But discuss globalization, we must.
Globalization -- basically, free markets and the transfer of jobs to lower-cost labor/production centers -- has lifted more than 1 billion people out of poverty, and united nations, peoples, and cultures.
However, globalization -- at least in its initial stage -- also contains a contradiction that, in time, could undermine not only the uniting of markets, but trade and global GDP growth itself.
The contradiction: It's becoming increasingly clear that global growth requires that high-wage Americans consume, but the process of globalization is driving U.S. wages lower in many jobs segments, and stagnating wage growth in still others, undermining Americans' purchasing power, and with it the primary growth engine of globalization itself.
2001-2008 - A Difficult Decade for Americans, Wage-Wise
At the outset of the 2007-2009 U.S. recession, few doubted the link between U.S. consumer spending and U.S. GDP growth: if U.S. consumer spending dips, GDP growth pulls-back; a deep, protracted decline in spending, and a recession ensues. It happened, starting in December 2007, as it had in many previous U.S. cyclical downturns/recessions.
However, few onlookers could have imagined -- there was no precedent, the world had never experienced a cross-hemisphere trade period with as many linkages as it had in 2002-2007 -- the revelation of the relationship between the U.S. consumer and global GDP growth. It's now pretty clear that the U.S. consumer was not only the backbone of the U.S. economy, John and Jane Smith were driving much of global GDP growth, as well.
Moreover, it's quite remarkable how few economists and market analysts, save Financial Times Columnist Martin Wolf, have addressed the issue. From market absolutists, conservative economists, and others, what one hears is an endless mantra about the wonders of free markets and globalization: low taxes, no regulation, and free markets lead to investment, increased trade, GDP growth, opportunity, rising incomes, and prosperity. Globalization and free trade are 100 percent wins, in the market absolutists' view, and there are no drawbacks or down-sides. And the sky is blue all the time, too.
And, for awhile, that description of reality appeared to be fairly accurate: foreign-based company revenue boomed during the previous decade, as did international revenue of U.S. corporations. Some in the United States weren't benefiting as much from globalization, but so what? Earnings were increasing at double-digit rates, and the Dow was approaching 14,000. Bush is going to be re-elected in 2004, man! Relax. Whatever concerns that may appear, the market will self-police, self-regulate, and self-correct.
What Happened? The Reality, Unmasked by the Housing Bust
Still, all the while, wages were flat or declining in many job categories in the United States, but again the phenomenon was largely dismissed as inconsequential given the 'health' of the U.S. economy in 2002-2007, and given the many benefits of globalization. But then the leverage bubble burst, the 'housing ATM cash machine' ended, those stagnant/declining wages were revealed for what they were and are -- incapable of supporting adequate GDP growth -- and the U.S. economy tanked, big time, beginning in late 2007, in what would mark the start of the U.S.'s deepest and worst recession since the Great Depression of the 1930s.
And very shortly thereafter, emerging markets, the previous big winners during globalization and thought to be immune or 'de-linked' from the United States economy and problems, tanked big time, too. The net result: the first global recession since the end of World War II.
Initially, the market absolutists shrugged off the global slump, arguing that it would be minor or short. They said that globalization's increased international linkages would mean the Chinas, Indias, Brazils, and Russias of the world would generate demand for each other and create a large amount of global GDP growth among themselves. So far, that has not happened, at least not on the scale predicted by the market absolutists and the economic conservatives. In fact, the opposite is closer to the truth: the U.S. consumer was not only the source of much of the previous decade's U.S. GDP growth, American consumer spending was driving much of the global economy's expansion, as well.
But, as noted, that very same globalization that requires U.S. citizens to spend has also driven their wages lower, and continues to do so, in many job segments/categories. And given lower, real, median incomes and decreased purchasing power, Americans have responded in a predictable and responsible way: they've cut back their spending, in a big way. U.S. consumer spending levels improved slightly in 2011 and 2012, but no one expects a return to pre-recession consumer spending growth rates. The era of the 'frugal consumer' continues in the U.S.
Even so, market absolutists, along with many emerging market economy leaders, appear to be waiting for the market to work its magic and U.S. consumers to start spending again, revving-up global GDP growth. But given current wage and real median income levels, that's not likely to happen. Think about it: if U.S. consumers are having problems getting their own $14.7 trillion U.S. economy to grow at an adequate rate -- 3 percent or higher -- how can they possibly drive the GDP growth of the $78.9 trillion global economy?
To date, economic conservatives' attitude toward declining wages and real incomes has been one of disbelief: they don't think a problem exists. Well, the sad GDP facts don't lie: the U.S. and world are more than two years into the economic recovery and demand has not magically appeared in the U.S., so it makes sense to address the problem. The U.S. and the global economy need that demand to come from somewhere.
Next week: Correcting the economic ship-of-state in the United States and, to a lesser extent, globally.