^{Democracy & Technology Blog} Flat Earth Economics

Globalization scholar Jagdish Bhagwati this morning takes on Tom Friedman’s “Flat Earth” metaphor. The Earth is not flat, writes Bhagwati, author of last year’s In Defense of Globalization, but “kaleidoscopic.” Bhagwati thinks Friedman’s analogies are too simplistic, that flat and round don’t accurately convey the diversity of the global economy, and that China and India still have a long way to go to match Western sophistication and wealth. No doubt, Bhagwati is right in some of his particular criticisms. Friedman’s overuse of analogies makes him vulnerable to such charges of over-generalization.
Nevertheless, Friedman’s basic premise of a highly integrated and connected world economy stands. The funny thing to me and my supply-side friends is that this has been the foundation of our economic analysis for more than 40 years. The keystone was laid back in the early 1960s by economist Robert Mundell, who developed the models of international economic interaction that are still used today. Mundell and his protege Art Laffer were the key intellectual force behind the monetary and fiscal policies that came to life in the 1960s, percolated in intellectual and policy circles in the 1970s, exploded onto the world scene in the form of the successful Reagan agenda in the 1980s, and now govern the globe.
More than “tax cuts to stimulate growth and tax receipts” or “sound money to restrain inflation,” the key insight of Mundell and Laffer was that the earth is flat. “There is only one closed economy,” Mundell always said, “the world economy.” From this fundamental understanding, Mundell and Laffer offered more accurate explanations of all economic activity and derived the monetary and fiscal policies that, even though they were ridiculed at the time, would change the world for the better.
From the very concept of “globalization” to the flat-tax revolution in Eastern Europe and Russia to the sound money and tax-cutting program in China, supply-side economics now propels the world economy and is its intellectual foundation. Only in America is it really still controversial.
To the extent Friedman sees that the world is getting flatter and more competitive, and that the chasm of wealth, technology, and freedom that separated the West and East for decades or centuries is closing, he is right. But it was supply-side economists who both foresaw the “flattening” of the world economy and indeed did the flattening. On this point, Friedman falls, well…very, very short.
-Bret Swanson