Bruce Rattner has a good column in today’s NYT about the impact of globalization on American workers. I was planning to address that topic at a later date, but it is (or should be) the focal point of the election, so this is as good a time as any to share my opinions.
Anyone with eyes and a brain can see that globalization has been the primary driver of inequality in this country over the last 20 years. The most obvious manifestation of that has been the loss of manufacturing jobs, but the fear of offshoring has also led to stagnating wages in both the manufacturing and the services sectors of the economy. You now see companies making healthy profits demanding wage give-backs from their workers; the notion that a 5 percent US unemployment rate will substantially drive up wages is not necessarily correct, because it ignores the pool of cheap workers in Vietnam, China, and India. The Fed would be wise to consider that when it makes future decisions about interest rate increases.
So what is the most appropriate public policy response? There are three options:
1. The Trump option: protectionism. As I have noted previously, the debate on protectionism has shifted from the Democratic to the Republican Party as disillusioned white male workers have joined the GOP. Protectionism is an extremely inefficient way of dealing with the costs of globalization, and it should be rejected.
2. The Democratic option: strengthen the welfare state. Sanders, Clinton, and Obama may disagree on the precise manner in which this should be done, but not on the concept. In this scenario, acceptance of free trade is a moral and political bargain with the American worker; his job may be endangered, but he gets cheaper products from Walmart, and he can rely on a robust safety net to protect him from health and financial emergencies. The funds for the expansion of the welfare state should come from the principal beneficiaries of globalization: capitalists.
3. The mainstream GOP option: deny there is a problem and dismantle the welfare state. Most of the GOP candidates want to reduce the amount of “free stuff” available to the victims of globalization; in other words, they reject the idea of the bargain described in #2 above, and maintain that the unemployed and underemployed should solve their own problems through rugged individualism. The macroeconomic result of this approach, particularly when accompanied by tax cuts for the wealthy and for corporations, is that American companies pile up mountains of cash, but have nowhere to invest it due to inadequate demand from a weakened middle class.
No prizes for figuring out which of these options I support.