Must-read: Dean Baker: “The Elite’s Comforting Myth: We Had to Screw Rich Country Workers to Help the World’s Poor”

Must-Read: Dean Baker: The Elite’s Comforting Myth: We Had to Screw Rich Country Workers to Help the World’s Poor: “Roger Cohen gave us yet another example of touching hand-wringing from elite types…

…about the plight of the working class in rich countries…. Cohen acknowledges that there is a real basis for their rejection of the mainstream: they have seen decades of stagnating wages. However Cohen tells us the plus side of this story, we have seen huge improvements in living standards among the poor in the developing world. In Cohen’s story, the economic difficulties of these relatively privileged workers is justified by the enormous gains they allowed those who are truly poor. The only problem is that these workers are now looking to these extreme candidates. Cohen effectively calls for a more generous welfare state to head off this turn to extremism, saying that we may have to restrain ‘liberty’ (he means the market) in order to protect it. This is a touching and self-serving story. The idea is that elite types like Cohen were winners in the global economy. That’s just the way it. Cohen is smart and hard working, that’s why he and his friends did well. Their doing well also went along with the globalization process that produced enormous gains for the world’s poor. But now he recognizes the problems of the working class in rich countries, so he says he and his rich friends need to toss them some crumbs so they don’t become fascists.

We all should be glad that folks like Cohen support a stronger welfare state, but let’s consider his story… imagine that mainstream economics wasn’t a make it up as you go along discipline. The standard story in economics is that capital is supposed to flow from rich countries to poor countries…. Rich countries lend poor countries the capital they need to develop… [run] large trade surpluses with the developing world. In effect, the rich countries would be providing the capital that poor countries need to build up their capital stock and infrastructure, while still ensuring that their populations are fed, housed, and clothed. We actually were seeing a pattern of development largely along these lines in the early 1990s….

This pattern was reversed in 1997 with the U.S.-I.M.F.’s bailout from the East Asian financial crisis…. The countries directly affected began to run huge trade surpluses in order to accumulate massive amounts of reserves. Other developing countries also decided to go the same route in order to avoid ever being in the same situation as the countries of East Asia. From that point forward developing countries like China and Vietnam ran enormous trade surpluses. This implied huge trade deficits and unemployment for manufacturing workers in the United States and to a lesser extent Europe…. Cohen is giving us this impressive display of hand-wringing…. It’s very touching, but in the standard economics, it was hardly necessary. The standard economics would have allowed the pattern of growth of the early and mid-1990s to continue…. The fact that the textbook course of development was reversed, with massive capital flows going from poor countries to rich countries, was due to a massive failure of the international financial system…. The fact that manufacturing workers paid this price, and not doctors, lawyers, and other highly paid professionals, was by design….

It’s touching that folks like Roger Cohen feel bad for the losers from the process of globalization. But the story is that they didn’t just happen to lose, his friends designed the game that way.