The End Of Globalization

The Financial Times has another op-ed that spuriously compares the US to the Roman Empire in an effort to cover a basic lack of understanding of economics. The author argues that globalization will fall because:

The answer depends as much on the stability of the country at the centre as on the behaviour of the rest of the world. The US, unlike the British empire, is building its rule on a foundation that is potentially quite unstable. The British empire in its 19th-century heyday ran enormous current account surpluses (7 per cent of gross domestic product on the eve of the first world war). For more than 20 years, in the period of its cold war victory and of the conversion of the world to a new consensus about markets, the US has had quite large current account deficits. In 2001, the deficit was 4.2 per cent of GDP.

One way of reading this odd situation – which is popular with many Americans – is that the rest of the world has bought into US stability. The deficits are financed by capital inflows, as the non-American world buys the stock of fast-growing US companies or – when the stock market looks bad – property. Indeed, there appears to be a security premium that the rest of the world pays, in that non-American purchases of US assets show consistently lower returns than US purchases of foreign assets.

But nobody thinks that this kind of inflow can be sustained indefinitely. The inflows of foreign capital could be rapidly reversed on some chance piece of bad news. Such a reversal would involve a collapse of the US stock market, the property market and the dollar. US consumers would no longer be able to binge on cheap goods supplied by the rest of the world. American producers would try to protect their markets; foreign producers would be thrown out of business and no longer see any gains to be realised by peaceful integration in a benign world economy.

That entire premise rests on the assertion that the United States economy is suddenly going to become a bad buy and foreign capital inflows will dry up. However, that’s a very large assumption. Despite our deficit (which is largely the result of massive government spending rather than any essential flaw in the US brand of capitalism) the US is still the world’s economic powerhouse. Unless we get eight years of President Hillary, that’s likely to remain true. If we were to accept the article’s premise that a shakeup in the US economy would have such a ripple effect, what more provokation would be needed than the collapse of some of the largest American corporations in massive accounting scandals. Yet that’s exactly what happened, and the global order did feel the effects, but the US economy kept on chugging.

The converse is the more likely scenario. As tax-and-spenders like Gerhardt Shroeder eviscerate their economies with increases in expensive welfare programs and massive tax increases, the inflow of capital into the US and more tax-friendly states is only likely to increase as investors move away from the faltering EU zone into the more safe European zone. This isn’t an ideal situation, as we need strong trading partners, but it’s a lot more likely than a US economic collapse.

Mr. James would have one believe that the US is a hegemon like that of the Roman Empire or the British Empire. Yet that is not true. We’re not monopolists in the sense that we’ve forcibly cornered the market in certain commodities or have a particular trading region captive. Rather, we’re the sole remaining superpower because we have the best goods, the most competitive economy, and the strongest markets. The reason we have all those things is because we have policies that support and maintain them.

Changing our policies to "multilateralize" the US would be tantamount to economic suicide. We cannot compete if we have a French-style work week or a German-style tax system. Rather, the whole point of globalization is that other countries need to free their economies from such shackles. The fault isn’t the concept of globalization, it’s a fundamental failure to implement it. Rather than seeing an end of globalization, the kind of economic and political unrest in nations such as Germany show that the the end of socialist statism is a far more likely scenario.

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