How Rising Inequality Distorts The Global Economy

I just finished a new book titled “Trade Wars are Class Wars”. The book has been added to my Book Library. Authors Matthew C. Klein and Michael Pettis explore how our economic linkages have both benefits, and an ability to transmit problems from one society to another. The thesis of this book is that rising inequality within countries heightens trade conflicts between them. A very insightful journey through history helps us to understand this phenomenon. One fascinating observation made by the book:

A global conflict between economic classes within countries is being misinterpreted as a series of conflicts between countries with competing interests. The danger is a repetition of the 1930s, when a breakdown of the international economic and financial order undermined democracy and encouraged virulent nationalism.

I have been amazed at the similarities to the 1930s as I explored in a recent post on a Post-Pandemic Society. Tariff wars were a part of the 1920s as they are today. Yet, as the authors indicate, tariffs and nationalist rhetoric will not resolve China’s imbalances, but they will likely reinforce the mistaken belief—on both sides—that China and the United States have incompatible economic interests. Rising inequality is another challenge faced back in the 1920s. The book explores how this distorts the global economy. It also opens the door to societal unrest – something that becomes more evident by the day. I highly recommend the book.

The Deficit Myth

I wrapped up another great book. This one focused on government deficits as viewed through the lens of Modern Monetary Theory. Author Stephanie Kelton addresses the topic in her recent book titled The Deficit Myth. In this best seller, Ms. Kelton – Professor of Economics and Public Policy at Stony Brook University – explores the role of currency issuers (U.S., Japan, U.K., Australia, etc.) versus currency users. From the book:

“The distinction between currency users and the currency issuer lies at the heart of Modern Monetary Theory. And as we will see in the pages ahead, it has profound implications for some of the most important policy debates of our time, such as health care, climate change, Social Security, international trade, and inequality.”

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