I hate it when people with more skills get paid more money! What is this world coming to?

POLITCS & ECONOMICS: “IMF Fuels Critics of Globalization: Report Finds Technology And Foreign Investment Increase Income Inequality,” by Bob Davis Wall Street Journal, 10 October 2007, p. A9.

ARTICLE: “World’s Economy to Stay on Its Axis,” by Sudeep Reddy, Wall Street Journal, 11 October 2007, p. A4.

ARTICLE: “How fit is the panda? China’s booming economy is helping to support global growth as America turns sickly. So now it has to keep up the pace,” The Economist, October 2007, p. A1.

ARTICLE: “China Begins to Fulfill Its Potential for Big Profits: Foreign Firms Are Cashing In After Years of Tough Sledding As Growth Transform Nation,” by Andrew Batson and Jason Dean, Wall Street Journal, 9 October 2007, p. A12.

The income of lower-skilled workers isn’t rising as fast as the incomes of higher-skilled workers over the past two decades, meaning the smarter and more skilled are getting richer while the less talented and less educated don’t grow as rich as fast.

What is this world coming to?!

Clearly, globalization fails us. It should make the bottom of society grow at a faster rate than the top. If we don’t all grow at the same pace, that’s unfair. Heck, it could even hold back human progress. Maybe we should create a social-political-economic system that forces income equality, perhaps with a small, super-insightful elite running things from on high, armed with the “truth.”

Or we can just take the lesson of socialism from the 20th century and recognize it as a complete disaster.

The only exceptions to this increasing inequality? Places that previously suffered vast amounts of war or authoritarianism that forced such “equality” artificially. Not surprisingly, the IMF doesn’t advocate such flatteners.

Meanwhile, the global economy continues to hum, as it “is expected to largely shrug off the effects of the recent financial turbulence.” Last year we grew globally at a stunning pace of 5.25%. This year we’re expected to drop to a still vigorous 4.75%. Next year we’re looking at 4.25%. Experts call this trend a “moderate weakening” of growth. Why? You really don’t want to get too much over 3-4% growth on a global scale, because it’s highly disruptive. People need time to respond with social change, political change, infrastructural change, investment change, etc.

Plus, you gotta remember, advanced economies grow more slowly because they’re so large, while smaller ones grow faster cause they’re starting at such low bases. So hidden in that average is a lot of just-fine-but-small growth in huge economies and a mix of emerging markets and evaporating markets (the bottom billion falling behind, as Collier notes).

But overall, we’ve never had a global economy doing so well. The long poles in the tent are familiar ones: energy requirements, political adaptation, ideological blowback from those threatened, and environmental costs. We’ve done this all before. We’ll do it all again.

But every time we see a global economic expansion (not just growth of overall production, but the expansion of the global marketplace in terms of serious connectivity), we see new players emerge, or, in the case of India and China, simply return to the fold they left about 500 years ago.

For now, China is the key advancing economy, currently accounting for a bigger share of global growth–for the first time–than the U.S. does (measured at market exchange rates). Even with the blistering rate of growth over the past three decades in China, growth projections are being revised upward, just as projections are being revised downward for the U.S. due to the subprime crisis.

Naturally, the big concern has to be China’s economy overheating. The bubble threat, according to The Economist, is overblown:

Even if shares did tumble this year, the impact on the economy would probably be relatively modest. The total value of tradable shares–that is, excluding those held by the government–is only 35% of GDP compared with 180% in America at its peak in 2000. Equities account for less than 20% of Chinese households’ total financial assets, compared with half in America, so price swings have less impact on spending.

There are important differences between China’s bubble and those we saw in Japan and Taiwan previously, and The Economist briefing explores those differences in great and telling detail.

But the real danger to China remains its most important customer: the United States. It’s not so much the “sneeze” that leads to the “cold,” because China’s domestic market is already far more the cushion of China’s growth than is commonly realized (meaning China’s growth is less linked to America than realized). The real danger would be “that an American recession would inflame America’s increasingly protectionist mood and make trade sanctions against China more likely.” That wouldn’t be the immediate cut imagined, but more the depression of the growing connectivity that enriches China by giving it access to people, technology, and investments.

The Economist doesn’t foresee China running out of cheap labor any time soon, but I think it underestimates the costs involved in getting those 600m rural underemployed to migrate successfully into an urbanized industrial lifestyle, when in reality China’s eager to move up the production chain, so the gap between rural and city is going to be harder to surmount over time (i.e., it’ll be a bigger leap). China’s big cities are already huge, so absorbing the additional won’t be a simple matter, especially as the externalities like pollution pile up.

But clearly, so long as China maintains good external relations, it can expect a lot of help from abroad for the challenges it faces, the simple motivation being not just the long-imagined market but the actual existing domestic market. China’s already the biggest cell phone market and is behind only the U.S. on computers and cars. Eighty percent of foreign companies currently engaged in China had profitable operations last year.

So you could say China’s integration into the global economy has gone incredibly well, if we’re already at the point when we’re counting on their market and they’re counting on their market, making them our equal in some key ways: Both America and China are counted upon to keep things going–in tandem and separately.