Two weeks ago, I wrote about the utter confusion in economics, business, and policy ranks about the spectacle of the United States continuing to grow much more strongly than the rest of the world on average. Unfortunately, the powers-that-be have made exactly zero progress in understanding this divergence and its implications for the United States.
The main problem continues to be an apparent determination to believe in and perpetuate myths about the (fortuitously linked) inevitability and desirability of global economic interdependence, and about the American and other government policies aimed at its intensification.
A recent Financial Times article, for example, illustrated the extent to which these misunderstandings have prevented recognition of fundamental causes of the 2007-8 financial crisis and its dismal aftermath, and therefore keep blinding policymakers to the most important steps needed to restore genuine financial health nationally and globally.
Author Chris Giles noted the uneven nature of the (disappointing) global recovery, which included strengthening American performance. Yet he painted a gloomy picture of U.S. and international economic prospects going forward because emerging markets, especially China, are now allegedly the countries whose successes are “most important for global trends,” and their growth has been slowing most dramatically.
What he – and so many others – have missed is that it was the outperformance of China and the other ostensible emerging markets that helped trigger the crisis, since their own superior vigor overwhelmingly depended on a global version of a Ponzi scheme. They amassed huge trade surpluses by selling to wealthier developed economies (especially America’s) whose factories and other productive, income-producing facilities they were increasingly replacing thanks largely to offshoring-friendly U.S. trade policies. Lending from these low-income and other surplus economies (like Japan’s) was the only way in which the resulting growth could be sustained, and six years ago, this particular global house of cards predictably tumbled down.
In other words, yes, according to some standard versions of counting growth and measuring its sources, the surplus countries led the global expansion before the crisis – and even until this year during the recovery. The trouble is, this has proven to be a disastrously unsound type of growth.
Especially strange: Giles noted that China’s unexpected acceleration in the last few months has been “driven by a resurgent export sector,” which of course reveals the crucial nature of third world net exporters’ markets, not the exporters themselves. Yet his China- and emerging “market”-centric portrait of the world economy remained unaffected.
The Wall Street Journal chipped in with its own version of the current globaloney with an October 21 article titled “Global Growth Woes Threaten to Beset U.S. Economy.” Just like the Financial Times‘ Giles, authors Josh Zumbrun and Chris Timiraos told readers that “Emerging economies, not the U.S., drove global growth for much of the last decade.” They went on to warn that gathering woes in these countries and Europe could “hobble the U.S. economy at a time when the world could use a reliable growth engine.”
The most important part of their article, however, presented evidence showing indisputably that the reality is anything but. Not only has America’s growth actually quickened as the rest of the world has slowed, but its economy is still relatively trade light (despite decades of bipartisan Washington efforts to increase its role). Hmmmm. Any chance that these twos facts are related?
Am I saying that the U.S. economy is out of the woods? Of course not. What I am saying is that America’s capacity for self-sufficiency and its resulting built-in immunity from the biggest international economic trends are invaluable strengths. Further, it is vital to preserve and enhance these strengths in the many industries and commodities where it’s feasible. Just as important is realizing that unless Washington is vigilant, its growth-hungry trade competitors will surely continue taking the path of least resistance by using U.S. openness to imports to grow at America’s expense by adding to their already high levels of U.S. marketshare.
New successes along these lines would spell trouble not only for the United States, but for the rest of the world as well – as it would refuel the same lopsided production, consumption, and lending patterns that helped trigger the last decade’s calamity in the first place. If Washington wants to keep strengthening global interdependence and interconnectedness, it will need to work much more effectively to ensure that the structure of this interdependence is actually durable. If it can’t, or until it can, its best economic strategy unquestionably will be acting unilaterally to speed up and improve the quality of its own growth.