“The Political Upheavals Of 2016 Have Forced Economists To Reconsider”

What is the best way to treat the inequities of globalization and technological disruption? Universal Basic Income and government spending on education are often suggested as panaceas, even if neither seems very likely to triumph in America, where the political will is lacking. And let’s not forget that UBI programs are not all created equally. Some are downright pernicious. In general, investment in education pays myriad dividends, though should enough lower-skill postions rapidly disappear, it will be be impossible to quickly upskill everyone from a blue collar to a white one.

In a Financial Times column, Gavyn Davies writes about the “losers of globalization” and the challenge of finding a way up for those pushed out. An excerpt:

The political upheavals of 2016 have forced economists to reconsider. The final shape of what is now called “populism” is not yet entirely clear. It does not seem to fit easily on the traditional right/left, or liberal/conservative, spectrum. This is why two of the most obvious benefits of the political revolution, Theresa May and Donald Trump, are hard to categorize in this regard.

There does, however, seem to be one unifying theme and that is a resurgence in economic nationalism, with a collapse in support for internationalism or globalisation. Since the “elites” are seen as the main beneficiaries of globalisation in the developed economies, this has gone hand in hand with anti-elitism and a rejection of advice from “experts”. The latter could easily develop into anti-rationalism, which would surely prove disastrous in the long term.

Economists have now recognised these dangers, and a new consensus has started to emerge. There has been (almost) no change in the overwhelming belief that free trade and globalisation are good things for society as a whole. But it is now much more widely accepted that the losers from these changes can be more numerous, more long lasting and more politically assertive than previously thought.

The new consensus holds that the gains from globalisation can only be defended and extended if the losers are compensated by the winners. Otherwise, pockets of political resistance to the process of globalisation will begin to overwhelm the gainers, even though the latter remain in the majority.

While the compensation principle seems clear enough, the complexity of actually getting it done is much greater. As Jared Bernstein says, the rust belt needs help, but it is not clear how to help the rust belt. Nor is it at all obvious that there would be a political or economic consensus supporting some of the most obvious measures that could be adopted, at least on the scale that would be needed to make a noticeable difference.•