Tuesday, June 26, 2007


Time For A New "New Deal"

The article below is less important for the conclusions it reaches than for the context in which it reaches them. Tuck School economist Matthew Slaughter and Yale political scientist Kenneth Scheve admit, in the pages of Foreign Affairs, that the majority of American workers are not benefiting from globalization. They assert that globalization has increased the aggregate gains of the American economy - and of the world's economy - and they want it to continue, but those gains have been distributed disproportionately. As they say, "of workers in seven educational categories - high school dropout, high school graduate, some college, college graduate, nonprofessional master's, Ph.D., and M.B.A./J.D./M.D. - only those in the last two categories, with doctorates or professional degrees..." e.g., doctors, lawyers, financiers and business executives, "...experienced any growth in mean real money earnings between 2000 and 2005." If you do not belong to that group, which constitutes no more than 4 percent of the American workforce, you are simply out of luck.

Scheve and Slaughter, as supporters of globalization, desperately want to redress this growing income inequality because they fear that, if left unchecked, it will provoke a backlash from American voters that will force Congress to cripple globalization with protectionist legislation. What is the solution? Some suggest that increased higher education will solve the problem of income inequality, but Scheve and Slaughter point out that it will require decades to remedy the plight of American workers through education alone. Others suggest training workers laid-off from one industry for employment in another, but the authors claim that this won't work either because the effects of globalization are felt horizontally across industries. Hence, a laid-off auto worker may train to become an accountant, only to have his new career pulled out from under him by an Internet tax preparation cartel based in India.

Scheve and Slaughter believe that the only viable solution is a redistribution of income, but unfortunately the mechanism they suggest for effecting this redistribution is, at best, a tentative and highly restricted solution. They propose eliminating payroll tax - the part taken out of your paycheck for Social Security and Medicare - on persons earning less than the national median income, and/or raising payroll tax for those earning over $94,200. As the payroll tax is now effectively a flat tax that favors the affluent and disproportionately gouges the rest of us, any effort to shift it upwards would be more than welcome. However, considering the wind-up Scheve and Slaughter put into their article, the final pitch falls short. Out of tact or timidity, or a combination of the two, they avoid approaching the 800 pound gorilla in the room - excessive executive compensation. As bloated CEO pay affects not only the fate of the average worker but shareholder returns as well, perhaps we should tax corporations who pay their CEOs too much. Or even tax the CEOs themselves - at least more than we do today.

Although payroll tax reform alone will not be enough, we should nonetheless be grateful that at least some "expert" supporters of globalization acknowledge its destructive effects and understand the importance of offsetting them.

"A New Deal For Globalization" from Foreign Affairs

Comments: Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?