Inequality and its causes:globalization and technology

Two newspaper stories today worthy of juxtaposition. The first is a summary of a discussion of 4 Noble Prize winners as covered in the Wall Street Journal – Nobel Laureates Say Globalization’s Winners Should Aid Poor:

Globalization and technology have increased income inequality around the world, four Nobel Laureates in economics argued, and governments should intervene to try to help those at the bottom.
Meeting on a picturesque island in southern Germany, the Nobel laureates focused Saturday on the growing gap between rich and poor, which has become a big issue in elections around the world, including the U.S. presidential race. The discussion focused more on broad themes than detailed solutions. But the main thrust was clear: Free markets aren’t always fair, and economists should help governments figure out how to make them fairer. (See video of the panel discussions.)

The second is a Financial Times review of a new book, The Race Between Technology and Education by Goldin and Katz contained in an article entitled The lesson of US income inequality:

They [Goldin and Katz] dismiss the populists’ two favourite culprits – immigration and trade – in short order (possibly too short; my only quibble with this work is that I would have liked to read more on trade). Instead, Goldin and Katz are persuaded by a view common amongst professional economists – that technological change is a major driver of the growing gap between rich and poor.
But Goldin and Katz give a twist to the assertion that “computers did it”. The real point, they say, in an argument buttressed by historical comparisons and technical analysis (if you cannot quite remember what a logarithm is you may want to skip this part) is the race between the demand for skilled workers, as created by new technologies, and the supply of them, as created by the educational system.

Neither of these takes on inequality seems to mention the link between trade and technology. As I’ve pointed out before — taking my lines from Frank Levy – if your job can be routinized, it can either be automated or done by someone in a lower wage area following instructions. In other words, technology enhances globalization. On the other side, as many other have pointed out, globalization enhances technology development. It is a two sided coin – and policy needs to address the consequences of both.

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