source of such retraining has been our community colleges, which have proliferated over the past two decades. we can usually identify somewhat in advance which tasks are most vulnerable to being displaced by foreign or domestic competition. but in economies on the forefront of technology, most new jobs are the consequence of innovation, which by its nature is not easily predictable. what we do know is that over the years, more than 94 percent of the workforce, on average, has been employed as markets matched idled workers seeking employment to new jobs. we can thus be confident that new jobs will displace old ones as they always have, but not without a high degree of pain for those in the job - losing segment of our massive job turnover. the american economy has been in the forefront of what joseph schumpeter, the renowned harvard professor, called “ creative destruction, ” the continuous scrapping of old technologies to make way for the new. standards of living rise because the depreciation and other cash flows of industries employing older, increasingly obsolescent, technologies are marshaled, along with new savings, to finance the production of capital assets that almost always embody cutting - edge technologies. workers migrate with the capital. this is the process by which wealth is created, incremental step by incremental step. it presupposes a continuous churning of an economy in which the new displaces the old, a process that brings both progress and stress. disoriented by the quickened pace of today ’ s competition, some in our society look back with nostalgia to the seemingly more tranquil years of the early post - world war ii period, when tariff walls were perceived as providing job security from imports. were we to yield to such selective nostalgia and shut out a large part, or all, of imports of manufactured goods and produce them ourselves, our overall standards of living would fall. in today ’ s flexible markets, our large, but finite, capital and labor resources are generally employed most effectively. any diversion of resources from the market - guided activities would, of necessity, engender a less productive mix. for the most part, we as a nation have not engaged in significant and widespread protectionism for more than five decades. the consequences of moving in that direction in today ’ s far more globalized financial world could be unexpectedly destabilizing. a likely fall in wage incomes and profits could lead, ironically, to a fall in jobs and job

on the global financial market and, hence, indirectly on u. s. output and jobs. in order to maintain the tight relationship with the dollar initiated in the 1990s, the chinese central bank has had to purchase large quantities of u. s. treasury securities with renminbi. what is not clear is how much of the unquestioned current upward pressure on the renminbi results from underlying market forces, how much from capital inflows due to speculation on potential revaluation, and how much from capital controls that suppress chinese residents ’ demand for dollars. no one truly knows whether easing or ending of capital controls would ease pressure on the currency without central bank intervention and, in the process, also eliminate inflows from speculation on a revaluation. many in china, however, fear that an immediate ending of controls could induce capital outflows large enough to destabilize the nation ’ s fragile banking system. others believe that decontrol, but at a gradual pace, could conceivably temper such concerns. central bank purchases of dollars, unless offset, threaten an excess of so - called high - powered money expansion and consequent overheating of the chinese economy. the chinese central bank this year has indeed offset, that is, sterilized, much of its heavy dollar purchases by reducing its loans to commercial banks, by selling bonds, and by increasing reserve requirements. but currency and commercial bank reserves have been rising enough to support a growth of the money supply well in excess of a 20 percent annual rate so far this year. should this pattern continue, the central bank will be confronted with the choice of an overheated economy, with its potential recessionary consequences, or a curtailing of dollar asset purchases. the latter presumably would allow the renminbi to appreciate against the dollar. china has become an important addition to the global trading system. a prosperous china will bring substantial positive benefits to the rest of the trading world. it is, thus, important to all of us that they succeed in navigating through their current economic and financial imbalances. * * * the challenges represented by china ’ s large surplus with the united states and the efforts to repair a recent breach in the current round of trade negotiations have engaged the attention of policymakers worldwide. but these are subplots in a much larger debate about the benefits and costs of expanding globalization. at the risk of oversimplification, i would separate the parties in that debate into