The 'Global Imbalances' Myth - WSJ.com

The 'Global Imbalances' Myth - WSJ.com

When one talks about 'imbalances', the old investment adage of 'regression to the mean' immediately comes to mind.

What does this mean? Well, if you are making more money than someone else with comparable skills, then it's likely that either your salary will go down or the other person's up, or some combination of the two.

As they teach in supply and demand 101, if there is more demand for goods at a price that the market can afford to produce the goods for, then the supply of those goods will increase.

The other factor to consider is 'you don't get something for nothing'.

One reads a lot of moaning and groaning from Americans about the fact that somehow trade laws have allowed the Chinese (etc.) to take away American jobs. (But, isn't this regression to the mean? In other words, the US has high labor costs, etc. and are on the high upper side of the cost curve. On the bottom side of that curve are the Chinese. Thus, logic says US costs have to come down (or US productivity has to measurably increase) and visa-versa, the Chinese. And, this has been happening.

It's all well and good to try to readjust global imbalances, but, as with the three homonyms above, when one tries to ignore one or more of them, the result is often an exacerbation rather than a correction of the imbalances.

Clearly in the US today the government is trying to put together policies that are hampering businesses ability to compete and raising labor costs, while facing high unemployment. Lots of people say they want all these government benefits, they're a bit worried about the borrowing to pay for them, but they trust that the government will somehow find 'someone else' to tax to pay for them. (Here we have one of America's big problems - the idea that there is a 'free lunch' - i.e. you can get something for nothing.)

People like to be rewarded for their work, they like to be rewarded for deferred gratification (i.e. savings and investing), but when it comes to government policy, the administration and congress are looking to do just the opposite. The government wants to reward without commensurately requiring anything back; and, for those who are asked to foot the bill, the government doesn't even begin to plan on offering comparable benefits.

Ah - but 'social equity' one says. Well, here's the big imbalancer. If the US wants to run on the basis of social equity - i.e. not economic equity, etc.; then, it has to make sure everyone else in the world feels the same way. But, here again we have that old nemesis of 'regression to the mean'.

Americans live a lifestyle that would be and is the envy of a great deal of the world. Americans enjoy more the use of more of the world's resources, etc. And, other economies are gearing up to get some of this same good living - producing the goods, buying the resources, etc. to make their economies more productive.

To deal with these global imbalances, America needs to consider how to redress the imbalances it is and has been creating in its own country to meet the challenges of a globalizing world. And, make no mistake, the world is going to be globalizing (i.e. improving local lifestyles) with or without America.

So, maybe Americans should have tariffs so that autoworkers could sell $50,000 cars (to pay union benefits) while the competition offers the same car for $30,000. (Ah, but non-union US factories already offer this.)

And, maybe America shouldn't worry about the teachers unions putting teachers first and students last. But, what is the price America is willing to pay for an undereducated part of its population?

Etc., etc., etc.