Protectionism is a threat to the U.S. economy. Saving globalization requires that its gains are spread more widely. The best way: redistribute income, or at least so says Kenneth F. Scheve and Matthew J. Slaughter in the current foreign affairs.

Globalization has brought huge overall benefits, but earnings for most U.S. workers — even those with college degrees — have been falling recently; inequality is greater now than at any other time in the last 70 years. Whatever the cause, the result has been a surge in protectionism. To save globalization, policymakers must spread its gains more widely. The best way to do that is by redistributing income.

They claim that “there is greater support for engagement with the world economy in countries that spend more on programs for dislocated workers.” I am little unsure about this claim, since France, for example, has very generous social programs and they have a very negative view of globalization.

More to the point, there is another side of the opinion poles, which is that politicians both react to them, but can also affect them. Many people blame globalization for their situation in great part because government officials often say that globalization is to blame for the unpopular policies that they implement. Similarly, corporations regularly say that they have no choice but to cut wages or offshore their operations to make it in today’s global economy. Further, some democratic politicians reenforce that idea in the minds of their constituents. Globalization is the perfect scapegoat. This political reality would have been a potentially illuminated area to engage.

Having said that it is a a great article. The basic idea is that the vast majority of American are not enjoying a rise in income through globalization although it is crucial to continued growth. The public has an increasingly negative view of globalization and move to protectionism, despite their apparent understanding of the benefits. Their solution, which is worth quoting in full, is something new to consider.

Recall that $500 billion is a common estimate of the annual income gain the United States enjoys today from earlier decades of trade and investment liberalization and also of the additional annual income it would enjoy as a result global free trade in goods and services. These aggregate gains, past and prospective, are immense and therefore immensely important to secure. But the imbalance in recent income growth suggests that the number of Americans not directly sharing in these aggregate gains may now be very large. Truly expanding the political support for open borders requires a radical change in fiscal policy. This does not, however, mean making the personal income tax more progressive, as is often suggested. U.S. taxation of personal income is already quite progressive. Instead, policymakers should remember that workers do not pay only income taxes; they also pay the FICA (Federal Insurance Contributions Act) payroll tax for social insurance. This tax offers the best way to redistribute income. The payroll tax contains a Social Security portion and a Medicare portion, each of which is paid half by the worker and half by the employer. The overall payroll tax is a flat tax of 15.3 percent on the first $94,200 of gross income for every worker, with an ongoing 2.9 percent flat tax for the Medicare portion beyond that. Because it is a flat-rate tax on a (largely) capped base, it is a regressive tax — that is, it tends to reinforce rather than offset pretax inequality. At $760 billion in 2005, the regressive payroll tax was nearly as big as the progressive income tax ($1.1 trillion). Because it is large and regressive, the payroll tax is an obvious candidate for meaningful income redistribution linked to globalization. A New Deal for globalization would combine further trade and investment liberalization with eliminating the full payroll tax for all workers earning below the national median. In 2005, the median total money earnings of all workers was $32,140, and there were about 67 million workers at or below this level. Assuming a mean labor income for this group of about $25,000, these 67 million workers would receive a tax cut of about $3,800 each. Because the economic burden of this tax falls largely on workers, this tax cut would be a direct gain in after-tax real income for them. With a total price tag of about $256 billion, the proposal could be paid for by raising the cap of $94,200, raising payroll tax rates (for progressivity, rates could escalate as they do with the income tax), or some combination of the two. This is, of course, only an outline of the needed policy reform, and there would be many implementation details to address. For example, rather than a single on-off point for this tax cut, a phase-in of it (like with the earned-income tax credit) would avoid incentive-distorting jumps in effective tax rates. This may sound like a radical proposal. But keep in mind the figure of $500 billion: the annual U.S. income gain from trade and investment liberalization to date and the additional U.S. gain a successful Doha Round could deliver. Redistribution on this scale may be required to overcome the labor-market concerns driving the protectionist drift. Determining the right scale and structure of redistribution requires a thoughtful national discussion among all stakeholders. Policymakers must also consider how exactly to link such redistribution to further liberalization. But this should not obscure the essential idea: to be politically viable, efforts for further trade and investment liberalization will need to be explicitly linked to fundamental fiscal reform aimed at distributing globalization’s aggregate gains more broadly.

A more distributive fiscal policy and fairer rules will undoubtedly make globalization more politically viable and sustainable.

The article also makes me think about developing countries. I’m a sucker (perhaps knowing so much economics) for political liberty following from economic liberty. It’s breathtaking what’s happened in the last 20 years or less. It’s as though the whole world has changed its mind. Everywhere — in India, China, Asia, Latin America, Europe, North America, and above all in the communist world — governments have retreated from “the commanding heights of the economy.” The old debates were about what the role of the market was, what was the role of the state. I think it’s now generally appreciated that it’s the market that harnesses people’s initiative best. And the real focus of progressive thinking is not how to oppose and suppress market forces but how to use market forces to achieve progressive objectives. The article raised the same old argument against globalization: does it really work for lower class workers?

