Stiglitz Misses the Point

    For a long time, I've argued that politicians who focus on the challenge presented by China miss the real problem, intentionally or unintentionally. Almost a year ago, when the debate was raging about the need for China to revalue its currency, I didn't disagree with the point but added that:

...the level of the currency won't make a huge difference because of the huge advantage China has in labor costs. As long as the authoritarian regime in China suppresses its workers' rights, it will continue to be the industrial Mecca of global corporations. You just can't find cheaper--and more controlled--labor anywhere in the world. If you are a U.S. worker worrying about losing jobs overseas, you should be rooting for Chinese workers getting the right to have unions and breaking loose to push wages up; there are, in fact, regular protests and wildcat strikes in China which may portend a massive social upheaval driven by vast legions of rural poor who want a share of the rapidly developing economy.

    Today, Joseph Stiglitz writes in The New York Times about how he sees fixing the imbalances in the financial system of the global economy, particularly the growing trade imbalances being run up by the U.S. I think Stiglitz, as someone who has worked in the upper echelons of the global elites, has made some valuable contributions in the past, talking about some of the weaknesses of globalization.

    His main point in the piece today is that United States has to deal with the financial mess at home, rather than point at others to take steps first. His bottom line suggestion:

There is one way out of this seeming impasse: expenditure cuts combined with an increase in taxes on upper-income Americans and a reduction in taxes on lower-income Americans. The expenditure cuts would, of course, by themselves reduce spending, but because poor individuals consume a larger fraction of their income than the rich, the “switch” in taxes would, by itself, increase spending. If appropriately designed, such a combination could simultaneously sustain the American economy and reduce the deficit.

    I certainly agree that the tax cuts for the rich need to be reversed. His proposal is troubling because he doesn't talk about where to cut outlays (Medicare? Housing?). But, the real problem is, again, that we are avoiding the real problem of globalization: the pursuit of the lowest wage possible. One of the reasons that China maintains its currency at current levels is that global corporations like Wal-Mart love the cost advantage that currency level affords them, mainly via a very low cost in labor. Nothing can be fixed to make the global economy acceptable to the vast majority of people throughout the globe if we refuse to have a system where China suppresses wages and bans real unions--and the U.S. effectively suppresses union organizing. It's the wages, stupid.

Comments

[liberal elite]

The more time passes in the global economy, the harder it is to hide the exploitation and profiteering of the poor laborer, not to mention the worsening disparities of wealth here.

But let's tell Stiglitz where to cut spending: the Pentagon.

If there's one action that could redirect America's culture in a more positive direction, it would be restoring the integrity of our foreign policy and defense forces by restraining our misuse of power and taxpayer funds.

The longer we invest in weapons, the harder it will be to cut back.