Fisher Investments Editorial Staff
Globalization

That Joke Isn’t Funny Anymore

By, 08/27/2008
 

Story Highlights:

  • Nobel Laureates blame globalization for widening income gaps and promote "mechanisms for redistribution."
  • A lot of folks fret wealth gaps, but if everyone is getting wealthy, it doesn't matter much if the spread between the highest and lowest earners is widening.
  • Countries with redistributive policies are generally worse off than others. Don't blame globalization for the results of misguided local regulation.

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 It's like the start of a bad joke: "Four economists walk into a bar and…"

Only it's not a joke. After meeting in Germany, four Nobel Laureates have declared globalization is unfair, creating a worldwide stir. They blame globalization for widening wealth gaps and believe the answer is promoting "mechanisms for redistribution." 

No doubt, some rather lofty accomplishments led these gentlemen to be anointed as laureates. However, their recently expressed sentiments seem almost completely wrong. For instance, they argue globalization increased supply of low-skilled labor, dampening wages in developed countries. For now, let's suppose that's true (though we'd argue it's not). What about developing countries? Massive infrastructure projects in China, India, the United Arab Emirates, and other nations aren't building themselves. As we covered recently, international development created a global labor market with increasing competition between countries for workers. Though union membership is declining, laborers' circumstances improved as companies offered better conditions and pay to attract workers. That's right—free markets, not unions or regulation, are elevating wages in these places.

 The laureates also decry the "rich getting richer." Folks fret so-called wealth gaps, but if everyone is getting wealthier, does it really matter much if the spread between highest and lowest earners widens? It's true—in some emerging markets the rich do get richer and subjugate the rural peasants—but we wager such places may never truly emerge. In fact, they'll likely submerge if they don't evolve to a freer economy. But in many emerging markets there has been a paradigm shift—the poor have an opportunity to get richer. Besides, these fears about a wealth gap may be unfounded. It seems as the world gets wealthier, the have-nots may actually be catching up to the haves. Globalization today is simply not 19th century imperialism, despite what some might say. This is largely why there's no need for redistributionist measures. It's unfair to argue Argentina has problems because it lacks redistributive policies. Fact is, Argentina's slide coincides with radical redistribution. Farmers' and truckers' strikes aren't a response to some sort of über-free market agenda—they're a backlash against prohibitively high taxes and tariffs. Don't blame globalization for the results of misguided local regulation.  

Sure, globalization produces winners and losers. But while some cry foul over the free movement of labor causing a few lost jobs in a few countries, there are more winners in more countries than there were before—and not just economically. (Heck, the same free movement brought more Olympic medals to places like Zimbabwe as athletes trained in developed countries with elite coaching and facilities.) 

Thankfully, while the four gurus tout increased regulation and redistribution from their island enclave, others battle such nonsense. Markets have always detested both, so we'd hate to see what would happen if the gurus got their way. Rather than prescribe bad solutions to the world's "problems," we'd prefer they spend their time trying to solve this age-old question: "How many economists does it take to screw in a light bulb?"

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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