We’ve been looking since the dawn of time for a way to stop the perpetual motion machine of socioeconomic stratification.

Is the secret dispersal?

If so, should we force it?

The situation with Research In Motion (RIM), the makers of the incredibly popular Blackberry wireless e-mail devices, just seems utterly ludacris. Today the USSC deciede not to issue a writ to Blackberrry who appealed to the highest court in the land in their patient infringement case. As the Wall Street Journal said

RIM asked a federal trial judge to not issue a ban on BlackBerry devices in the U.S. after NTP filed for $126 million in damages, royalty payments and a permanent injunction against RIM. NTP’s injunction request would cover sales and services of BlackBerry devices in the U.S., where the company generates 70% of its revenue.

Why does NTP not give RIM the oppurtunity to continue selling blackberry, while collecting a portion of the profits that RIM gets from selling blackberrys. Everyone I know who has a blackberry is extremely addicted to the device. Over the lifetime of RIM, i am sure that NTP could get more then $126 million dollars, and in doing so would get their money and keep people happy.

One of my great discoveries over break was that fifty-three Frontline reports are online.

These I watched over break and suggest: The Persuaders

ANNOUNCER: It’s everywhere you look. BOB GARFIELD, Columnist, Advertising Age: You cannot walk down the street without being bombarded. ANNOUNCER: They call it a “clutter crisis.” NAOMI KLEIN, Author, No Logo: Consumers are like roaches. You spray them and spray them, and after a while, it doesn’t work anymore. We develop immunities. ANNOUNCER: And the multi-billion-dollar advertising industry is in a desperate struggle to break through. JOHN HAYES, Chief Marketing Officer, American Express: We don’t just come forward with what we want to sell, we engage you with things that you want. ANNOUNCER: Advertisers have blurred the line between programming and product. SCOTT DONATON, Editor-in-Chief, Advertising Age: It’s advertising that people not only will tolerate but will actually go in search of. ACTRESS: ["Sex and the City"] The way God and Madison Avenue intended. ANNOUNCER: But how is advertising affecting our lives and the world around us? MARK CRISPIN MILLER, New York University: Once a culture becomes entirely advertising-friendly, it ceases to be a culture at all. ANNOUNCER: Tonight on FRONTLINE– DOUGLAS RUSHKOFF, FRONTLINE Correspondent: –ask me this all the time. What about the environment? ANNOUNCER: Correspondent Douglas Rushkoff takes you inside the changing world of The Persuaders.

Is Walmart Good for America?

ANNOUNCER: There’s never been a company like it. Prof. GARY GEREFFI, Duke University: Wal-Mart is probably the broadest and most powerful company in U.S. business history. ANNOUNCER: Its everyday low prices benefit millions of Americans. BRUCE BARTLETT, National Center for Policy Analysis: Wal-Mart has really given an increase in income to every American. ANNOUNCER: But some say it’s a bad bargain. STEVE RATCLIFF: It’s putting people out of work, that’s what it’s doing. ANNOUNCER: Tonight, correspondent Hedrick Smith investigates how Wal-Mart is changing the American economy– HEDRICK SMITH, FRONTLINE Correspondent: The Chinese guys bought the big machine? ANNOUNCER: –following the trail of low prices in America to low-cost production in China– DONALD HAY, Entrepreneur: I said, “Hold it. Hold it. Hold it. The next one’s China. I got to get here.” ANNOUNCER: –tracking the nation’s growing trade deficit– YVONNE SMITH, Port of Long Beach: Wal-Mart’s our number one customer. HEDRICK SMITH: Wal-Mart’s your number one customer? YVONNE SMITH: Number one customer. ANNOUNCER: –and examining the growing controversy over the Wal-Mart way. ALAN TONELSON, U.S. Business & Industry Council: The lowest prices have to lead to the lowest wages and to job loss and to lower living standards. ANNOUNCER: Tonight on FRONTLINE, Is Wal-Mart Good for America?

