World economy ‘set for good 2007’

BBC: World economy 'set for good 2007'

The global economy is set for a good 2007, leading economists have forecast at the World Economic Forum in Davos.

Strong growth in Europe and the Asia Pacific region should balance a possible slowdown in the US.

The experts also identified risks: a weak US housing market, rising oil prices and soaring interest rates.

However, the world was also better prepared to cope with any fallout, they said, because globalisation had removed imbalances in the world economy.

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Professor Tyson pointed to what she saw as potentially the biggest long-term threat, the growing inequalities in the world.

More and more workers were losing out on the gains of globalisation, especially in the middle classes, who had seen their wages "compressed".

She quoted research suggesting that the average American had not benefited from globalisation.

The gains of the $1 trillion in extra income reaching the US appeared to have gone to the top 10% of society.

Given these numbers, politicians would find it increasingly difficult to convince voters that globalisation was a good thing for everybody – even if in the long-term that was indeed the case – Professor Tyson said.

As to Tyson's remarks, someone experiences improved living standards in two ways. One is to have an increase in income. The other is to have the cost of goods and services increase less rapidly than income (or even decline.) The US experienced a recession in 2000-2001 and then had economic disruptions at the end of 2001-2002 because of 9/11. Those events hurt wage increases. But is free trade to blame for stagnating wages? I am doubtful.

Other economists I was reading at the beginning of 2006 said that the economy, starting in the late 1990s, had finally been experiencing the productivity payoffs of the computer/internet revolution. Such technological changes always tend to benefit management and investors because you get better output per amount invested, and it tends to dampen the demand for more labor. However, economists suggested that the technology-driven boom was receding (as they all eventually do) and that demand for labor would increase. So what happened in 2006? After a few years of stagnation, real wages rose by 3.2%.

The harder-to-detect benefit is the relatively lower cost those with stagnate wages have had to pay for goods and services because of free trade. Far free being the problem, I think free trade has played a significant role in minimizing the impact of American economic woes during economic disruption and technology-driven productivity increases.