Globalization hits a brick wall

As I suggested in my blog titled ‘The U.S. Economy 2008,’ protectionism is the obvious outcome to a global economic downturn. As the economy turns down, people feel frustrated and angry. They look for scapegoats and turn to economic nationalism and protectionism as a release valve. I said the following in March:

“Experience shows that these painful steps will only be taken as a last resort. Moreover, geopolitical events become volatile in a world of economic insecurity, leading to political upheaval and protectionism. Protectionism is a natural outgrowth of nationalist economic policy as it transfers wealth from foreign producers to domestic producers by cutting off access to lower cost excess capacity in the goods in service sectors. However, this also serves to transfer wealth from domestic consumers to domestic producers by increasing the price of goods in the protected sectors, ultimately reducing consumption demand.

For these reasons, I am cautious about the long-term outlook for the global economy and the U.S. economy in particular. The likely outcome for the next decade is one of sub-par global growth with short business cycles punctuated by fits of recession.”

Today, the Wall Street Journal indicates in its column ‘Rise of Nationalism Frays Global Ties.’ Although this is a paid site, I suggest everyone make themselves familiar with the contents of the article. Protectionism is one of the chief ways that this downturn will turn from a recession into an out-and-out global depression.

Bob Davis ends the article with this statement:

New nationalism could play out over a lengthy span, says Michael Klein, chief economist at the World Bank’s private-sector arm, the International Finance Corp. “Disparate national interests may pull [countries] in different directions and render global actions more difficult,” Mr. Klein says. “We’re in for several decades of these centrifugal forces.”