Secret History of the Credit Card

ANNOUNCER: Tonight on FRONTLINE: The average American family has eight. JIM MUELLER: “Zero percent for life on transfer balances”— ANNOUNCER: Credit cards, plastic money, have become both a necessity and a ticket to a better life. [television commercial] ACTOR AND ACTRESS: Hawaii! BEN STEIN, Actor/Author: A credit card is an extraordinary, unbelievably great convenience for the consumer. ANNOUNCER: But the credit card industry plays by its own rules. Prof. ELIZABETH WARREN, Harvard Law School: I don’t know any merchant in America who can change the price after you’ve bought the item, except a credit card company. ANNOUNCER: Credit card banks earn record profits. LOWELL BERGMAN, FRONTLINE Correspondent: MBNA’s profits last year— one-and-a-half times that of McDonald’s. EDWARD YINGLING, American Bankers Association: Well, McDonald’s didn’t do too well last year. ANNOUNCER: But the profits come at a price. ANDREW GUILE, Consumer: Now they’ve raised my rate to 19.98, and I have not been late ever. PAT WALLACE, Bay Area Better Business Bureau: There are irritated, unhappy, dissatisfied customers in this industry. Prof. ELIZABETH WARREN: They are the new loan sharks in America. DUNCAN MacDONALD, Fmr. Citibank General Counsel: I certainly didn’t imagine that someday we might have ended up creating a Frankenstein. LOWELL BERGMAN: Frankenstein? What do you mean, Frankenstein? ANNOUNCER: Tonight, FRONTLINE correspondent Lowell Bergman and The New York Times investigate the secrets of your credit card .

Karl Rove– The Architect

ANNOUNCER: Tonight on FRONTLINE: Karl Rove had a master plan. MIKE ALLEN, The Washington Post: He was the architect. His hand was in all of it. ANNOUNCER: It took 40 years, but he changed the political landscape. POLITICAL OBSERVER: Karl Rove came to town with one goal, and that was this massive Republican realignment. ANNOUNCER: How did he do it? And what does it mean for America? POLITICAL OBSERVER: Karl Rove wants a permanent Republican majority. POLITICAL OBSERVER: He’s the God inside the machine. ANNOUNCER: Tonight, FRONTLINE and The Washington Post examine Karl Rove: The Architect.

The Torture Question

ANONYMOUS INTERVIEWEE: There was a lot of soldiers that had digital cameras at Abu Ghraib, and they would take pictures of literally everything that they would do. ANNOUNCER: Tonight on FRONTLINE, the story about what really happened in cell block 1A. Spc. ANTHONY LAGOURANIS, Interrogator, US Army, 2001-’05: Part of it is, they were trying to get information, but part of it is also just pure sadism. ANONYMOUS INTERVIEWEE: They felt righteous in doing it, and that’s what made it really dangerous and diabolical. ANNOUNCER: With exclusive interviews— ANONYMOUS INTERVIEWEE: And this escalated all the way to make them fear that rape could be performed on prisoners. ANNOUNCER: —and never before seen footage. GI: [home video] We’re all mad! We’re all mad! ANNOUNCER: How high did it reach? Gen. JANIS KARPINSKI, Cmdr., 800th MP Brigade, 2003-’04: General Sanchez put his finger in Colonel Pappas’s chest and told him he wanted the information. ANNOUNCER: And what does it reveal? Gen. RICHARD MYERS, Joint Chiefs Chairman: We’ve dealt with that. If it was only the night shift at Abu Ghraib, it’s a pretty good clue that it wasn’t a more widespread problem. Sen. JOHN McCAIN (R), Arizona: This isn’t about who they are, this is about who we are. ANNOUNCER: Where else did it spread? Spc. ANTHONY LAGOURANIS: It’s not at Abu Ghraib, it’s all over Iraq. The infantry units are torturing people in their homes. ANNOUNCER: FRONTLINE exposes the dark secrets behind “The Torture Question.”

A Slate Article about the boring world of logistics. I would say they hit gold here, if Thomas Friedman did not dedicate whole chapters to this idea in his book, The World is Flat.

Since we are on the subject, I read the World is Flat last summer and might be the only person in the world who was disappointed. I enjoy Friendman’s op-eds. His genius lies in finding a compelling anecdote. This book, on the whole, could allows him the space and time to make a stronger case for his arguments, which can be weak in his columns, but he just really fails to do so. Instead of one anecdote, we get many, but neither amounts to extrapolated arguments in a good social science sense. Some of his anecdotes, such as his discussion of UPS, are very strong. Friedman has written is an excellent primer for the uninitiated to the world in which technology rewrites rules but little more.

By reading his book you would think cities like Bangalore are paradises. With empowered citizens basking in the modern economy. How many Indians speak English? Use PCs? Can afford a Dell? Want to answer phones for the rest of their life? Yes, Friedman acknowledges, there are problems: poverty, illiteracy, disease, and so on. Exactly how these problems interact with his glorious vision is hard to say. Friedman is so focused on India, China, Eastern Europe and the US that he forgets the rest of the world. Africa gets a brief acknowledgment, and no more. I don’t recall reading anything about South America. Actors in the global economy need to be thinking about interactions beyond those countries that are becoming technology havens. We need to think about a world where a rising tide truly raises all boats, not just the ones we care to think about this half-century.

