Fed Chair Ben Bernanke is off in Wyoming at the moment, at the Fed's annual economic pow-wow. Moving on from how wonderfully nerdy the cocktail chat must be, Bernanke gave a really very interesting speech about Globalization this afternoon. Its full of intriguing history lessons, and includes a fun quote from that noted sage of the global economy, Martin Luther.
The most interesting issue from NDN's point of view are the parallel's he draws between the current period of global integration, and previous analgous times in history. His lessons are particularily apt:
A second conclusion from history is that national policy choices may be critical determinants of the extent of international economic integration. Britain's embrace of free trade and free capital flows helped to catalyze international integration in the nineteenth century. Fifteenth-century China provides an opposing example. In the early decades of that century, the Chinese sailed great fleets to the ports of Asia and East Africa... These expeditions apparently had only limited economic impact, however... Evidently, in this case, different choices by political leaders might have led to very different historical outcomes.
At a time in which the rise of protectionist sentiment is evident in America, we would do well to head his words. Integration made by policy can be so undone. But perhaps his third lesson is even more important at present:
Social dislocation, and consequently often social resistance, may result when economies become more open. An important source of dislocation is that--as the principle of comparative advantage suggests--the expansion of trade opportunities tends to change the mix of goods that each country produces and the relative returns to capital and labor. The resulting shifts in the structure of production impose costs on workers and business owners in some industries and thus create a constituency that opposes the process of economic integration.
This is wise advice for those around the President, including sadly his otherwise impressive new Treasury head, who think nothing needs to be done to help those currently not feeling the benefits from Globalization and Trade. As Robert Rubin has said recently, the case for trade is overwhelming, but its benefits must be broadly-enjoyed. The clear and present danger is that a globalization whose benefits are enjoyed by only a few cannot be sustained. Bernanke seems to understand this. We must hope his boss can be won round soon enough.
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