14 May 2006

The Damning BUT

No article on the nearly unprecedented levels of global prosperity being enjoyed by folks everywhere, would be complete without a damning but.

LATimes has an above the fold, front page story on global prosperity, but (I can throw in a damning but or too, as well) the LATimes can't help themselves.

Headline: Emerging Nations Power Global Economic Boom
Just below the head: The expansion is the strongest since the 1970s, with China, India and Russia setting the pace. But many U.S. workers are left behind.

Reading the below the headline blurb for this article you'd think there'd be line upon line about massive unemployment, layoffs, inflation, and tales of woe, privation and starvation amongst those workers left behind, in the US.

Instead the author of this article has to pull a bait and switch to justify the suggestion that things aren't as good as they seem. Whenever he talks about problems in the developed nations with regards to this period of global growth, he lumps together US, Western Europe, and Japan.

Yet this is a different kind of boom from any other in the post-World War II era, analysts say. The soaring economies of China, India, Russia, Brazil and other emerging nations increasingly are setting the pace, overshadowing the slower growth of the United States, Europe and Japan, where the benefits of the expansion have eluded many workers.
With the developed world's growth lagging well behind that of emerging economies, however, workers in industrialized nations may not feel like they are part of the global boom. Wages in the United States, for example, have been slow to rise in recent years. In Western Europe, unemployment rates remain stubbornly high.

The U.S. and other countries in the developed world have lost jobs to emerging nations as a result of free trade, triggering protectionist sentiment here and in Europe.

Also, zooming prices for oil and other commodities, which have enriched the developing nations that export them, have come largely at the expense of the West.
Of course, the article does mention that this fear about job losses, and the protectionists reaction should be offset by the reality that cheaper goods, as well as expanding markets means that there are more opportunities now for workers in the developed world, not less. Also, the greater the size of the world economy, the greater ease with which it will be able to sustain growth. I'm sure it pained the author of this piece, as well as the LATimes to have to include the following,
There is no question that some of the developing world's gains are, in effect, a transfer of wealth from the industrialized world, but experts say emerging countries' success also is flowing back to the U.S., Europe and Japan — which combined still account for about two-thirds of the global economy.

The strength of the emerging economies could mean that this global expansion cycle will last longer than normal, as more people join the ranks of the consumer society. That could be good news for aging industrialized nations as well.

U.S. corporations, for example, are selling more abroad than ever before. American exports hit a record $115 billion in March. Companies in the blue-chip Standard & Poor's 500 index derived 32% of their sales from outside the U.S. last year, brokerage Lehman Bros. calculates.

"A new 'Mall of America' is being created in these smaller, younger-demographic, emerging economies," Wells Capital's Paulsen said.

Average Americans also have profited from the global expansion by investing heavily in foreign stock markets, many of which have dramatically outperformed the U.S. market the last three years. Americans bought a net $105 billion of foreign stock funds last year, compared with $31 billion of U.S. funds.

What's more, low-cost goods from developing nations have helped keep inflation pressures muted despite the jump in oil prices, economists say.

"A lot of people are benefiting from globalization and they don't know it," said Paul Kasriel, economist at Northern Trust Co. in Chicago. "If you're buying things at lower prices and you still have your job, you're benefiting."
It was also probably an ordeal to include the closing paragraphs which outline the fact that the large trade deficits this country runs, are most likely one of the engines that drives this prosperity, and rather than being a point to demagogue about, should be a point of pride, and viewed as a reflection of the strength of the US economy and not a weakness.
Like the post-World War II Marshall Plan in Europe, by which the U.S. jump-started the rebuilding of the continent's economy, the U.S. trade deficit has gotten the developing world on its feet and able to take on sustained leadership in supporting global economic growth, Paulsen says.

"I think we're just starting to reap the benefits of that investment," he says.

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