed caused a stir.

Your ideas of redistribution of wealth is based on the individual, I'm more worried about the needs of society. What type of society we live in will effect the type of individuals we are. Your idea to let everyone compete and let the chips fall where they may instead of providing mutual assistance will only produce a society of malcontents who will cause more social problems the cost of which will be far greater then providing mutual assistance now.

Your idea of personal responsibility is unrealistic. When comparing the ideal to the real the ideal has to be reality based unless your aiming for a utopia which no real person could live in. Communism for instance had an ideal which expected too much from human nature. It wasn't reality based.

It is the well educated and well off who delay starting a family, not the poor. Saying why can't the poor be more like us, and damn them if they aren't, is hardly realistic. If you want them to be more like us than make them well off and well educated. That would be an argument for the redistribution of wealth. The more institutional, intellectual, and material capital one has to work with the easier it is to be responsible. Although this mix works best when the elements are in balance. Otherwise, how do you explain George Bush.

Redistribution requires a sense of nationalism...which, in day to day life, is growing more and more untenable. Individualism has its victims, and the flag and nation is part of that.

So, the political will to redistribute from a more ethnically variegated managerial class, to a much more homogenous struggling working class, in a separate part of the nation...is impossible to imagine.--Icarus

Why would redistribution require a sense of nationalism. Most people don't complain when our government sends taxpayer's money for disaster relief to other countries. That would be a case where redistribution requires a sense of empathy.

After 9/11 there wasn't much complaining about taxpayer money going to NYC. After Katrina there wasn't much complaining about taxpayer money going to New Orleans. The motivation for helping others in times of crises may include a sense of nationalism but I doubt it ranks very high on the list of reasons people support the redistribution of their taxes.

I think you are right that the information age is loosening our sense of nationalism. People don't have to be jet setter to get an understanding of other cultures. Even if one can't afford to move to another culture that better fits their temperament or their needs there is always the possibility of adaptation by imitation for other nations. For instance, if the French health care system covers all their citizens with better results and does it for less money than ours, why not imitate theirs. At the least their system is a real working model that vested interest here have to argue against. We'll know that people are taking advantage of the information age to understand other cultures when we here fewer Americans chanting "We're number one."

I don't think you are right about individualism weakening nationalism. The modern development of the autonomous individual with rights can only exist in a society that is willing to protect those rights. The idea is to bind people to those societies not kill the goose that layed the golden egg. An excess of individualism will.

Bush didn't get very far in trying to individualize the Social Security System. His individual savings accounts for health insurance haven't gotten very far either. Being covered by Social Security and Medicare bind people to the society they live in. I have no problem with the idea that if I die before reaching 65 the money I've contributed will remain in the system since it makes the system more viable. Take government programs away allowing people to catch as catch can and the result will be further parochialism rather than greater individualism.

Parochialism is the enemy of individualism For instance, authority above the family, the state, free us from the tyranny of the family. Children now have rights which the family must honor. Or how much individualism does one living under tribal authority have?

.......................................................

I read you other post and fail to see how my defense of the right of workers to associate, of consummers to have healthy food, clean drinking water, and breath clean air make me a colonalist or anything else.

I've repeatedly definded economic morality, as the rules and regulations governing business. I've never made the claim that all rules and regulations are good. My claim is that we have overcome many of the problems of the Industrial Revolution and we should practice free trade in a way to keep that progress from being undermined. Something the EU is trying to do, and we aren't.

says...

Long winded tripe from Icarus.

You all talk about globalization as if it were affecting a couple of industries. The problem is that it has hit such a broad swath of the economy, the reverberations are up and down the entire great chain of being.

I recently started reading the "Winner Take All Society" and frankly, that is were the problem is. The winners all think they are the superstars, because they are successful. To be cut down to size, they will have to have a situation, such as leaving the workforce for several years due to a aged parent, or health reason, but no! Their wealth advantage will insulatate them from that lesson in life, won't it.... just warehouse the parents if you got the money, and of course, if you are of the elite, chances are you also have health insurance, unlike so many of us.

Labor arbitrage.... Now the IT staffing community will be doing individual offshore staffing, going against the last tough hardnosed incorporated consultants out there. Probably Icarus is one of them.... living in his world of privilege.... but in a few years, there will be almost no IT professionals, because they were all priced out of the job market. Maybe by that time, we will have a level global wage, evened out all over, with maybe a single currency..... so, by that time, I guess by that time all the rest of us.... should all be serfs or peasant farmers, living on organic, genentically manipulated crops, while the business rulers live in gated castles.

