Summary of the presentation to the NSF on

The Future of Globalization & Trade and the Rise of Income Inequality

A Panel Discussion

With Jerry O’Driscoll, Mark Pingle and Atul Minocha

“I am going to be more optimistic than I have been in some time. My optimism is for the near to medium term, say 1 to 5 years out. Longer-term there are definitely problems that must be addressed.”

An upbeat statement by Jerry O’Driscoll kicked off our engaging and enlightening discussion of the current state of the global economy and its implications for U.S. national security. In truth, he opened the panel with the prescient reminder, “The stock market is NOT the economy!” A valuable nugget of wisdom in light of a volatile week of record-setting point drops, rises, and drops again. So, what is going on in the global economy and does any of this affect Americans who may or may not follow the whims of Wall Street? The bottom line up front is – the global economy is expanding in all regions around the world in what Jerry explained is “synchronized growth.” Asian economies are growing as they create vibrant consumer-driven middle classes. Even Japan is booming after several decades of economic slump.

In a colorful description, Jamie Dimon (CEO of J.P. Morgan Chase) described the unleashing of “animal spirits” in the U.S. economy stimulating a growth spurt here at home. All this appears driven, in part, by the elimination of “growth-killing” regulations such as the Dodd-Frank Act (DFA), that drove up the costs of making loans and operating small banks. The DFA is credited by Jerry and other economists with slowing economic growth in recovery years post the Great Recession of 2007-2009. Another driver for Jerry’s optimism is the recent tax reform legislation that was engineered by Kevin Hassett, Trump’s Chair of the Council of Economic Advisors, and enacted by Congress in December 2017. Jerry credits President Trump for “the good things he has done and also for not implementing some of his bad ideas.” As to the latter, Trump hasn’t torn up any trade agreements or waged a trade war with China…at least not yet.
So, all is right and happy in the land of numbers, right? Not so fast. Jerry transitioned from the economic happy dance to a sharp dose of reality reminding us that there are any number of big issues that can upset the economic applecart. Top of the list are exploding debt and deficits, which, at some point when economists are likely looking the other way, will lead to a debt crisis. And to make matters worse U.S. politicians are unlikely to do anything about looming debts until there is a crisis, and even then, Jerry fears they will not do the right thing.

And just when we were slipping into a bad case of debt depression, Jerry closed with a stern warning about another drag on U.S. economic growth – our failing public school system. Schools that are unable to meet the educational demands of the information economy pose a serious risk to future economic growth. Well…that is a sobering statement and a topic worthy of further discussion at a future NSF meeting.

Even in good economic times, are all growth spurts equal? Or do they inevitably lead to widening income gaps between the “have-it-alls” and the rest of us? Panelists Mark Pingle and Atul Minocha added complementary perspectives on the impacts of income inequality on both economic growth and national security. Mark confirmed that globalization explains most of the change in U.S. income inequality as low wage workforces in Asia continue to displace U.S. workers. In addition, as the American labor force shifted from manufacturing jobs to services, the potential for exporting goods dropped along with the incomes for lower-skilled American workers who produced them.

Atul armed with facts and figures, illustrated the massive gain in income by the 0.1% in the U.S. rising nearly 30 times over the period from 1962 to 2014 from an average income of just over $200,000 in 1962 to over $6 million in 2014. All other income brackets rose considerably less with average annual incomes in the lowest 20% rising only 7 times over the same period to just $5,400 in 2014. In the private sector, United States also has the largest ratio of income difference between CEOs and average workers. In 2014, this ratio in the United States was 350 (i.e. CEOs earned 350 times their average worker) more than twice that of the next country on the list of western countries, Switzerland. First question, “Why did income inequality increase so dramatically in the United States of the last several decades?” Second question, “Why does this matter to national security?”

A very good segue to a lively Q&A with our panelists. Not surprisingly, two big topics dominated the question topics, the impending debt crisis and the implications of income inequality. Our panelists tackled the latter topic from many angles. Atul pointed out that income inequality in the United States is not as bad as it is in the Middle East, which also has very high youth unemployment. These factors combined are particularly destabilizing to societies already prone to unrest. Jerry and Mark emphasized that not only do the “haves” have more money, they also have more access to education leaving the rest of the population unable to compete in the fast-growing innovation economy. Reminding us that we are now undergoing the 4th Industrial Revolution – one dominated by robots, artificial intelligence, and the accumulation of capital – Atul pointed out that education alone will not bridge future income gaps and may, without mitigation, lead to social unrest.

Back to the impending debt crisis, Jerry reminded us that near-term benefits of the recent tax bill will likely continue to be a boost to the economy for the next 1-5 years with the negative impacts of potentially adding $1.5 trillion to the national debt still not being felt for at least 3-5 years. He emphatically answered that a “debt jubilee” was not the solution, given that most governments will just keep spending again if existing debts are somehow “forgiven.” Proving our NSF meetings are always timely, within days of our meeting Congress has reached a deal on the federal budget for Fiscal Years 2018 and 2019 (which lasts until 30 Sep 2019) AND President Trump has released his proposed budget for FY2019, both of which significantly add to the national debt. Perhaps we need to have Jerry and our other expert panelists revisit the debt/deficit discussion again in the near future.

As for our competitors in the global economy, Jerry artfully reminded us that China is not the only “currency manipulator” on the world stage. With a twinkle in his eye, he remarked that the U.S. has been the world’s biggest currency manipulator under the guise of Quantitative Easing implemented by the Federal Reserve following the Great Recession.

Clearly, globalization, trade, and income inequality are topics ripe for further discussion by our expert panelists and all the engaged and enlightened NSF participants.

Jerry O’Driscoll, Senior Fellow at the Cato Institute and Reno resident, is a world recognized international monetary and financial expert. He previously served as the Director of the Center for International Trade and Economics at the Heritage Foundation and Vice President and Economic Advisor at the Federal Reserve Bank of Dallas. Mark Pingle, is Professor of Entrepreneurship and Economics at the University of Nevada, Reno, specializes in developing entrepreneurial capacities at UNR and in the community. Atul Minocha is Partner and CMO/Consultant at Chief Outsiders, helping mid-sized companies grow to their full potential and Professor of Practice at the Hult International Business School of San Francisco and Dubai. He often (over) thinks global economic issues as he flies around the globe.

Follow the link below for  Atul Minocha’s slides

Inequality Matters 020718 Atul Minocha

Follow this link for the full text of Jerry O’Driscolls talk

ODriscoll Global Economic Trends FINAL