Inequality, globalization and offshoring

There have been a lot of discussion in econ blogsphere about inequality, globalization and offshoring as the mid-term election draws closer. Economists and policy makers are increasingly concerned with the widening income gap between the rich and the poor and shrinking of middle class. The consequences could be disastrous if they are not addressed timely. Even though this election is mainly a referendum on the war in Iraq, the dissatisfication of middle class with their economic well-being could also play an important role in determining the outcome.

Two distinct trends stand out when we look at the landscape of gloabl economy. Technology has greatly increased the economy of scale: it's more and more like winner-take-it-all than ever before, if you are the top one or two in the field, you get to reap most of the benefits. That might partly explain why the rich keeps getting richer.

Another one is latest development in offshoring -- electronic offshoring of white-collar middle-class service jobs. That really puts a lot pressure, real or perceived, on the middle class. It's no longer the uneducated or unskilled workers that are at risk of losing their jobs, this time we are talking about losing well-paid service jobs.

Facing those gigantic challenges, economists are struggling to come up with convincing arguments for free-trade to counter the increasing protectionism and anti-globalization rhetoric, often from those that have been made worse off in the process. Simply saying trade makes everybody better off won't cut it: there are winners and losers even though the overall economic pie is bigger, and it seems like that the pact of losers is getting larger and larger while the very few is reaping off most of the benefits.

I think it comes down the fundamental tradeoff between efficiency and equality. I wish every rich person would be as generous as Bill Gates, that would avoid the involuntary high tax on them, which is at odds with my libertarian slant. But in reality we probably have to go for more progressive taxing, which is the least damaging (and most effective) tool in addressing the issue of inequality.