Fed Chief Backs Global-Wealth Sharing
Saturday, August 26, 2006
JACKSON HOLE, Wyo., Aug. 25 -- Government policymakers should work to make sure the benefits of economic globalization are widely enjoyed to maintain political support for free trade, Federal Reserve Chairman Ben S. Bernanke said today.
Political and technological changes are likely to keep spurring global economic integration -- the growing exchange of goods, capital, workers and ideas around the world, he said in a speech here.
That trend creates the potential to elevate living standards and lower poverty, but also the likelihood of resistance by groups or nations that feel threatened by change, Bernanke told an international gathering of central bankers, analysts and academics.
"The challenge for policymakers is to ensure that the benefits of global economic integration are sufficiently widely shared," Bernanke said. "The effort is well worth making, as the potential benefits of increased global economic integration are large indeed."
He did not propose specific policies to counter efforts to restrict trade, but suggested as one general example the need to retrain people who have lost jobs because of globalization.
Bernanke's remarks, his first as Fed chairman to an annual meeting in Jackson Hole that draws elite economic thinkers, came at a time of trade tensions between the United States and China, and of growing worries about the nation's trade deficit. Some members of Congress have proposed tariffs on imports from China, blaming what they see as an overvalued Chinese currency for the loss of American jobs. Bernanke's comments also come after the recent collapse of international negotiations aimed at lowering global trade restraints.
The Fed chairman said global economic integration is also threatened by the risk of terrorism and other international tensions. Bernanke made his remarks at a conference on "The New Economic Geography," which dealt with the ongoing shifts in the location of economic activity and growth around the world.
"One of the defining characteristics of the world in which we now live is that, by most economically relevant measures, distances are shrinking rapidly," Bernanke told the conference, sponsored by the Federal Reserve Bank of Kansas City.
"The process of global economic integration has been going on for thousands of years," he said, citing technologies and political systems that fostered increased trade during the Roman Empire, through the voyages of discovery in the 15th century, through the rise of railroads and steam power in the 19th century, and through the advance of telecommunications and global trade agreements in recent years.
"The scale and pace of the current episode is unprecedented," Bernanke said. For example, he said, global exports of goods account for more than 20 percent of world economic output, compared with about 8 percent in 1913 and less than 15 percent in 1990.
Moreover, recent political changes have led China, India and former Soviet bloc countries to become more fully integrated into the world economy, meaning most of the world's population is now participating in a globalized marketplace, he added. "There are no historical antecedents for this development," Bernanke said.
But, he said, such change has also caused political backlash by hurting some workers and business owners, by triggering social and cultural change, by appearing to benefit some groups more than others or by raising concerns about the environment.
"The natural reaction of those so affected is to resist change," Bernanke said.
Bernanke did not comment on the U.S. economy or Fed interest-rate policy. He and his Fed colleagues left interest rates unchanged at their last meeting Aug. 8, the first since June 2004 without a rate increase. They indicated they expect the slowing economy to dampen inflation pressures over the next year, but have not agreed yet on whether they might have to move their benchmark short-term rate any higher to ensure that outcome.
"As much as financial markets want insight into their next move, the reality is they don't know what it is," said Diane Swonk, chief economist of Mesirow Financial Holdings Inc., a privately held investment management firm.