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Home Publications Blogs Beat the Press Just Because the World's Poor Benefitted Partly at the Expensive of the Middle Class, Doesn't Mean It Could Not Have Been Otherwise

Just Because the World's Poor Benefitted Partly at the Expensive of the Middle Class, Doesn't Mean It Could Not Have Been Otherwise

Sunday, 20 July 2014 06:55

Suppose a mob boss has his thugs go around and shake down a bunch of small business people. Imagine he then gives a portion of the haul to poor children. When the business people complain, the mobster then tells them they are being greedy, after all don't they care about the poor children?

This is esentially the argument that Tyler Cowen gives us in the NYT this morning. There is little doubt that hundreds of millions of people in developing countries like China and India have benefited from the growth in the world economy over the last three decades. To some extent their gains have come from displacing workers in rich countries, especially the United States. However we did not have to structure the world economy this way.

People in developing countries could also have experienced enormous gains if their doctors and other highly educated professionals were allowed to compete on an even footing with their counterparts in the United States and other rich countries. Similarly, there would be enormous gains from allowing India's generic drug industry to sell low cost drugs like generic Sovaldi in the United States and elsewhere. And, we all would benefit from taxing the financial industry like other sectors of the economy and ending too big to fail subsidies for Wall Street banks. Furthermore, in a period of secular stagnation like the present, everyone could benefit from just handing large amounts of cash to the world's poor, since it would generate demand. 

Just because the world's poor benefited at the expense of the middle class in rich countries does not mean it had to be this way. We could help poor children without having a mobster shake down small businesses to finance his charitable contributions.

Comments (10)Add Comment
Does Not Add Up
written by James, July 20, 2014 8:57
Carbon import tariffs would have been a more effective approach than slashing doctor salaries. Low cost has bought us higher green house gases. Polluters are causing the world irreparable harm without much cost to themselves. China's low labor costs would have been offset by the higher carbon tariff. This would have kept industries from moving abroad and saved the planet with lower C02 emissions.

Old globalization economic models are finishing us off as a species. China and India should have developed their economies domestically with MNC help. No more exporting your way to prosperity.

We need economists to talk in ways that saves our jobs as well as our planet. Old economic paradigms like low cost should be tossed to the dustbin of history. We don't have much wiggle room.
written by AlanInAZ, July 20, 2014 9:49
enormous gains from allowing India's generic drug industry to sell low cost drugs like generic Sovaldi in the United States and elsewhere

The vast majority of prescription drugs already come from India and China as generics. Sovaldi is a generic in India. Shipping generic Sovaldi to the US at the generic price would be nice for India but hardly an enormous gain for them. The enormous gain would be for the US.
Re greenhouse gasses and demand stimulation
written by John Wright, July 20, 2014 10:22
In the magazine "Sun and Wind Energy" of May 2014 there is an editorial by a Dr. Volker Buddensiek.

In this he states that per Eurostat, the energy consumption of the European Union dropped by 8% between 2006 and 2012.

This looks good, until he digs deeper and finds that "the low point of energy consumption in the EU was in the economic crisis years of 2008 and 2009 and it has risen considerably since then - despite all the reports of economic crisis in Southern Europe and elsewhere."

Buddensiek then mentions that if you compare 2011 and 2012 the energy savings is 1%.

Furthermore he writes "The original 20% energy savings target of 2020 will no longer be achievable at current speed".

Buddensiek writes: "In actual fact it look more as if rising energy prices are making the exploitation of oil and gas reserves attractive:reserves which in the past have been written off as being uneconomic. Shale gas and deep-sea drilling are the new temptations -- and Europe apparently cannot resist, regardless of all the risks associated with these."

I believe Dean's (and most economists') recommendation to scale up demand, given the USA's unwillingness to acknowledge AGW, is not a good message.

Per the Buddensiek editorial, one can see even the more environmentally conscious Europeans are not doing that well with decreasing energy consumption.

Are humans no different than other life forms with a bias toward growing their numbers, and resource usage, until an external limiting factor kicks in?

If world wide economic and population growth remain the only plays in the economic playbook and both trends continue to add to the CO2 burden in the atmosphere, then these policies could prove extremely shortsighted.

The silver lining of the financial crisis was that it delayed AGW somewhat as energy consumption dropped.

