"Social backlash to the speed and breadth of globalization is limiting our ability to move forward on reforms, even in the most developed of economies. Indeed, the backlash to China and immigration appears to have intensified in the U.S. over the last year. Pat Buchanan's hate-spewing new book, which condemns immigrants, has already reached best- seller status," says Diane Swonk, chief economist of Mesirow Financial.

"The idea is that democracy is an evolutionary process, one that is more of a consequence of, not a precursor to, economic empowerment," notes Swonk. "This should not be a surprise to anyone who has studied the evolution of our own democracy, which was preceded by the breakdown on the feudal system and the rise of individuals as economic agents."

In her September newsletter, Swonk highlights themes discussed at the 2006 Kansas City's Fed's annual symposium, held August 24-26 in Jackson Hole, Wyoming, which include:

- The rate at which economies are integrating has accelerated in recent
years;

- The speed at which change is occurring has made it especially hard for
those who were displaced by market reforms to adapt, thus spurring
social backlash;

- The notion that democracies are having a particularly hard time
balancing the desire to globalize with the need to be equitable;

- The idea that many resource-rich nations now believe that they are
wealthy enough to opt out of the global economy, abandon market reforms
and up their political clout by challenging capitalism;

- The implications of globalization on workers and consumers; and,

- The role that capital inflows are playing in redistributing funds from
capital-rich to capital-poor economies.

"Markets are inherently more powerful than governments, and globalization will likely continue regardless of efforts to slow its progress. We could be more thoughtful about how we proceed with free trade initiatives going forward. The push to establish democracies ahead of market reforms in the Middle East is particularly suspect, as it will likely act as more of an obstacle than catalyst to economic reforms," said Swonk.

"As for the current course of monetary policy in the U.S., more could be derived from what was not said. The decision to pause in August was obviously a close call, and the Fed is still struggling to build a consensus for the September meeting. It is worth noting that the debate is honest and not hostile," concluded Swonk.

The September issue of Themes on the Economy as well as archived issues can be found at http://www.mesirowfinancial.com/