State and local governments have been irresponsible, to the tune of perhaps a trillion dollars in unfunded liabilities. These governments have made unsustainable promises to current and future retirees.

For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag. The usual practice is to budget for health care a year at a time, and to leave the rest for the future. Off the government balance sheets - out of sight and out of mind - those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. …most states and cities have set aside no money to pay for retiree medical benefits. Instead, they use the pay-as-you-go system - paying for former employees out of current revenue.

An article sent to me by Ben Creo onthe returns to education is quite fascinating. It is a good summary on the economic benefits of education. The article does mention, but briefly pass over, social values. Education goes beyond just being able to make new friends, but the more education one has the more healthy they are likely to be, the longer they are to live, the more healthy their children are to be, etc. There are economic benefits beyond simply whether the marginal value of the education calculated in present value is worth more than the cost individually, although it often is. Living longer and healthier increasing society’s wellbeing, for instance, as well as civic engagement and other benefits. The article to me presents the classic problem in the economics of education, which is the presumption that future earning and GDP are the only valuable measures of success. Society though should value on education on many levels and a simplification of the need for it to mere economics should worry anyone.

Today’s NYT has a great article on WalMart’s covert deliberations about its health plan. The article is based on an internal memo discussing the company’s policy. The memo prepared for by McKinsey and Company calls for getting rid of “cross subsidization.” Insurance is, actually, mostly about cross-subsidies. McKinsey recognized however that they are costly. So their plan is simple. They want to prevent less healthy workers from good benefits by using things such as Health Savings Accounts coupled with a high-deductible catastrophic health plan. This essentially boils down to making plans that only work well for young, unmarried and healthy individuals. Health care is going to be an interesting issue over the coming years.

Ben Bernanke is a safe choice for Fed Chair. The names on his degrees are from all the right places. He is a respected monetary economist, former Fed governor, and currently chairman of President Bush’s Council of Economic Advisors. He is the best monetary economist who was thought to be on the short list of candidates and was an unusually high-profile Fed governor. But he has little policy-making experience and has only just moved to the White House. Volcker and Greenspan, the last two fed chairs were not stellar academics. However, they had both been steeped in Washington policy-making and practical economic analysis for years before their appointment.

Thankfully, Bernanke was not the first choice of ardent supporters of supply-side economists, who favor tax cuts and tight monetary policy as the best way to strengthen the economy. The next few years are likely to be filled with crises. Given the size of our imbalances including: the current account deficit, the overvalued housing market, and the overextended consumer. Volcker has said there is a 75% chance of a crisis in the next few years. As American monetary policy strategy is less transparent and more personalized than in many other modern economies, we can only hope that Bernanke will live up to the challenge. Greenspan has guided the Fed with no explicit inflation target, being famously skeptical of academic models. We can only hope that Bernake will keep inflation low- a tricky proposition. Inflation expectations are rising, and no one is sure how far interest rates will need to rise along with that. He may well need to be relatively aggressive, to bolster and cement his role as an inflation-fighter.

Also, and this is true of anyone who would have been appointed, he will have less sway over regional bank presidents. As The Economist points out, in the 65 Federal Open Market Committee meetings since 1998 there have been only 15 dissenting votes. Although all participants get a chance to speak their minds, the meetings are hardly an academic debate. That simply will not be true of the new Chair.

Bernanke had what many of those on the outside wanted: “a world-class reputation among economists; credibility on Wall Street; a confidence and an air of political independence that seemed free from hints of cronyism.”

Also, to get an idea of the fun difficulties ahead:

Succeeding Mr. Greenspan, sometimes called the most successful central banker ever, would not be easy under any circumstances. But the timing of his departure could add an extra degree of difficulty to Mr. Bernanke’s ascendancy. Mr. Greenspan is scheduled to preside over three more meetings of the Fed committee that sets the benchmark short-term interest rate before he retires at the end of January. Based on the price of a futures contract tied to Fed policy, investors are expecting three more rate increases, pushing the target rate to 4.5 percent from the current 3.75 percent, before the Fed pauses or stops altogether. But that could leave Mr. Bernanke facing a quandary as he takes over at the March 28 meeting. At exactly the moment he is trying to establish himself as an inflation fighter and his independence from the Bush administration, Mr. Bernanke - if he endorses the pause in raising interest rates that many in the markets expect - could appear to be moving in the opposite direction.

All and all, this is a very good choice as he is someone very smart, ideologically pragmatic, with intellectual and academic rigor but also policy savvy and experienced. Bernanke can succeed but markets will be extremely watchful of every single word that he will utter. While being a Republican, he is not a partisan hack or too closely associated with the White House and Republicans and I honestly think he will do a good job.