Wednesday, May 21, 2003

Stephen Roach at Morgan Stanley hits the nail on the head today. Although he couches his most provocative statement in thick econo-speak, read between the lines:

"In the long run, the supply-led impetus of globalization generates incremental income that supports increased aggregate demand. But today�s world is far from that long run. Instead, it is coping with the impacts of the first-round effects of globalization on the supply side, which further exacerbate the global imbalance between supply and demand."
In plain English, Roach is saying that deflation is structural not monetary, and that globalization is inherently deflationary. It exacerbates capitalism's tendencies toward overproduction/underconsumption, something which even Paul Krugman is now admitting although he spent most of the Clinton years savaging the arguments of William Greider among others that wages in fact do not automatically keep pace with productivity growth. We see from East Asia in particular because of the amazing gains in productivity -- but which is in fact occurring worldwide, especially in every part of the Global South -- that deflation is part and parcel of globalization.

Roach also channels the General's concerns in his statement:

"an increasingly self-absorbed world seems to be flirting with the perils of competitive currency devaluation as a means to temper deflationary pressures. If anything, that makes the future even more worrisome."
The G-8 meeting in France last weekend was a bad joke, and yet so few in the business press picked up on the complete lack of even interest in coordinated action on the part of the power-that-be.

Globalization is going to be looking uglier and uglier.

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