Summary:
David Smick ("The World is Curved") thinks that the politicization of globalization is putting a quarter of century of amazing prosperity and global poverty reduction at risk, potentially sending the US back to Seventies-like period of economic devastation. Globalization, free trade and liberalized financial markets have been a bipartisan success story (Reagan and Clinton). Was a tool to break away from the economically suffocating 70s. But this period of political consensus is at risk of coming to an end. Part of the financial market turbulence, and dollar weakness, in recent times stems not only from subprime-related credit uncertainties, but also from uncertainties about the direction of U.S. politics. Growing belief that the financial world, politically speaking, has entered uncharted political waters. Today’s voters look at globalization’s downsides with not enough appreciation of its tremendous upsides, and the political community is at risk of creating the conditions for a global financial disaster. Urgent need to expand the base of financial capital ownership and reduced the wealth gap. (Published: 09/09/08)
Notes:
- last quarter century
- relatively seamless, bipartisan political consensus in favor of free trade and liberalized financial markets
- globalization neither a Republican nor Democratic phenomenon
- not much difference in economic policymaking between Bill Clinton and Ronald Reagan
- both Reagan and Clinton grabbed on to globalization as a flawed yet essential tool to break away from the economically suffocating 1970s
- quarter-century of amazing prosperity and global poverty reduction
- period of policy consensus is at risk of coming to an end
- both political parties in the United States backing away from the pro-globalization policies championed by Bill Clinton
- part of the financial market turbulence, and dollar weakness, in recent times stems not only from subprime-related credit uncertainties
- also from the uncertainties about the direction of U.S. politics
- US politicians engaging in populist attacks on capital formation, entrepreneurial initiative and wealth creation
- problem with politicizing globalization
- world financial markets until now have set the price of U.S. financial assets, including the price of stocks
- at relatively high values
- based on the assumption that the Clinton-Reagan model of free trade, liberalized capital markets and long-term robust growth will remain largely intact
- new political universe emerging: less patience for freely liberalized trade
- questions of the hour are:
- How will markets in coming years reprice the changing nature of the political environment?
- Will an aggressive downward repricing of financial assets happen in a climate of panic?
- threat for financial markets of unwise political change is very real
- growing belief that the financial world, politically speaking, has entered uncharted political waters
- today’s voters look at globalization’s downsides with not enough appreciation of its tremendous upsides
- helped U.S. economy pull itself out of the 1970s period of economic heartache
- 1980s and 1990s produced a renaissance of American confidence and optimism about the future
- level of global wealth creation and poverty reduction that would have seemed far-fetched, verging on pure fantasy, in the late 1970s
- economically devastating period
- politicians flirting with protectionist, class warfare policies that would unravel economic success that a broad international coalition worked desperately to achieve
- in rejecting the free-trade, liberalized financial market agenda of Bill Clinton, political community is at risk of creating the conditions for a global financial disaster
- first we’ll see a steady loss of global investor confidence in the US
- followed by shrinking of liquidity and credit availability
- then a protracted period of stagnant economic growth far below potential
- weaker growth will beget even more protectionist, class warfare rhetoric and policy
- will further shrink confidence in the US throughout the international system
- need to expand the base of the investor class
- future of globalization is politically unpredictable fundamentally because the base of financial capital ownership is so small
- wealth gap is widening
- as a result, globalization’s political base of support remains tenuous at best
