Month: December 2013

A Gathering Consensus About the Limits to National Economic Policy?

SOURCE ITEMS

Despite the subsequent decision of the Group of 20 in 2009 on the need for rules to supervise what is now a globally integrated financial system, world leaders have spent the last five years in retreat, resorting to unilateral actions that have made a mockery of global coordination. Already, we have forgotten the basic lesson of the crash: Global problems need global solutions. And because we failed to learn from the last crisis, the world’s bankers are carrying us toward the next one.

Gordon Brown, Stumbling Toward the Next Crash, New York Times, Published: December 18, 2013.  (Gordon Brown, a Labour member of the British Parliament, is a former chancellor of the Exchequer and prime minister.)

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Nothing endangers globalization more than the yawning governance gap – the dangerous disparity between the national scope of political accountability and the global nature of markets for goods, capital, and many services – that has opened up in recent decades. When markets transcend national regulation, as with today’s globalization of finance, market failure, instability, and crisis is the result.

Dani Rodrik, National Governments, Global Citizens, Project Syndicate, March 12, 2013.  (Dani Rodrik is Professor of Social Science at the Institute for Advanced Study, Princeton, New Jersey.)

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Around the world, policies, technologies, and extended learning processes have combined to erode barriers to economic interaction among countries. Pick any indicator: trade relative to global GDP, capital flows relative to the global capital stock, and so forth – all are rising.

But economic policies are set at the national level, and, with a few notable exceptions like trade negotiations and the tracking of terrorist funding and money laundering, policymakers set goals with a view to benefiting the domestic economy. And these policies (or policy shifts) are increasingly affecting other economies and the global system, giving rise to what might be called “policy externalities” – that is, consequences that extend outside policymakers’ target environment.

Michael Spence, The Blurry Frontiers of Economic Policy, Project Syndicate, September 19, 2013.  (Michael Spence, a Nobel laureate in economics, is Professor of Economics at NYU’s Stern School of Business, Distinguished Visiting Fellow at the Council on Foreign Relations, Senior Fellow at the Hoover Institution at Stanford University, and Academic Board Chairman of the Fung Global Institute in Hong Kong.)

COMMENTS

In certain quarters of American society, one can find rejoicing over the condition of the U.S. economy.  Just today, the Federal Reserve began its long anticipated tapering of its bond buying program for stimulating the U.S. economy, citing enough economic progress to do so.

Given the quotes above, one has to wonder, however, whether a small change in Fed policy in the U.S. will have much effect one way or the other.   The bond buying program is only one in a global sea of public policy mechanisms that affect the U.S. economy.  And some of those other policy mechanisms are being manipulated by actors in the world economy that are quite powerful – the EU, China, the BRICS nations.

It must also be pointed out that the effects of the Fed’s decisions are not contained by U.S. political borders.  Those consequences are spread across the world economy through the global financial system, and some or many nations will be harmed by those effects.  Actions bring reactions and we do not know whether those reactions will conspire with Fed policy to improve employment and incomes in the U.S. or conspire against Fed policy to further damage employment and income growth in the U.S.

See my Blog Posts under Global Economic Governance for more sources and comments.

Tom Friedman’s Jobs World is Interesting But a Bit Flat

SOURCE ITEMS

In today’s hyperconnected world without walls — when more Indians, Chinese, computers, robots and software can perform more average blue-collar and white-collar jobs — the only high-wage jobs are increasingly high-skill jobs

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Our kids face three big adjustments. First, to be in the middle class, they will need to be constantly improving their skills over their lifetime. Second, to do that, they will need a lot more self-motivation. … And third, countries that thrive the most will be the H.I.E.’s — the high imagination-enabling countries — that attract and enable talent to be constantly spinning off new ideas and start-ups, the source of most new good jobs.

Thomas Friedman, Can’t We Do Better?, New York Times, December 7, 2013.

 COMMENTS

Tom Friedman is almost always worth reading, but he has yet to acknowledge a societal development that is one of the most consequential for the world’s working families – the transformation of the role that work plays day in and day out in distributing the world economy’s newly created wealth.

Ironically, Friedman identifies the very forces that are undoing the role of work in distributing newly produced wealth, but fails to follow through. He takes us right to the door through which he could walk us to the real solutions to growing poverty and inequality.  He then turns away and offers up the same old failed conventional wisdom.

Friedman and so many others define the problem of low wage jobs and growing inequality as due to the inadequacies of workers (low skills, outdated skills, lack of drive).  They fail to seriously consider the possibility that the world of work is changing in such fundamental ways that no feasible amount of improvement in the skill levels of working people or change in their approaches to getting and keeping jobs can reverse the trend toward lower wages and greater poverty and  inequality.

As Friedman rightly notes, global integration and advancing productive technologies have great consequences for working families and societies, but not because they are creating demand for highly skilled workers and destroying demand for low skilled workers.  The core systemic change is that those forces are producing an enormous and growing surplus of labor, both skilled and unskilled.

The role of machine energy in the production of the world’s goods and services has advanced to such a large proportion of the combination of human energy and machine energy that the available human energy far exceeds the demand for human energy.  Even human thinking energy is being displaced by machine energy.

The trend shows up in the long term decline in the proportion of the world’s population that is employed.  Friedman and others apparently believe that this trend won’t eventually bring us to a point in time when more than half the world’s people are effectively outside the world of work.

How then will we distribute the world economy’s newly created wealth day after day?

The era in which employment could be the primary way in which a person could legitimately claim a fair share of the world economy’s income is nearly over.  Yet Friedman and other experts still have not asked the question in public of what will give a person a right to a fair share of income in this increasingly jobless world.

The world’s people desperately need a new kind of right to income, and until we invent that right, inequality will keep getting worse and more of the world’s people, including Americans, will be shoved into lives of destitution, begging, scavenging, and violence.

Investors Seem to Prefer Easy Money Over Real Economic Investments

SOURCE ITEMS

U.S. stocks declined a fifth day after improving economic data boosted bets the Federal Reserve will curb its monthly bond purchases sooner than estimated.

U.S. Stocks Decline as Economic Data Fuel Stimulus Bets, Nick Taborek and Callie Bost, Bloomberg, December 5, 2013.

COMMENTS

I hesitate to comment.  It must be obvious that this investor behavior is not good for job growth.