In this post we set out to get an opinion on how global interconnectedness affects the biggest economy on the planet and how the U.S. government deals with globalization’s challenges. We found out that, while globalization is a welcome process, there are aspects the administration wants to harness.
To get an informed view on those questions we went to visit a man who President Barack Obama listens to when it comes to economic advice, who by definition of his job needs to be in the know: Jason Furman, Chairman of the White House Council of Economic Advisers. Furman propagates a hands-on approach to globalization.
The good news first: “Globalization has created enormous opportunities for the American economy”. According to Furman globalization has created jobs in export industries in the US that pay higher than average wages and a rise in imports gives consumers access to a wider range of goods at better prices.
Sounds like good deal when you’ve got more income to spend on goods at lower prices. Are we looking at a win-win situation then? Unfortunately not. “Globalization has also created a lot of challenges for the economy”, Furman admits. Indeed, it “has almost certainly contributed to the increase in inequality in the last couple of decades”.
Well, different research has come up with different percentage points. It is notoriously hard to pinpoint how much inequality is due to which factor. Even the exact impact is hard to measure! To cut through the mist Furman breaks the negative impacts of globalization down into two.
Jobs and Investment
While the export job market might be a winner, globalization has had a different effect on other sectors of the labor market. “If you have more plentiful lower income, less skilled labor competing, that can drive income down.” Furman adds, that this effect has been explored and verified by traditional trade theory.
Meanwhile, the other aspect has only recently been better understood. Furman points to the world of finance and investment. “If you have a hedge fund manager or an investment banker operating not on the scale of a region, or the scale of a country, but the scale of the world, the returns that they can command […] can be that much larger”.
This isn’t a bad thing per se but Furman diplomatically hints at the fact that this aspect of globalization does not necessarily involve or benefit the wider public. “Globalization has also increased the reward to a certain number of superstars or maybe just super lucky people at the top”. You could translate this into: Some people are raking in profits that aren’t necessarily the fruits of merit alone.