Tuesday, February 22, 2011

Managing Globalization

I was talking with a coworker a while back who is a die-hard capitalist. He argued that we shouldn't be bothering to do anything about immigration, off-shoring, currency manipulation, etc., because the free market would ultimately triumph and correct all of these problems.

Yes, of course the market will ultimately take care of things; but time and weather will eventually clean up Superfund Sites too. In the meantime, you've created a lot of loss and waste. Just because it will be corrected doesn't mean you shouldn't help it along.

One of the biggest examples in that regard is income disparity in the United States. I read countless columns, from many reputable, and otherwise competent, sources, who blame growing income disparity on some new-found greed among the upper classes. In my mind, that can be easily classed as bologna. The upper classes today are no more greedy than they were in generations past. The difference is the comparative value of labor.

In the last thirty years, China and India joined the global economy. They were virtually undeveloped countries with massive supplies of labor. With that huge infusion of labor, to make the supply and demand curves match, either the cost of labor had to drop, or the cost of capital had to rise. What we've witnessed is a huge increase in the value of capital, and those who own it have become tremendously wealthy. That wages have stagnated is no surprise--they should have fallen.

Managing globalization, in this case, should include efforts to increase the supply of capital. The more capital to be used, the more labor will be needed to use it, the more wages will rise. Investing in infrastructure, which is badly needed in the United States, would probably be one of the best things we could do at the moment, despite the "inevitability" of globalization.

3 Comments:

Blogger Yoel Natan said...

The idea that the mindless forces of capitalism have benefited the upper-class and hurt the lower-class is bogus since WWII. It is shameful to even to suggest it. There have been plenty of policy and structural changes and trade agreements legislated and agreed upon by politicians that have change the playing field, much like changing rules in the NFL changes the game.

The widening gap between the rich and poor would have to be found everywhere, but it's the peculiar problem of the US which has the lowest taxation rates in the world, and does the worst job educating its masses in the industrial world. There's an undeniable connection between the two, and explains most of the data very easily, without being forced.

Putting the blame on mindless capitalism as though it is blind justice is similar to how the MSM writes about terrorism in the passive voice, e.g., they were attacked, or as though it's like the weather or an act of god, e.g., a bomb just happened to blow up and it just happened to be in a coffee shop.

12:36 AM  
Blogger Noumenon said...

I like the preceding comment!

It's possible that rich people are more greedy today -- they are more industrious than they were, perhaps they feel more entitled. Cultures change. But I don't know of any attempts to measure it.

2:53 AM  
Blogger Octavo Dia said...

The widening gap between the rich and poor would have to be found everywhere, but it's the peculiar problem of the US which has the lowest taxation rates in the world, and does the worst job educating its masses in the industrial world.

Inequality has also been rising in Europe, though, as you point out, that effect is muted by redistributive policies.

I half-concede the point concerning education. I did not include human capital in my definition of capital. The vast influx of labor also requires human capital to use it, and those who have the necessary human capital are making out-sized returns as well. The United States, it seems, is under-invested in both regards.

5:10 PM  

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