[gordon]

The link to the paper on unionisation and wage inequality by Card, Lemieux and Riddell in my comment of 28 July was faulty. The paper is here. (N.B. - .pdf)

[gordon]

Icarus says: “Sure, the Worldcoms and the Enrons suggest a culture of malfeasance. But, this (despite the ire of the left) is a case of exception, not day to day reality. The vast majority of corporate culture lives within legal boundaries…”

Treating cases of fraud/criminality as exceptions is a common response. After all, nobody can prove otherwise. However, the “fraud is exceptional” response implies that the majority of frauds are exposed. If you don’t believe that, then you look at the frauds that are exposed as the visible peaks of an iceberg of vast proportions. The exact proportions depend on the percentage of total fraud that you think is actually exposed. The (US) Association of Certified Fraud Examiners estimated a total annual cost of $638b. to the US economy in 2005. In the UK, the Association of Chief Police Officers’ Economic Crime Portfolio Group commissioned a report which estimated the annual cost to the UK economy at 20 billion pounds. I admit that such estimates are likely to be far from accurate, but, as far as they go, I think they support the “iceberg” theory more than the “fraud is exceptional” theory.

[Icarus]

Gordon...

Sure, there are difficulties in estimating the rate of fraud, although global coefficients exist which attempt the same. We know, however corrupt the US system may seem, it is not on par with Nigeria for example. And, although all fraud should be ideally stamped out of any economy, it will, and can not. But, that said, we have to control our alarmist rhetoric. Our credit card economy, for example, is riddled with fraud. Outfits from Russia, Ghana, or even within the US are essentially professional cybernet gangs. It may reach $50 billion per year in losses. That said, we can not thereby argue we should dispense with our credit issuing system, and disband with credit cards. Similarly, corporate reporting is a nebulous, and slightly deceitful art. The tradition of tax avoidance is a key component of our economic history. And, yes, it is fundamentally on the border of illegality, at best. But, we should not be contemptuous of it...

And Says...

I can't tell what you're complaining about. Are you vilifying globalization because you think its structural logic is problematic, or, simply because it hasn't worked well for you?
There will always be IT workers on-shore, and, always workers who add value at a high level. All processes cannot be automated to a level of service commodification.

This fear of all work being outsourced is ridiculous. The US economy has grown over 3 trillion dollars in the past 4 years. This is greater than the entire economy of China. So, in the midst of all this anxiety about losing our labour to east Asia, our own economy has grown at a greater rate than seemingly possible. And, although GDP gains does not equal a higher standard of living for all, it does suggest a successful economic model.

The one truth that globalization, and off-shoring will guarantee, is that labour must compete. And, for a nation which has tethered itself to the valour of competition for decades, why lose that mantra now?

[gordon]

Icarus, it seems that you are shifting your ground a little. From "fraud is exceptional" you are now moving to "fraud doesn't matter". Will we see a further shift to "fraud is good"?

[Brenda Rosser]

Paul says...
"Brenda Rosser's agrarian fantasy (... many people in cities, like New York, will have to move out into the countryside) is just that -- a fantasy. While the hard-core envio-nuts would like to see us all living in villages pre-industrial revolution style, most of us have no interest in this bizarre notion. .."

Paul, this is not a fantasy nor an ideology. It is the reality that we will have to face almost immediately. If you don't agree with this then please explain to me how millions of people will be able to stay in New York and other cities and not starve in the near future.

Here's what's happening NOW. Peak oil, climate change, water depletion, food depletion (peak food). Poisoned rivers. Falling productivity in agricultural chemicals. Collapse of our monetary system.

