Wisdom doesn’t feel as good as I thought it would. In my youth, I unquestioningly believed that the fall of the Iron Curtain meant a new age of peace, understanding, and cooperation. Free trade would make old-fashioned military conflict unthinkable due to global interdependence. The great Russian and Chinese civilizations would integrate into the free world due to enlightened self-interest. Trade meant that some workers needed to retrain to more skilled jobs, but greater access to cheaper goods offset that through increased general prosperity. With globalization, everybody’s a winner.
Indeed, globalization has lifted billions out of poverty, justifying much of my youthful enthusiasm. Nevertheless, Chinese communism has morphed into the fascism responsible for crushing Hong Kong and menacing Taiwan. The Russian military adds to the toll of useless death and destruction every day. It turns out that, without democracy, mutual self-interest is for the few, not the many. Our latest economic woes, including the stomach-churning volatility of this year, are just a few of the unintended consequences of blind belief in the benign effects of globalization.
Globalization allowed us to escape the inflation of too many dollars chasing too few goods. Covid lockdowns in China are now the cause of too few goods. Covid emergency spending also provides too many dollars. The Federal Reserve (Fed) cannot create new supply chains, so we are left with the need to reduce the money supply. Thus, the horrific volatility.
Reliance on global supply chains also allowed us to ignore a growing human tragedy at home. The frictionless reshuffling of the labor force envisioned in economic theory is not true in reality. In August of 1960, 97.1% of men aged 25-54 worked. By August of 2022, only 88.6% of working-age men participated in the labor force.* During the heyday of globalization, society ignored, degraded, and despised these “lost boys.” Suddenly, the country desperately needs them.
Today we have a labor shortage amid widespread idleness. Fortunately, there are numerous scholars of talent and goodwill who have studied this problem. Among them is MIT economist David Autor, probably best known for his paper, along with Gordon Hanson, and David Dorn The China Shock: Learning from Labor-Market Adjustment to Large Changes in Trade.** I recommend that anyone who is interested in the subject visit economics.mit.edu. The videos are probably the most accessible.
My own take from reading a number or Autor’s papers is that globalization decimated middle-skilled work and pushed workers down into poorly paid and low-esteem jobs. Since the effects of globalization are concentrated and regional, entire communities are impacted with horrific social consequences for men, women, and children. The employment crisis is also reflected in our volatile markets. It seems that everybody is not a winner. We will not be able to quickly reverse course. Such is the nature of wisdom.
Next week I shall briefly review several thoughtful books with different perspectives on the crisis resulting from our “lost boys.”