A golden age of wealth creation.
At first glance, such a sleeper issue might seem odd. During the past twenty-five years of globalization, under the leadership of both parties, the United States created an astonishing 40 million new jobs, more than created by the rest of the industrial world combined. As Newsweek's Robert Samuelson, perhaps the most underrated commentator in financial journalism today, notes: "Since 1980 worldwide exports tripled while the overall economy doubled." Economist Gary Hufbauer argues that America "is one trillion dollars richer each year because of globalized trade." That amounts to more than 10 percent of GDP or an incredible $10,000 per household. Robert Bartley, the late editor of the Wall Street Journal, wrote a book touting the Reagan economy called The Seven Fat Years (Free Press, 1992). If somebody writes a sequel, the book should bear a more bipartisan title, perhaps The Twenty-Five Fat Years.
What is most interesting about this golden age of wealth creation is that the large U.S. productivity growth increases of the past are now fanning out and being emulated by the rest of the world. As Dino Kos, the former head of the New York Federal Reserve's foreign exchange operations, said upon his recent retirement, "There's an ocean of liquidity out there. The productivity revolution has gone global. The world suddenly has gotten a lot richer a lot faster than any of us realized."
So with globalization creating such a successful wealth machine, it would seem inconceivable that the concept politically would be in trouble. But that is exactly what is happening as Washington politicians are flirting with the anti-globalization position.
And why not? Polls show that even after years of record low unemployment and robust stock markets, Americans are anxious about their economic future. Real wages have remained relatively stagnant, which is why good economic headlines in the run-up to the 2006 elections failed to help the GOP. Today, Americans spend more on imports than they pay in taxes. As a result, there is a growing sense that despite enormous prosperity, Americans have lost control of their destiny.
Notice that even those politicians once firmly in the pro-globalization camp are beginning to hedge their bets. Economist Jeff Faux in his article (page 10) points out how Hillary Clinton is working ferociously to separate herself from the pro-globalization positions of her NAFTA-loving husband. Former Clintonite Larry Summers expresses great personal anguish that "the share of the pie may even be shrinking for vast segments of the middle class."
While the Democrats are hedging, the Republicans have simply lost their way. The genius of Ronald Reagan was his gut belief that "a rising tide lifts all boats." Reagan argued for policies that unleashed productive forces of the economy, but added that "as we move ahead, we can't afford to leave anyone behind." For today's GOP, it is not good enough to be the party of a narrowly defined investor class just as it is not good enough for the Democrats to be the party solely of the minimum wage increase.
The truth is that in today's globalized system, wages alone may never increase enough to get ahead, regardless of healthy minimum wage increases and earnest government attempts to encourage job-related education. To fully benefit from advancements in productivity that result from globalization, I suspect families have no choice but to be invested in financial markets.
George W. Bush, in a feeble attempt to link Social Security reform to private investment accounts, may have unfortunately polarized the political community on the general investment issue. But the facts are quite compelling. If the total amount of the world's traded financial securities represents an acceptable proxy for measuring global wealth, then global wealth in the last ten years grew by roughly 9 percent on average each year. During the same period, world GDP grew at approximately only 2.8 percent on average each year. So wealth is growing more than three times faster than GDP, and wages are tied, in one form or another, to GDP growth. That's why American families, depending largely on wages, desperately need a seat on the financial market train. Several decades ago, only 45 percent of American families owned their own homes. Now almost 70 percent do. There is no reason that the same shift can't occur with similar incentives to encourage the ownership of financial market assets.
It is amazing, after several decades of a globalizing system, how little we know about the complexities of today's New Economy--both its upsides and downsides. Clearly, with the growing ocean of global liquidity, many of the old macroeconomic rules no longer, for now at least, seem to be working. Washington columnist Robert Novak in his article (page 32) writes about the growing cottage industry of gloom-and-doomers whose forecasts in this new environment never pan out. As a footnote, Novak failed to mention that investment banker Pete Peterson is a true pioneer in the field of globalization and, without a doubt, puts his money where his mouth is by financing, among other things, Fred Bergsten's Institute for International Economics. Economist Paul Krugman is another case in point. Now known in Washington as an oddly partisan gunslinger on the op-ed pages of the New York Times, Krugman is actually his generation's intellectual giant in the field of foreign exchange. Indeed, many fans at this time of global uncertainty long for his return to that scholarship.
My point here is simply that there is an unexpected complexity to today's newly globalized system. Clearly, the economy is not some stagnant entity to be measured on a spread sheet, but more like a highly dynamic, living organism. Recently, Newsweek's Samuelson noted a remarkable statistic: Every three months, 7-8 million U.S. jobs disappear and roughly an equal or greater number are created. He concludes: "Trade is a relatively minor factor in job loss." A new book entitled Economic Turbulence by Clair Brown, John Haltiwanger, and Julia Lane arrives at a similarly provocative conclusion: A large part of measured wage declines are the result of job downgrades within firms. In other words, in today's economy the wage earners who earn the least appear to be those most loyal to the company. They are the suckers. The winners move around. Not surprisingly, three in five jobs for 22- to 55-year-old employees today last three years or less. Others describe today's interactive economy, where bottom-up creative interventions are transforming companies and even industries.
None of this is to suggest that globalization's "delivery system" is adequate. That's why the best minds, with a sense of humility toward what we don't fully know about this new system, need to become more engaged. The anxious anti-globalization forces just over the horizon no doubt fail to appreciate that a swift reversal in policy with major market interventions would likely involve serious risk. Risks skyrocketed after the end of the last period of rapid globalized trade and capital, in 1914. That's why the pro-globalization forces need to intellectually mobilize and make a prudent case.
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|Title Annotation:||FROM THE FOUNDER|
|Publication:||The International Economy|
|Date:||Jan 1, 2007|
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