Globalization and the U.S. Economy (Labor Day in the U.S., part II)

As the U.S. election season heats up, most attention is being directed at the performance of the American economy. From the fourth quarter of 2007 – the official start of the Great Recession – the U.S. economy shed millions of jobs and the unemployment rate rose to almost 10 percent. Candidates and the public have rightly focused on job creation, or the lack thereof. What has largely been missing from the public debate about the health of the American economy is a concern for income growth.

It is hardly shocking that the vast majority of U.S. workers have not seen much real growth in their wages since 2007. (Some who have kept their jobs – including many government workers – have experienced pay cuts.) What is more unsettling is the longer term trend of stagnant wages for a large share of the country’s workers. A recent series of posts on the blog Economix addresses this stagnation in the context of freer international trade.

A recent Economix post, “Behind the New View of Globalization,” is a political bombshell. In short, globalization – as embodied in trade liberalization and better communications and logistics – has led to the disproportionate loss of well-paying jobs in the United States. A growing chorus of economists is now rejecting the view that technological changes have been the major agent of “creative destruction” in the manufacturing sector and beyond. Instead, competition from China and elsewhere has led to a huge hit for the American middle and working classes. (The Economix post provides numerous references to mainstream economic studies that now support this view of the effects of international trade on the U.S. economy.)

As the Economix post makes clear, the WTO and lowered tariffs are not the only reasons for income stagnation in the U.S. The United States is not sufficiently investing in basic infrastructure such as highways, airports, and urban public works. American schools are producing mediocre results, when compared to the country’s international competition. And, political gridlock in Washington calls into question the ongoing suitability of our constitutional framework.

From a global perspective, though, the benefits of freer trade are clear. Emerging markets like China, Brazil, India, and others are benefiting from a more open international economic system. And, critically, tensions among the world’s major states are decidedly low by historical standards. The relative harmony among the world’s established and emerging state powers is in large part a result of global economic integration. The world’s most troublesome states – countries like North Korea, Zimbabwe, and Afghanistan – are some of the least integrated in the global economy.

So, as we mark another Labor Day in the U.S., the answer to the challenge of wage stagnation is not protectionism. The benefits of freer trade – both economically and geopolitically – are immense. Nonetheless, strong pressures are clearly building in American society (and Europe), as manifest by movements like the Tea Party, Occupy Wall Street, and the anti-government militias. The U.S. is far from being a failed state, but more and more Americans are losing trust in the ability of government to facilitate economic outcomes that are deemed fair. The legitimacy of American political institutions is in decline. One need not be a radical leftist to point out that the main financial rewards of this era of globalization have largely gone to those at the top of the American class structure, and that long-term trend is leading to huge dissatisfaction across the society.

*** Did you like what you read here? You might be interested in the new book by this blog’s author, Failed States: Realities, Risks, and Responses.