"1910 – 2003 and beyond. Escalating energy costs on the farm. 5% 1910 to 30%? 2008
Energy-related expenses rose from about 5 percent of total farm cash expenses in 1910 to over 17 percent of total farm cash expenses in the early 1980s. Since the early 1980s, improvements in efficiency and relatively stable nominal energy prices caused the share of energy-related expenses as a share of total farm cash expenses to fall to about 11 percent by 2003. However, due to increasing energy prices, the share of energy-related expenses as a share to total farm cash expenses rose in 2005 and is forecast to increase again in 2006. For 2005, energy-related expenses are estimated to account for 14 percent of total farm cash expenses, or $27.4 billion, including expenses of $12.8 billion for fertilizer, $11.2 billion for fuels and oils, and $3.4 billion for electricity. With expenses for fertilizer, fuels and oils, and electricity continuing to increase, energy-related expenses are forecasted to climb to $29.9 billion in 2006, 15 percent of total farm cash expenses and 50 percent above the level in 2003.
1950 – 1987 – Agriculture. Output up by 80%. Chemical use up by 484%. Labour decreased by 71%. Returns to farmers down by 32%
“Agriculture provides a particularly useful testing ground of the long-term productivity of post-World War II changes in production technology, because there are detailed government statistics about the economic performance of US farms in relation to the post-1950 changes in production technology. Between 1950 and 1987, total US output of crops and livestock increased by 80 percent. A major influence has been exerted by very specific changes in the technology of production. The use of mechanical equipment remained constant, labor input decreased by 71 percent, the use of seeds and feed increased by 86 percent – the use of agricultural chemicals (insecticides, herbicides, and fungicides), increased by 484 percent. Thus, the major change in the technology of agricultural production has been the use of less labour and much more agricultural chemicals. The efficiency with which the various inputs generate the farm output is a major determinant of the farm’s net returns. This is expressed as ‘productivity’ – that is, the ratio of output to input. Computed in this way, between 1950 and 1970 the productivity of labour increased by 513 percent, the productivity of machinery increased by 80 percent, the productivity of seeds and feed decreased by 3 percent – and the productivity of agricultural chemicals decreased by 69 percent.//The sharp decrease in the productivity of agricultural chemicals is explained by their ecological faults. . ...

U.S. Treasury Secretary Henry Paulson: Coming Financial Crash Shows Need for Immediate Monetary Reform
http://www.globalresearch.ca/index.php?context=va&aid=6401
by Richard C. Cook
Global Research, July 23, 2007

[Lafayette]

IC: The one truth that globalization, and off-shoring will guarantee, is that labour must compete. And, for a nation which has tethered itself to the valour of competition for decades, why lose that mantra now?

The above fact is a process firmly in place. What this forum shows is how difficult it is to undergo such a transition personally. It's easy to talk about globalization when one is the major exporter of high-tech goods. But, difficult to undergo the consequences of the importation of low-tech, low-cost ware.

The reality of a "bottom-line" mentality is that it obviates all consequences that happen to one personally. This sort of mentality suggests that what is personally good therefore is supposedly also good for all and sundry.

This world has been in permanent transition since its inception. It seems, at times however, that the only benefit of electronic forums is that it brings the nervous-nellies out of the woodwork to manifest their rancor.

Who are benefiting most from these Chinese imports, the hi-tech worker with a good salary and stable employment, or the poor slob at the other end of the scale in precarious employment. I suggest the latter, since they have the better value for their money. And, it is these sorts that one sees flooding into WalMart.

One cannot have their cake AND eat it. You can't participate in world trade to your sole benefit - obtaining cheap goods from abroad whilst maintaining full employment at home throughout the class of workers.

It doesn't work that way.

[wjd123]

A capitalism that preaches the gospel of total competition seems to me as absurd as a communism that preaches the gospel of total cooperation. Both are beyond the realms of what human nature can be expected to endure.

I suspect that globalism will come up short in pushing for total competition just as communism has in pushing total cooperation if it tries to make us live in such a state of competition. It is simply not a state people can be forced to live in.

Before capitalism could ever make it one that people must live in, they will put an end to that form of capitalism.

At minimum, people would insist on rules and regulations to control competition.

[gordon]

Brenda Rosser, I read your comment with interest but I'm puzzled about the quotation marks. Quotes open here "1910 – 2003 and beyond. Escalating energy..." and again here "“Agriculture provides a particularly useful testing ground..." but are never closed. Does this mean that the text beginning at the first opening quotation marks is actually a quote from somewhere? If so, could you give the reference please? The source is obviously not the Richard Cook article.

[Lafayette]

wjd: I suspect that globalism will come up short in pushing for total competition just as communism has in pushing total cooperation if it tries to make us live in such a state of competition.

You’re comparing apples and oranges in a context (American) that is specific to a time and place.

Globalism is the ability for all economies that wish to do so to participate in a worldwide marketplace with whatever comparative advantage they have to offer.

Competition is practiced by all who want to participate. The problem arises from the fact that “the level playing field” is quite hilly, with some players having either a input-factor advantage or an exchange rate advantage … and sometimes both (like China, to make matters worse).

