The exigencies of national sovereignty
We noted above that rebalancing involves shifts in conditions: reductions in prices and wages and/or migration of labor. Neither of these is socially desirable for the economy subjected to these corrections. And if that economy is a sovereign nation, it will strive to mitigate them rather than allow them to run their course and achieve the underlying rebalancing. Intervention to keep wages from declining, as discussed in the previous section, is one way to achieve this. Another involves barriers to migration.
Barriers to migration are inherent in the world in which we live, because nations are inherent in that world. Nationhood entails a range of cultural differences, not least of which is language; and sovereignty, which is an expression of nationhood, imposes enforceable national boundaries. These factors all serve to restrict migration.
Where these barriers do not exist, and where production levels are insufficient to employ labor, or where conditions are less satisfactory than elsewhere, people will migrate to where working conditions are better. In the case of our two economies above, the migration of labor will drive wages down in the export economy (due to immigration) and push wages up in the import economy (due to emigration). But barriers to migration keep this rebalancing from taking place. Nations restrict the flow of migration because it will lead to declines in wages, a more difficult job market, and to an increased burden on social services, besides the fact that national culture and identity may be endangered by influxes of foreign migrant peoples carrying with them their own cultures, mores, and religions. The capacity for nations to assimilate immigrants is finite, and only made more difficult by mass migrations, in which it is large groups and not individuals that have to be assimilated. In that case, the distinction between migration and invasion becomes blurred.
Regardless of these difficulties, the imbalance remains. How is it to be redressed? One way is through wage and price declines – deflation. This is a hard road, and is nowadays politically unfeasible. There is another solution, involving currency regimes. Jane Jacobs, for one, expounds on this in her above-mentioned book. It is the solution of floating currencies, which enable an alternative means of rebalancing. We will take up this option below.