Tuesday, November 27, 2007

Paul Krugman on Globalization and Income Disparities

Economist and New York Times columnist Paul Krugman argues that globalization has relatively little to do with income disparities in an interview with the public radio program Marketplace:
Let's start with the idea that globalization makes it impossible for American workers to earn good wages. The facts say otherwise. All of the world's advanced nations have to compete in the same global economy. Yet America's combination, of soaring incomes at the top and stagnant wages for most workers, is unique.
If globalization isn't the reason for growing income gap between working families and the very wealthy, then what is? Good question. If global economic forces aren't to blame, then factors peculiar to the U.S. must be involved. I would think that possible causes include tax laws that favor the accumulation of extreme wealth, weak labor laws and
and corporate governance practices that drive executive pay ever higher.

9 Comments:

Blogger Steve Newton said...

I don't know if I am being excessively picky here, but your post (perhaps inadvertently) makes a point I've long wondered about. Krugman denies globalization has a part of wealth disparity, and in the next paragraph you paraphrased that as "global economic forces." Are we quite sure that the two are synonymous?

I tend to understand globalization as a specific world-wide economic agenda of semi-controlled interdependence and national specialization within an essentially capitalist system.

I think that someone looking at the world through a neo-colonialist point of view would not see globalization as representing the totality of the world's economy.

6:35 PM, November 27, 2007  
Anonymous Anonymous said...

Part of the outworking of the English common law system that bleeds into our day to day lives is that every question is framed as a zero sum game played by two totally antagonistic parties.

In economics as in politics, we are forced into enemy camps and feel that we need to battle (rich v poor, worker v owner) for every inch - lest we lower our guard and give up too much ground.

In America the "rich" tribe, with much more access to education, mass media and the court system has carried the day.

7:42 PM, November 27, 2007  
Anonymous Alan Coffey said...

Ah, but economics does not have to be a zero sum game! Any free exchange makes both parties wealthier. If I value the car more than I value the $20k, I win in the deal. Obviously the car dealer values the $20k more than he values the car. So both of us are winners!

This is something politicians, especially those trained in our law schools, have a hard time understanding.

8:08 PM, November 27, 2007  
Blogger TommyWonk said...

Steve, I didn't mean the phrase "global economic forces" to be synonymous with globalization. I used it to distinquish between global and domestic factors in shaping income disparities.

9:01 PM, November 27, 2007  
Blogger TommyWonk said...

And by the way, I don't think you were being excessively picky. I try (and don't always suceed) to be precise in my writing and avoid sweeping statements.

9:03 PM, November 27, 2007  
Blogger Steve Newton said...

That's how I thought you were using the two terms, but most people don't make that distinction. I deal with people every day who think globalization is the only factor in world economics. That guarantees that you will only be in the box and never thinking outside of it.

I agree with your selection of weak labor laws and coporate governance practices, as well as the tax code. But I also highlight the fact that, in an increasingly decentralized information and industrial world both our government and our corporations hold tightly to late 19th century hierarchical management models, creating a very real dissonance between what comes up from the bottom to meet what's being decreed at the top.

9:14 PM, November 27, 2007  
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6:22 AM, December 01, 2007  
Anonymous Anonymous said...

Globalization is the cause. With technology and capital able to move anywhere instantly all the corporations have to do is find the cheapest labor and sell to the most expensive market. They are basically using market arbitrage based on the value of labor.

Just listen to people like Bill Gates constantly whine that he needs cheaper labor! I mean more qualified labor from outside America. He has a huge amount of money, he can make anyone qualified he wants when he wants. Why is he whining?

If you increase the supply of labor you decrease wages.

Even worse, American labor is legally blocked from participating in free trade, such that we can't buy items directly from China. We can’t even buy cheaper medical supplies from Canada. This is like a tariff against the American people to protect the profits of the corporations. This allows them to sell back to the US at massive profits with monopoly like control. They are feeding currently off the excess value that was earned over the last 30 years and upholding the market with debt so that we can continue to buy products at our market value instead of at actual production values.

If we bought at Chinese value, things would be a lot cheaper! So when do I get to participate in free trade and buy things really cheap? I sure would like to do so!

Another reason for the wealthy redistribution is the financial system. They have created a ponzi finance scheme with housing which is running out of steam and when it does we will have to deal with a real recession and take a pay cut. This pay cut will happen either through inflation or directly through wage cuts. If unemployment does hit a record high we could have a decent depression as Americans finally have to balance out with global wages.

The value of all labor worldwide is pulled by gravity of supply and demand to the average value. Sorry to say that but it must happen if the world will truly globalize. There are a huge amount of roadblocks though, one of which is different monetary systems.

Now if you wanted to do it the right way you wouldn’t allow free trade with nations that had a huge labor value difference. You would somehow tariff them such that you protect the value of your labor but also allow them to grow. Instead we decided to blow up the dam and let all the capital flow down hill. They didn’t allow this dam blowing up scenario as heavily in Europe as we did. Unfortunately all our capital is gone now and we will have to dig ourselves out from the bottom with the rest of the world.

2:08 AM, December 14, 2007  
Anonymous Anonymous said...

Another reason for the wealthy redistribution is the financial system. They have created a ponzi finance scheme with housing which is running out of steam and when it does we will have to deal with a real recession and take a pay cut. This pay cut will happen either through inflation or directly through wage cuts. If unemployment does hit a record high we could have a decent depression as Americans finally have to balance out with global wages.

good prediction

2:12 AM, January 26, 2009  

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