The Book Club

How Much Are Cheap Chinese Toys Worth To You?

Well, Dan, there’s a lot to talk about here. First off, I don’t really consider myself a “committed and enthusiastic” globalist. I’m more of a “resigned and hopefully constructive” globalist. Globalization is happening, and trying to stop the wave is a bit like trying to hold off a tsunami with a beach umbrella. We can still figure out a few useful ways to deal with globalization’s side effects, though.

Our government has made a couple of attempts. There’s a big and not-always-successful program that retrains workers who’ve lost their jobs to outsourcing or foreign competition. There’s also a much smaller program that tries to help businesses under pressure to innovate and succeed. But as you and Larry Mishel of the Economic Policy Insitute in Washington have pointed out, these programs do nothing for the millions of American workers who may have seen their wages pushed down by globalization.

The question is, how would we fund the programs to help those folks? If we are truly trying to redistribute the gains from globalization, then we should not be thinking only about the traditional option of taxing the people with the highest incomes. As you said, everyone with a basement full of plastic from China is a beneficiary of globalization. So is everyone whose company has become a major exporter in the last couple of booms. So is everyone whose interest rates on credit cards, mortgages, or student loans is lower because of the enormous inflows of foreign money into our country. All of them, in theory, would have to share those gains with globalization’s losers.

The problem is that we have no apparatus for doing this. Even if we did, it would be an extremely difficult task. How could I prove exactly how much those cheap Chinese toys are worth to you, i.e., how much your well-being is enhanced by having access to those cheap products? It wouldn’t necessarily be the same boost that I get from the same opportunity. Also, if anyone did ask, you’d have every incentive to lie and say that you weren’t better off at all. For these reasons, I think we’re going to find ourselves in a second-best world; hence my observation that people need to look out for themselves.

The more general topic of globalization and inequality is a fascinating one. I’m starting to form the view that globalization is a driver of income inequality within countries, but a driver of income equality between countries.

Within countries, globalization tends to result in big income gains for the people who can take advantage of its opportunities—the ones with money and ideas—while depressing incomes for people who face more international competition. At the very least, the income distribution stretches at the top.

Yet at the same time, it’s partly the opportunity created by globalization that has allowed China and India to pull hundreds of millions of people out of abject poverty; in fact, globalization has probably contributed much more to the Millennium Development Goals than the World Bank and the United Nations put together.

Those Chinese workers you mentioned are among the winners, not the losers, at least in material terms. As part of a new trade spawned by globalization, they are sharing in the gains. The folks who used to make toys in the United States are the losers in that trade. But note my qualification above: “in material terms.” For me, the most important question is not who’s getting more money. The key is to see who’s actually happier. After all, that’s what economists are supposed to care about, right?