The WTO is doing its almighty best to level that playing field but the players are not making it any easier. some examples:
*The US is stonewalling any serious negotiation to lower agricultural tariffs (in order to protect overblown corporate welfare farm subsidies). The EU is abetting the US (because it has more people on the farm and they will be hurt by increased competition from third-world countries). The EU employs twice as much people in farming than the US - 5% in the EU, about 2.7% in the US (see here)
*The Chinese, who must create 100,000 jobs a month (or some such) to keep tame a boiling population looking for better times is unwilling to accept any disadvantage whatsoever in its export advantage … since without massive exports something very nasty is likely to happen. It will take another decade before internal demand can sufficiently support economic growth that employs its people.

So, the US and the EU fester in a similar period of stagnation in terms of job creation. It takes years for a skill-set to climb the ladder of increased value-added and, when it does, it leaves a great many people behind.

But, do precisely that it must. There is no (or very little) alternative. Let’s face it, the “good times” of cheap labor are over in both the US and EU.

So, instead of complaining in the blog, let’s elect the sort of leadership that will “do something” - given the condition they know what must be done. And, frankly, I don’t see that in anything I’ve heard coming out of any quarter one either of the continents in question.

There is no “quick fix”. There is no “cheap solution”. We are all paying for precious time lost pursuing over the past two decades whilst both economies pursued the pot of gold at the end of the rainbow.

But, if you have a political class that doesn't KNOW what must be done, or is manipulated by vested interests, blame no one but yourselves for the mess you are in.

[wjd123]

Lafayette,

My comparison was between apples and apples: How the philosophical tenets of capitalism and communism when pushed to their logical conclusion leave the realm of what is possible for modern man to live under.

I don't know who you are attributing your quote "do something" to. I've been fairly specific about how I believe globalization should proceed. (Your attributing of quotes seem to be a recurring problem with you. Twice already you have attributed quotes to me that weren't mine. And honest mistake is acceptable but your attitude of who can keep track, isn't.)

I just finished reading and article by Dani Rodrik about the cheerleaders for globalization and the dangers they present to its continuation. He is also specific about solutions.

You might also be interested in page 25 which quotes a comment on the choices globalization presented to countries after WW1 and how one set of choices led to communism and the other fascism.

http://ksghome.harvard.edu/~drodrik/Saving%20globalization.pdf

[Lafayette]

wjd: I just finished reading and article by Dani Rodrik about the cheerleaders for globalization and the dangers they present to its continuation.

I suspect that DR is just as ignorant about "globalization" as you are. You both may think it something new. It isn't or, rather, just the word is. It's been around since the dawn of time as commerce and trade ineluctably expanded beyond national borders and then continents.

No one in their right mind is convinced that it does not do both good (expanded profits and lower consumer costs) and bad (job destruction). Read Schumpeter and his theory of creative destruction.

If the US is on the wrong end of globalization (at the moment), it has no one to blame but itself. America rushed headlong towards profits without having accounted for the cost of social disorder that job dislocation would bring about. Like Europe, it did not prepare its workforce by enhancing the necessary skills base to compete at a higher level of complexity.

One can dislocate jobs in the search of profits, but if a nation is not fully aware of the consequences in terms of permanently lost jobs, then it deserves to wallow in its own misery.

EVERYONE was in favour of multinational corporations throughout the ride up during the postwar years (till the end of the last millennium) -- obtained largely from globalization that was kind to corporate profits and therefore individual portfolios. Now, this same lot of yuppies is worried silly what may happen to their jobs. Which is sooooo naive.

How, pray tell, did such a reverse of optimism happen? All by itself ... in a repetition of Paradigms Past (that sometimes left entire empires in ruins).

Read history. It edifies the mind.

NB: And what is happening stateside has nothing whatsoever to do with either communism or capitalism, since both have suffered from the same evolutionary change. You are seeking the smoking gun. There is not just one.

[wjd123]

Lafayette,

It obvious that you didn't read Rodrik's argument. You've created a strawman and your arguing against it. Stop attributing your strawman to other people.

[Lafayette]

wjd: Stop attributing your strawman to other people.

And, you, stop arguing beside the point. Respond to the argument.

There is no sense in considering "globalization" as anything new, because it isn't. It is simply the most current manifestation of world trade.

