Grasping Reality on TypePad, by Brad DeLong

Note that here I want to sharply distinguish "globalization" on the one hand from the elimination of tariffs and non-tariff barriers on the other. With high tariffs, and under substantial non-tariff barriers, those who own the factors of production needed to make the protected commodities shelter and profit from the politically-generated rents that they have used their levers over politics to obtain. As the extremely sharp Dani Rodrik frequently points out here https://www.project-syndicate.org/columnist/dani-rodrik, theory predicts that eliminating tariffs and non-tariff barriers does produce net gains, yes, but it also produces large redistributions—and the smaller the initial level of the tariff or non-tariff barrier eliminated, the larger do the redistributions loom relative to the net gains.

"Globalization", however—at least as I define it here—is a different process. "Globalization" is the knitting together of the world via sharp technologically-driven reductions in transportation and communication costs. Yes, with "globalization" they—foreign producers—can learn how to make stuff more efficiently and ship it more cheaply to us. But we—domestic producers—can also make them more aware of what we make—and how useful it is—and ship it to them more cheaply as well. And we—domestic consumers—get more good stuff cheap. Only if the stuff we export requires very different "factors of production" than the stuff we import does theory predict any big distributional oomph.

And that is not the case.

A U.S. balance-of-payments surplus in finance employs more Americans as construction workers, in capital goods-making industries, and as nurses and home health aides. A U.S. balance-of-payments surplus in services employs high-priced highly-educated consultants in steel-and-glass eyries, but also janitors and housekeepers in motels outside of Yellowstone National Park. A U.S. balance-of-payments deficit in manufacturing creates a lot of manufacturing jobs abroad where the capital-labor ratio is low, but destroys relatively few manufacturing jobs in the U.S. where the capital-labor ratio is high and manufacturing is already a capital-intensive industry.

For more than thirty years Stanford economist Robert Hall has been saying that the U.S. employs more people selling cars than making them. The commodities that the U.S. imports from abroad embody a great deal of relatively unskilled labor. But their importation and distribution displaces much less relatively unskilled labor in America than it takes to make abroad.

Balance (somewhat) fewer assembly line manufacturing workers against more construction workers, janitors, housekeepers and nurses, and perhaps there is a gender ooomph! to the distribution of income resulting from "globalization". But it is hard to see a big class ooomph! there.

At least in theory.

And in theory there is no difference between theory and practice, but in practice there is.

So where, then, does the strong political oomph working against globalization here in the twenty-first century come from. I see it as having four origins:

First, and most important, foreigners—and immigrants—are easy people to blame, both because they are clearly not-us and—for politicians to blame in particular-because they do not vote. Back in 1890 Austrian dissident Ferdinand Kronawetter—looking at politicians blaming all the socioeconomic ills of the Habsburg empire on the Jews—famously said: "Der Antisemitismus ist der Sozialismus der dummen Kerle"—anti-semitism is the socialism of fools. This is, if anything, even more true of anti-globalization.

Second, economic growth in the Global North has for more than a generation now been, most importantly, inequitable, and also slower than expected or recalled. Hence there is a very strong political and also psychological need for somebody against whom one can tell a simple story to blame them for the large and growing gap between prosperity and where people thought they would be now, and the even larger and faster growing gap between the general level of prosperity and the lifestyle of the overclass

Third, the China shock hit a Global North that was already below full employment. Contrary to what the followers of Friedrich von Hayek and Andrew Mellon have always claimed, economic readjustment does not happen when bankruptcy forces workers, buildings, and machines out of low-productivity industries that can no longer attract enough demand to cover their high costs. Economic readjustment happens when boom pulls workers, buildings, and machines into high-productivity industries for which demand is growing rapidly. For the neoliberal bet to succeed it required not just openness to competition and global change and working price stability but also full employment and near-permanent quasi-boom. So Keynes had warned in the 1920s and 1930s. But the neoliberal global order did not deliver, and perhaps could not have delivered, even with the best policies.

Fourth, that failure could have been compensated for—perhaps—by much more aggressive social-insurance and by policies of regional demand redistribution and management even if not of full employment. But it was not. U.S. President Donald Trump simply speaks more bluntly than the past generation of right-of-center Global North politicians when he calls for people in economically-depressed regions of upstate New York to simply leave the region and seek opportunity elsewhere.

Thus I see the keys to the Global North's current political-economy dilemmas as largely the same as the keys to the similar dilemmas of the 1920s and 1930s. There is the John Maynard Keynes's key: produce and maintain full employment, and other problems melt away. There is Karl Polanyi's key: people believe that they have all kinds of extra socio-economic rights—to healthy communities, to stable occupations, to appropriate and rising incomes—that are not backed up by the property rights controlling resources in high demand that are the coin of the neoliberal realm. The government's purpose is to vindicate those economic rights.

Otherwise? What is called "The Great Recession" in the Global North began exactly a ten year*s* ago this month. The damage it did has still not been repaired. Otherwise, the various -isms of fools will wreak additional damage in the decades ahead.