But what should that tell us about encouraging economic growth?
written by Larry Signor, July 20, 2014 10:58
So Tyler is telling me my unemployed ass is better off because China, India and the 1% have improved their financial condition? Now that's a unique proposition. It's going to take longer than 99 weeks to absorb that point of view.
Great article
written by jim, July 20, 2014 11:00
I feel the point you make in this article can never be repeated too much. Cowen, who is a generally intelligent and conscientious academic, has a huge blind spot in his understanding of policy choices and globalization.
Egalitarian Wolf in Sheep's Clothing
written by Last Mover, July 20, 2014 11:16
From a narrowly nationalist point of view, these developments may not be auspicious for the United States. But that narrow viewpoint is the main problem. We have evolved a political debate where essentially nationalistic concerns have been hiding behind the gentler cloak of egalitarianism. To clear up this confusion, one recommendation would be to preface all discussions of inequality with a reminder that global inequality has been falling and that, in this regard, the world is headed in a fundamentally better direction. ...

... In other words, the true egalitarian should follow the economist’s inclination to seek wealth-maximizing policies, and that means worrying less about inequality within the nation.

There you have it America. All this time you believed the MNC mob bosses were making you better off as they shipped your jobs to other countries.

Now we learn from Tyler Cowen the reason was to reduce global inequality rather than national inequality. So it was a zero sum tradeoff between the two all along, not the complementary positive sum outcome it was sold as.

What a relief. The old adage to focus on making the economic pie bigger before slicing it up for distribution no longer applies nationally. Now it must be done on global scale since it has proven to reduce inequality.

Wait for it. The coming political earthquake from the conservative right. They will admit to lying about everything but it still turned out to be acceptable. They just got wrong who the winners were didn't they.

This calls for a Selfless Celebration Day by WalMart, America's largest mob boss of employees who stand proud for not taking too much selfishly, so their counterparts in the rest of the world could be better off.

Equal opportunity forever, wherever it may appear.
Mobsters, made men, us marks versus planet saving economic growth
written by jaaaaayceeeee, July 20, 2014 11:41

Read some of Dean Baker's posts like, "Global Warming and the Which Way is Up Problem in Economics" and, "Problems With Measuring Health Care in GDP Didn't Begin with Obamacare" and, "Three Paths to Full Employment" from the past few weeks.

Or read Dean Baker in 2009 explaining how government spending on retrofitting isn't excessive, it's a friendly intervention. Or in 2012 on tax credits for retrofitting buildings, solar panels, or fuel efficient cars, or how the 75% fall in solar panel prices in four years isn't bad news.

If you care about the planet, living wages, and full employment (economic growth), don't become "Fellow Travelers of the Depression Lobby" (July 11 2014).
Tyler doesn't care about the poor
written by Dave, July 20, 2014 11:42
When conservatives talk about hypocrisy as if caring about the poor, something liberals do sometimes, is disingenuous. Conservatives believe this because when they show concern, it is disingenuous. They don't care except that it makes them richer at the same time.

Bad people.

We can help poor people develop their economies in other ways.
continuing capital/labor imbalances must be addressed somewhere somehow
written by pete, July 20, 2014 3:34
Protectionism/mercantilism allowed US workers (and many stockholders) to receive essentially monopoly rents, vis-a-vis underlying global conditions. Autos are the easiest example. Growing globalization is quickly erasing that artificial advantage. Clear solution in the US is to emulate Germany and begin training our workers at much younger ages so they are much more productive. Fort Worth, not generally known for public education, is one city with increased spendng on specialty/job training high schools. Today many eductaion dollars are wasted on standard 3R materials, resuting in a too-large unproductive underclass. And now we are exacerbating the situation by allowing more low wage earners in from Central America. Sigh.

Regarding foreign doctors etc....the more we allow in from India or China, the worse their health care will be. This is the so called brain drain. Fine for us, not for them until some equilibrium is reached.

Dan Little shows how Tyler Cowen's selective falling inequality ignores the issue
written by jaaaaayceeeee, July 20, 2014 10:28

Dan Cowen explains how Tyler Cowen ignores, "what most people are concerned about when they express criticisms of rising inequalities, either nationally or internationally. They are concerned about the fact that our economies have very systematically increased the percentage of income and wealth flowing to the top 1, 5, and 10 percent, while allowing the bottom 40% to stagnate. And this concentration of wealth and income is widespread across the globe. (Branko Milanovic does a nice job of analyzing the different meanings we might attach to "global inequality" in this World Bank working paper; link.)" Well worth reading:


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.