Top economist Gary Hufbauer on how the "envy factor" fuels global populism

By Olivia Gazis

/ CBS News

Protests erupt for fifth week in Paris

Intensifying support for populism around the world is gathering strength from three main forces – fear of the effects of immigration, technology-induced wage inequality and an "envy factor" stemming from greater visibility into the lifestyles of the superrich, according to top economist Gary Hufbauer.

"People knew who Rockefeller was," Hufbauer said, referring to the U.S. industrialist considered to be one of the wealthiest Americans in history. "But they didn't know the details of his lifestyle the way we know the details of people who are rich today."

"The envy factor – thanks to social media, general media and so forth is much greater today than it had been 50 years ago," he said. "What's — I think — driving the politics is that today…everybody knows, who watches TV, that other people are doing better than they are."

In an interview with Intelligence Matters host and CBS News senior national security contributor Michael Morell, Hufbauer, who is a nonresident senior fellow at the Peterson institute for International Economics, a nonpartisan think tank based in Washington, D.C., also said it was technology, not free trade or trade policy, that has had an overall more significant impact on America's labor landscape in recent decades.

"In terms of the actual impact, the basic job-killer in this country," Hufbauer said, "it's technology."

Because various technologies have helped produce goods more efficiently, and because Americans tend to spend a smaller fraction of their income on manufactured goods than on services, Hufbauer explained, the price of those goods has diminished more drastically compared to that of services provided in industries like hospitality, medicine and education. The overall effect has been a significant decline in demand for labor in the manufacturing sector, and a simultaneous shift in income in favor of more-skilled workers.

Meanwhile, politicians and policymakers have reached for explanations with easier targets. "I think people find it very hard to wrap their minds around doing something about technology," Hufbauer said. "And…if you're a politician you have to have something to blame."

Still, Hufbauer told Morell, trade policies can have major economic effects – as is evident in the U.S.' ongoing trade battle with China, the world's biggest exporting country and among the world's top importers.

"One view, which I adhere to… is that we have entered into a new cold war with China," Hufbauer said, "and the leading edge of that cold war is economics."

Absent a deal with Beijing, a sustained escalation of tariffs, other trade restrictions and investment restraints could spell trouble for U.S. multi-national firms who have been doing business for decades in the Chinese market.

"This is going to hurt real people…doing real jobs in this country as well as in China," Hufbauer said, and unremedied engagement in an economic cold war, he told Morell, likely means "a lot of waves – and big waves – ahead."

For much more from Michael Morell's conversation with Gary Hufbauer, you can listen to the new episode and subscribe to Intelligence Matters here.

First published on December 26, 2018

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