RE: [lpsf-discuss] Mises

Here's another entertaining look at a related subject.

"The Earth is Flat," says Thomas L. Friedman.

Every time we check, Friedman's book is way ahead of our Empire of Debt
in the rankings. We see people reading it numbly on airplanes. We see it
stacked up like waffles at the entrance of B. Dalton's and Barnes and
Noble (we have to rummage around to find our book!). And what earnest
business executive has failed to read at least enough of it so he can
talk about "globalization" unintelligently?

We have been following Friedman's work in the press now for several
years.

It is so appallingly empty-headed that for a long time we couldn't bring
ourselves to buy his book; we were afraid we'd feel obliged to read it.

Well, last week, we found it on sale at a 15% discount, and picked up a
copy. As expected, the book is only suitable for children...and only for
them to sit on or club each other over the head with.

But what do we know?

Friedman claims to have made a discovery equal and opposite to that of
Christopher Columbus. While Columbus found that the Earth was round,
Friedman notices that it is now flattened out. Thanks to modern
technology and the spread of robust American-style capitalism (to say
nothing of the protection racket run by the empire's military forces),
we all play on the same level field of global commerce. We also wear the
same clothes (business suits for adults, Che T-shirts for the young),
talk the same language (English), share the same political ideology
(humbug democracy), and worship the same God (mammon).

We are all one. One people. One world. With one idea: to get rich. And
in this new flat Earth, we can all get rich, too. Now, the entire world
can compete, share technology, share information, and share
opportunities. It is as if the world had been flattened into a kind of
United States of Earth, where people in Mississippi can live as well as
those in New Hampshire - competing for the same jobs, trading,
cooperating, schlepping their way toward a New World Order that is
better for everyone.

Globalization takes the wrinkles and creases out of the planet. You can
now eat the same Chinese food in Newport News as in New Delhi. You can
buy the same clothes in Toronto as in Quangzshou. You can live in the
same apartment, designed by the same architect, and built of the same
materials in Buenos Aires as in Belfast. And of course, you can watch
CNN everywhere.

The only thing threatening this brave, new ironed-out world, according
to Friedman, is that some people don't want to go along with it:

backward-looking losers who think religion is more important than
material progress, insurgents who defy the imperial authority and
protectionists who want to push a stick into the wheels of history.

If those were the only threats, Friedman may have a decent point, but
Friedman is like a geologist who has his head stuck in the clouds: Rain,
wind, sun, storm...all of it seems to wash down and wear down the
surface of the Earth, he notices astutely. Ah ha, he concludes, the
mountains will keep on eroding. Pretty soon, the whole world will be as
flat as Kansas.

Of course, if he had any imagination, curiosity or even remembered to
look down at the ground under his feet, he would have wondered how it
was possible that after so many millions of years of leveling, the Earth
was not flat already. And if he had bothered to look beneath the
surface, he would see why: there are new volcanoes bubbling up all the
time, new mountain ranges welling up, and eruptions waiting to explode.

Geologist Stephen Roach sees his seismograph twitching:

"First in manufacturing, now in services, the global labor arbitrage has
been unrelenting in pushing U.S. pay rates down to international norms.

But the real wage compression in the United States has not been uniform
across the income spectrum. In large part, that has occurred because
increasingly broad segments of the American labor market are now exposed
to a uniquely powerful competitive force - the IT-enabled arbitrage.

Courtesy of the hyper-speed of sharply accelerating Internet
penetration, the global labor arbitrage has pushed into areas that
historically have been unaccustomed to wage competition. In earlier
research I found that the disconnect between compensation and
productivity growth during the current economic expansion has been much
greater in services than in manufacturing. This once nontradable segment
of the U.S. economy is now feeling the increasingly powerful forces of
the global labor arbitrage for the first time ever (see my 8 July 2005
dispatch, 'Back to the Drawing Board').

"The Internet has forever changed the competitive climate for most
white-collar knowledge workers. Courtesy of near-ubiquitous
connectivity, the output of the knowledge worker can now be e-mailed to
a desktop from anywhere in the world. That brings low-cost,
well-trained, highly educated workers in Bangalore, Shanghai, and
Eastern and Central Europe into the global knowledge-worker pool. That's
now true of software programmers, engineers, designers, as well as a
broad array of professionals toiling in legal, accounting, medical,
actuarial, consulting, and financial-analyst positions. Within this
global pool of like-quality workers, a powerful arbitrage acts to narrow
wage disparities. As a result, real wage compression in open economies
like the United States has moved rapidly up the value chain - sparing an
increasingly small portion of those at the very top of the occupational
hierarchy. In short, the IT-enabled global labor arbitrage is a
guaranteed recipe for mounting income inequality."

Income inequality has been growing in the United States for the last 35
years, says Roach. We have explained why many times. Per capital income
is $1,700 in China. It is $38,000 in America. As the Chinese (and
others) compete with American workers, the low end of the wage scale in
the United States is held down. Since the wage difference is so great,
this process has a long way to go. While he goes deeper and deeper into
debt, the average American employee may not enjoy any real income growth
for the next two decades.

The rich, on the other hand, continue to make rapid financial progress.

They are the ones who own the companies that benefit from lower wages
and globalized markets.

Economists measure wage equality with way they call a Gini Index. At
zero, people all earn the same thing. At 100, the rich get all the
income.

Currently, in Japan the Gini Index is 25. In Europe, it is 32. In
America, the index is at 40, and in China, it is at 45.

In America, low-level earners can't get ahead because they have no
bargaining power. They are competing with a billion workers in Asia
willing to do the same work for less than one-tenth the cost. And in
China, there is also growing income inequality between those who have
joined the global economy and those who have not. Some 500 million
people live in coastal cities in China and participate in modern
commerce, but there are another 700 million who still live in the
countryside. While the cities grow richer, the poor in China are left
behind, like America's industrial workers.

In short, the world is not getting flatter at all. It is getting flatter
in some areas, and steeper in others. There is less difference between
China's industrial workers and those in America, but the difference
between the globalized wage slave and the capitalists who employ them is
growing.

Beneath the surface of Friedman's flat Earth, the pressure is growing
-either in China or in America and sooner or later, it is bound to
explode.

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