You nailed the point I think is the most critical: that artificially low interest rates (along with massive government debt) have resulted in an incredible misallocation of capital. Working in Silicon Valley I see (and benefit) from this first hand. Pensions, endowments, and all the other Limited Partners need 7-8% returns. Most directly access or are one to two steps removed from the free government money. With few “reasonable” investments that can return the required numbers, they are forced to chase returns. This leads to an abundance of capital in SV, one of the few places still believed to offer these returns (this is changing as this cycle comes to an end).

Others with first access to capital are doing great in this climate too: hedge funds, investment banks, government contractors, big companies. The rich get richer while the economy stagnates for the majority. Raising rates and stoping the bailouts of failed private institutions I believe will go a long way toward fixing this growing inequality. How we get leaders who can enact these policies is another thing since conventional wisdom (and much of academia) says dropping rates grows the economy. Amazes me that the world didn’t learn from Japan’s never ending stagnation. We hit the end of a 20 year credit expansion cycle in 2000 and there still is no will to let asset prices and credit deflate, instead we got the government “put” [1], not to mention the 2008 bailouts, and continued credit expansion.

The sad part is that instead of fixing the problem, micromanaged economic policy and money creation from on high, we will get jingoistic nationalism. While I do agree that some of our “free trade” has been anything but fair, the numbers, including those in the article, seem to indicate that it has helped large numbers of people throughout the world escape from poverty. I believe free and fair trade is a boon for all. These gains, unfortunately, will likely evaporate as fed-up, disenfranchised electorates in developed countries try anything to stop their slide backwards. It’s tough to sell a “help the world” argument to people who are hurting when those on the top are doing so well.

1. http://www.investopedia.com/terms/g/greenspanput.asp