The Expendables
While I was preparing lecture on Fact or Fake: evaluating online information, I learned a lot about misinformation, fake news and Trump. It is puzzling why so many people, regardless of their educational background, fall for false information. It gets share 70% more and spreads 6 times faster than true information. This is a real problem all over the world. One suggestion I found of how to counteract false information is to deliberately expose ourselves to other sources of information. For example, if you regularly read liberal-leaning newspapers, you should force yourself to also read conservative ones. It should balance out your worldview because things are rarely, if ever, black and white. This book is just like that. It is an argument against free trade and globalisation, which I always believe that it’s a good thing and we should all aim for it. This book explains why that might not be the case.
On argument for globalization
It relies heavily on David Ricardo’s theory of comparative advantage. The idea, which most economists buy into, is that individual countries are better off if each focuses on what it does best and trades for what it does less well. In Ricardo’s famous example, he points out that England could produce both cloth and wine if it really wanted to, but it would be more profitable to produce only cloth (England was a pioneer in industrial textile manufacture back when Ricardo was writing), sell it in global markets and import wine from a country like Portugal, which could produce wine more efficiently. Globalization means many things. It means companies can go shopping for low wages around the world. It means long international supply chains that end in stores like Walmart. It means razor-thin margins and just-in-time delivery. Overall, it sounds like a good thing.
On wage growth stagnation
Current record low unemployment doesn't lead to wage growth. This doesn’t make sense from simple economic theory of demand and supply. Why is that?
Globalization works go where cheap labour is. Unions don't weild as much power now. No matter how tight labour markets appear to be. You can’t go on strike for a pay raise if you don’t belong to a union—and even if you’re one of the few workers who still belong to one, your union’s bargaining tactics today are very different from what we used to see in the past because if it drives a hard bargain, the factory will just be moved where labour is cheap.
Between 1990 and 2015, 80 percent of Canadian households saw few if any income gains. But as in the United States and the United Kingdom, the top 20 percent of households realized significant income gains, and the top 1 percent saw the greatest gains of all. No wonder, then, that rich people support globalization pretty much everywhere you look. It has made them a lot richer. They are the only strata of the population that has seen incomes grow—and grow handsomely, at that. Everybody else’s income seems frozen in time. This is because rich people income is derived , at least partially, from assets not wage. That’s how your country gets richer while you get poorer: wages may not be growing, but investment returns sure are.
On the weakness of GDP per capita
A growing economy still translates into rising GDP per capita, but most of the gains are accruing to a very narrow slice of the population. In a nutshell, the average income is going up, but no one earns the average income. And looking at averages hides a climbing Gini coefficient and a level of polarization not seen in generations. Per capita GDP tells us almost nothing about how most people in the economy are doing.
When we look at GDP per capita, we need to understand what it really represents. What we really want to know is societal/national well being, whether it improves over time, GDP per capita doesn’t tell us that. GDP may be increasing, but average well-being or quality of life, if we can actually quantify it reliably, may be decreasing.
While globalization has led to worsening income equality in both the developing and the developed world, it is largely in the latter that its distributional effects have been challenged by growing populist movements. The reasons seem clear enough. Whereas worsening inequality in places like China has occurred against the backdrop of rising income for virtually everyone, growing inequality in the OECD countries has coincided with stagnant incomes for most of the population
Economy and politics go together
Changing economic conditions lever changing political attitudes, just as they did at the tail end of the last cycle of globalization. When nine out of ten Americans can expect a better life than their parents had, as the baby boomers could, their support for a democratic form of government is all but assured. When those odds are the same as on a coin flip, that support can no longer be taken for granted. Today, less than half of Americans believe democracy is essential to their lives. It’s the mirror image of the declining percentage of Americans who have surpassed their parents in earnings.
A World Values Survey showed that only 30 percent of American millennials thought democracy was essential to their well-being. Similar percentages of millennials felt the same way in Australia, New Zealand, Sweden and the United Kingdom.
Historically, the middle class has been the staunchest defender of our democratic institutions. Income stagnation has led to a discernible shift in political views toward new forms of nationalism and populism driven by a growing mistrust and suspicion of global governance.