One of the most pessimistic bloggers/writers that I regularly read asks a
question I worry about. John Robb on his Global Guerrillas blog asks “is this
crisis merely an accelerated method of reaching that new and stable equilibrium
point?” By “crisis,” he means the economic difficulties we are in. By “equilibrium
point,” he means the equalization of incomes between those in the US (together
with the developed world generally) and those living in emerging economies like
China, India, Brazil, etc. Are there any barriers to this “normalization” of global
incomes? I don’t know. I worry.
He writes (here):
It's been long maintained on this blog that the global marketplace, and not
a nation-state or a collection of nation-states, is the sole remaining and
dominant global power. In short, we live in Adam Smith's world and any
talk of an American or Chinese Century is an outdated way of looking at the
world. One of the inevitable consequences of living in a world dominated
by markets (unmitigated or controlled by traditional social organizations like
nation-states) is that artificial differences in wages and salaries between
people of different nationalities will evaporate.
Here's why. In today's connected world, productivity is globally
portable. This means that David Ricardo's foundational concept of comparative
advantage is largely negated. Economists that maintain the opposite
likely haven't experienced the realities of building and operating a global
business (in contrast, I've built two). Without comparative advantage, there is
no reason to pay a person in one country more than a person of equivalent
education in another. Unfortunately, America (and the West in general)
follow economic policies based on a deep faith in comparative advantage.
That faith will prove disastrous as incomes in the West fall
precipitously to equalize with incomes in the developing world.
So, on to the news. It appears that this crisis is serving as a form
of punctuated change on this front since it is reseting
expectations/assumptions -- which are, for all intents and purposes,
the only barriers to full normalization of global incomes…. (continues)
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