Only in America (OK, maybe Britain, too) could a column like Tyler Cowen’s in Sunday’s New York Times appear without much outcry from its elite readership. That’s not a compliment.
According to Cowen, a prominent George Mason University economist, it’s great news to see recent World Bank research showing that, although the ongoing globalization of the world economy has indeed widened income inequality in the United States (as many critics have charged), it’s reduced the rich-poor gap globally. And as Cowen defines inequality, it’s not a problem that harms only the very poorest, least-skilled and educated Americans. It’s put the lower 99 percent behind the inequality eight-ball.
As a result, concludes Cowen, the heavy concentration of the costs of globalization (including the last 20 years of U.S. trade deals starting with NAFTA) in the ranks of Main Street Americans exposes American criticisms of globalization as “essentially nationalistic concerns…hiding behind the gentler cloak of egalitarianism.” He continues, “From a narrowly nationalist point of view,” globalization’s effects “may not be auspicious for the United States.” But that damage, as Cowen sees it, should not obscure how falling global inequality demonstrates that “the world is heading in a fundamentally better direction.”
Where to begin? First, Cowen misreads the objectives of left-of-center American trade and globalization policy critics – who have strongly influenced the positions of Democrats in Congress (if not those who make it to the White House). Some of these critics are genuinely conflicted about whether U.S. approaches to the international economy should focus first and foremost on American well-being versus global (especially third world) well-being. Many try to define the problem out of existence. (The new World Bank findings will sure make that argument much harder to make.) And some explicitly prioritize third world prosperity over American – chiefly activists in the religious community, and in the U.S. offices of international groups like Oxfam.
Second, Cowen may view nationalist priorities as “narrow.” But they’re the priorities that American leaders are elected to pursue. If it’s simply not clear whether U.S. and global economic welfare dovetail, politicians’ confusion which to choose becomes somewhat understandable. If World Bank researchers are right, and the drive to liberalize world trade flows is helping foreign populations at the expense of most of America’s, prioritizing the rest of the world’s interests is inexcusable – with one possible exception.
As standard Ricardian-derived trade theory holds, the freest possible flows of goods and services around the world will eventually maximize all countries’ welfare, including America’s, even though Americans may not be the leading beneficiaries. But if Cowen and the World Bank are right, and such free trade sets back the vast majority of Americans, that case falls apart for those devoted first and foremost to U.S. interests. (Interestingly, in this column, anyway, Cowen doesn’t mention the “maximizing global welfare” argument. His concerns are limited to levels of inequality among nations.)
Third, Cowen’s neglect of that broader welfare-maximizing argument leads him to overlook the main danger posed by the current combination of declining inequality among countries and widening inequality in the United States – even though the world has already paid a heavy price. The trade and related investment flows responsible for these patterns also helped to create the lopsided global economy whose distortions nearly triggered collapse in 2008 – and that continue preventing satisfactory recovery. For there was never any safe global substitute for the vast majority of Americans financing most of their robust consumption of imported goods and services responsibly, through their incomes.
As the new World Bank research makes clearer than ever, the freer global trade and investment lauded by Cowen have helped destroy income-earning opportunities for the critical mass of Americans. Since even impressive wealth creation in the developing world had no chance of filling that gap for decades, globalization-happy U.S. leaders decided to prop up U.S. consumption with easy money. The resulting crisis of 2008 and its aftermath harmed the entire world, and the steady return of these imbalances threatens an even more destructive replay.
A financially healthy American consumer, in other words, is the goose laying the rest of the world’s golden eggs. Optimism about the global economy’s future won’t be genuinely justified until this reality starts being acknowledged, not belittled, by the developing world, by its rich-country advocates, by America’s own one percent, and by many more mainstream economists.