And not globalisation.

You can read from time to time statements about how stagnant wages are all about globalisation.

Maybe.  Over the long term, a great increase in one economic factor – labour – is going to depress its price. But extending the size of any market is also, usually, good news as all the other factors increase as well.   More capital becomes available, greater selling opportunities emerge, and so on.  For most of history, the market has been growing, and it hasn’t spelled out tough choices for all and the rise of populism.

Chart: monetary policy failure in action


In an otherwise excellent column on that age-old Tory split between free traders and traditionalists, Janan Ganesh throws in a germ of economic untruth by describing stagnant wages as an epiphenomenon of globalisation. But globalisation has been with us for a while. What has really inspired renewed fury across Europe and beyond is the sudden collapse of nominal incomes.

The collapse of anything nominal is largely the responsibility of central banks. If those central banks had kept nominal aggregates like total wage income growing on trend, we might have had a bit more inflation, but we would not have suffered anything like the drop in real prosperity we have seen since 2008.

The greatest economic discovery of all is that extending the coverage of a market produces wins all round – what my lecturers used to call Smithian growth.  About this, liberals like the author and Jeremy Browne MP could not be more right.  Populist fury at globalisation is itself an epiphenomenon of a larger failure – in monetary policy.




3 thoughts on “This is a graph about monetary policy

  1. Strange that those who blame globalisation on falling wages here never blame immigration which provides clearly far more direct competition.

    But globalisation didn’t start in 2007. The graph clearly correlates much better with the British government decision to increase electricity prices. Something your party have been enthusiastic about.

    The correlation between growth in energy use and gdp is as indisputable as anything in economics.

    Does your party claim to be ignorant of that?

    1. I don’t speak for the party. But worth noting that energy intensity per unit of GDP varies wildly. On a year by year basis, the delta of each is highly correlated. But to go from that to intuit a link between the cost of energy and gdp that year is a leap too far …

      1. Indeed. With slow growing Britain at the most expensive energy end and fast growing China, along with some oil states, at the cheap energy end. As one would expect.

        Professor Peter Cameron, professor of international energy law and policy at the University of Dundee, wrote,

        “Energy is at the heart of modern life”


        “In modern times the main driver of economic growth has been, and continues to be, energy”.

        As I said it is difficult to believe that nobody told the LDs, or their economic advisers something so basic.

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