The New Macro of Globalization

The New Macro of Globalization – at Moneyweek.co.uk - the best of the week's international financial media.

Globalization is rewriting the script of some of our most time-honored macro relationships. That's true of the forces shaping employment, real wages, income generation, inflation, and trade and capital flows. On all of those counts, the rich countries of the industrialized world are under pressure as never before, as globalization spreads wealth and prosperity from the developed to the developing world. Courtesy of IT-enabled connectivity, this diffusion of economic activity is now occurring at hyper-speed. Economists, policymakers, workers, investors, and politicians don't comprehend these seismic shifts. This underscores the risk of a potential backlash against globalization.

As the most open and flexible economy in the developed world, the United States is on the leading edge of being exposed to the stresses and strains of globalization. The evidence is overwhelming that the current economic recovery is unlike anything America has ever experienced in the modern-day, post-World War II era. Job growth remains decidedly subpar: The May employment report was only the latest in a long string of disappointments on the US hiring front; by our reckoning, private nonfarm payrolls are more than 10 million jobs below the cyclical profile of the past five economic recoveries in the US. Moreover, inflation remains incredibly low: Despite all the talk of increased pricing leverage, mounting cost pressures, and a narrowing slack in labor and product markets, the core CPI has edged down in recent months and held at just a 2.2% y-o-y rate in April 2005.

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