Let's get back to the central argument: Globalization has little to do with either communism or capitalism, which are political theories. Yes, globalization happens in a capitalist world economy, but only because that is (and has been since man stopped bartering) the prevalent economic system ... for lack of a better one.

Now, what is it that you (or Ms. Rodrick) wish to make of "globalization"? I have missed your point ... frankly, because I suspect seriously that there is none.

wjd: How the philosophical tenets of capitalism and communism when pushed to their logical conclusion leave the realm of what is possible for modern man to live under.

This, as a reasoning, is preposterous. It condemns what has been the primary economic system of mankind for centuries by claiming that its excesses render a decent standard of living impossible.

Perhaps for you, but for millions of Chinese who have exited the Dark Ages over the past fifteen years, that is clearly not the case. For the hundreds of millions of Europeans that rebuilt their countries after a devastating world war, capitalism is not all bad, even if not all good either. And, let's face the fact, for all the income inequality in the US, globalization has increased revenues for all Americans -- not just the exaggeratedly rich.

In fact, your complaint -- I suspect -- is that globalization hurts YOU and therefore it is wicked.

Sorry, but you get no solace from me with that notion. It just doesn't make good sense. Globalization is just an extension of world trade and has occurred at time when historical coincidence has doubled the supply of labor. That is bound to hurt some people, just as any drastic economic change might do - like the dot.com bubble bursting in 1920, or subprime loans in 2007.

[wjd123]

Since whatever point you are making isn't my point why should I argue it.

And it's not Ms.Rodrik, here is "his" short biography:

I am the Rafiq Hariri Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University. I was born and grew up in Istanbul, Turkey. My most recent book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth (forthcoming from the Princeton University Press).

His article was about how to save free trade from its cheerleaders. He is very much for free trade.

I am appalled by your sense of economic history as it pertains to free trade and capitalism. Free trade as we know it today was preceded by centuries of efforts to form monopolies and control them. Here is a short history of the Hansiatic League.

en.wikipedia.org/wiki/Hanseatic_League

[Lafayette]

wjd: Free trade as we know it today was preceded by centuries of efforts to form monopolies and control them.

Yes, so? You obviously think that what happened with the Hanseatic League is replicated in today's "free trade"?

That, too, is nonsense.

Of course, if a nation can establish a monopoly in trade it will try to do so. What do you think OPEC is about? Cartels exist, they aren't illegal ... their just bad. Microsoft is a monopoly and has been recognized as one. So what? There is not much one can do about it, unless you are proposing that some "Benign Dictator" should determine what is free trade and what isn't.

Cartels are nothing more than one aspect of "free trade". I maintain, still, that international trade/globalization profits all who indulge generally. Though there are some dislocations. Always have been ... always will be.

And, I fail to see, still, why you propose that the "excesses of capitalism" condemn individuals to a lifetime of misery, or some such awful fate worse than death. It is not true. (Not that I care much for such excesses and it would please me greatly to see them taxed into oblivion.)

Besides, what is your alternative? What is Rodrick's? Spell it out instead of referring to it. I'd like to see it in your terms, not theirs. Just what IS it?

[real person from the real world]

Laffayette, and other defenders of the status quo:

The centruries of globalized trade is not the same as globalization that is having workers compete head to head in one industry for the lowest labor rates, while those other industries where other workers with vital services can stay firmly localized and maintain their higher rates. It's not that I make less, it's that the other services and expenses that I cannot buy at Walmart (my car serviced, dental work, et al) that is the problem. The guy who is making $100/hr can afford to buy anything he needs. The one making $8/hr has a pretty miserable existence. Also, where you are on the way to old age, breaks in employment due to family or health also make one vulnerable.

Basically, for those who have a good life, it is hard to see what those who are vulnerable are "whining" about, until or unless the rug gets pulled out from under you for no fault of your own.

[Lafayette]

rpfrw: It's not that I make less, it's that the other services and expenses that I cannot buy at Walmart (my car serviced, dental work, et al) that is the problem.

That has nothing to do with globalization and everything to do with a Health Care system gone berserk. Don't blame the Chinese. Blame the AMA. Blame a Congress that didn't want to pass Hillary Care ten years ago. (The birds have come home to roost, haven't they?)

What you buy at WalMart takes your dollar farther than it would go fifteen years go, thanks to cheap labor in China. Why complain? That saved money increases your total disposable income that you can spend elsewhere.

On health care, for instance, since America seems enamored of exorbitantly priced private medicine.