The Free Trade Gospel According To Ben

So far, I would say (from this story) that Federal Reserve Chairman Ben Bernanke is the leading contender for the WTF Moment Of The Year with this quote.

"The influence of globalization on inequality has been moderate and almost surely less important than the effect of skill-biased technological change," Bernanke said.

Bernanke was speaking to the Omaha Chamber of Commerce at the time he came up with this “duuuh” moment (“skill-biased technological change” sounds like a phrase right out of an Econ 101 textbook, and I definitely "heart" the description of "the Democrat-controlled" Congress in the AP story).

I took some time to beat my head against a wall while I pondered this, then downed a fistful of Ibuprofen and found this link to discount the “moderate” influence of globalization (including this excerpt - I know we know this stuff, but to answer Bernanke’s inane remarks, it must be pointed out again )…

In the 1980s, this "offshoring" seemed limited to manufacturing jobs in blue-collar industries such as textiles, steel or metal fabrication. The U.S. responded by helping create the precursors of the Advanced Technology Program and the Manufacturing Extension Partnership Program at the Department of Commerce.

Recently, however, offshoring has begun to strike at the very high-tech jobs that we believed U.S. workers would move to fill as blue-collar opportunities shifted to other countries. A Cable News Network report in early March 2006 noted that 500,000 American jobs have migrated to India in recent years. That number is expected to triple in the next two years as American companies seek to cuts costs and streamline business. India is but one example of a country that seems to be gaining employment at the expense of American workers. Over the last six years, the U.S. has lost just under 3 million jobs due to offshoring.

Now, we are witnessing software engineering, computer design, research and development, radiology, architecture and design and other high-value-added positions moving offshore to low-wage markets such as India, China, Ireland, and Brazil.

To be fair, I should mention that Bernanke is advocating education and training, which is never a bad thing. However, he represents an administration that has failed on both of those counts (education and jobs, including job training).

And Bernanke also said that “research is inconclusive about the impact of the minimum wage on income inequality.”

It’s nice that Bernanke at least acknowledged the obvious fact that income inequality exists in this country. The “research is inconclusive” part of the sentence is standard Bushco boilerplate, though.

On this topic, I think this provides important information (particularly this excerpt)…

Robert Frank, an economist at Cornell University, for instance, found that in counties with the widest income gaps, rates of personal bankruptcy and divorce rates were higher than average.

He also notes that when wealthier families see their incomes rise at a faster pace than everyone else, their spending can create what he calls an "expenditure cascade." That is, the demand for bigger and better homes or safer cars can create new standards for those lower down on the economic scale.

But since their incomes aren't growing as fast, they have a hard time keeping up, leading to what Frank calls "welfare loss." For example, as home prices rise, it becomes harder to afford a home in a neighborhood with good public schools.

And when the majority of households come under financial stress to provide a solid life for their families, voters will be less inclined to pay for public services such as bridge and highway maintenance, port security and food inspection.

And that can adversely affect everyone.

Indeed. Somehow market capitalization and consolidation doesn’t mean jack when our infrastructure is crumbling, does it, Ben?