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02 Feb 2007

Don’t blame globalisation for the squeezing of the middle class

Angel Ubide

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Globalisation is being blamed for the squeezing of the middle class and protectionism is being offered as a solution. This paper by Angel Ubide, Director of Global Economics at the Tudor Investment Corporation and an Associate CEPS Fellow, argues that the increase in inequality is a long-term trend resulting from a variety of factors, including the decline in manufacturing, the reduction in the progressivity of taxation and the steady increase in asset prices, and that globalisation has only had a marginal impact. Protectionism will not revert any of these trends. We discuss some policy options aimed at cushioning this increase in inequality and argue that they will likely result in expanding fiscal deficits and pressure on central banks to test the limits of growth.