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Wire & Cable ASIA – January/February 2009
20
The US economy in crisis
What does the Japanese
experience of the 1990s augur
for the United States today?
“Japan saw repeated years of low or negative growth,
but the final tally was something short of a decade-long
recession, with the ten years leading up to 2000 averaging
out at almost 1% growth. Companies like Toyota
would prosper in adverse times, forced to sharpen their
competitive edge. Emerging in the 2000s as the leader in
hybrid cars, Toyota found itself on stronger footing than its
US counterparts.”
This excerpt from Washington Post staff writer Anthony
Faiola’s recapitulation of Japan’s ‘lost decade’ of economic
growth is a reminder that fiscal crises can have happy
endings. Mr Faiola noted that – some 18 years after the
stock market meltdown that began in September 1990,
when the Nikkei stock index dropped almost 20% in a
month – leading experts agree that the impact was not
as severe as originally thought. Moreover, today the
Japanese economy remains the world’s second largest.
(“Studying Japan’s dark decade to see how US might fare,”
11
th
October)
This long view in hindsight has the support of Adam Posen,
deputy director of the Washington-based Peterson Institute
for International Economics, a nonpartisan think tank
established in 1981. “We are all spooked out of our minds
because of the last three weeks,” Mr Posen told the Post.
“But just as we’ve seen in Japan, this doesn’t have to be
that tough.”
Americans, however, live at the epicentre of a crisis that has
policymakers worldwide struggling to restore confidence
in financial institutions and markets. They are not much
disposed to look on the bright side; and Mr Faiola’s
Japanese retrospective includes plenty of material for
pessimists. These are among the factors economists see as
arguing against a US recovery on the Japanese model:
In contrast to the debt-burdened Americans of today,
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the Japanese – despite steep losses in their housing and
stock markets – maintained one of the highest savings
rates in the world. Throughout the crisis this was also
true on a national basis
Unlike the United States, export-driven Japan enjoyed a
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huge trade surplus
Of greatest importance, the crisis was largely confined to
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Japan, which could rely on global demand for Japanese
goods. This demand came chiefly from the US but also
from a fast-growing China, and kept Japan’s economy
afloat. The crisis now is global, with Europe and Japan
joining the US in slipping toward recession
Japan’s advantages did not save its people from what one
Post respondent called “the long, dull economic pain – as
opposed to the sharp pinch in the United States.”
It will never be known whether a faster response on the part
of the government of Japan would have abbreviated the
period of pain, or whether a little Japanese reticence might
have served the US better in 2008 than the prompt sounding
of alarms, setting off panic in Wall Street. “Economists
still fault the regulators in Japan for their slow reaction,”
wrote Mr Faiola. “In some instances, government officials
colluded with financial institutions to hide the extent of the
problems. Yet in light of how quickly the US financial crisis
has exploded, there is new debate about whether there may
have been some method to Japanese madness.”
One of the outgoing president’s men uses
a forbidden word in public: recession
Speaking from California in an interview broadcast
19
th
October, the chairman of the White House Council
of Economic Advisers used a word that, to that point,
had been studiously avoided by White House attachés.
On CNN’s “Late Edition,” Ed Lazear, one of President
George W Bush’s top aides, said, “We are seeing what
I think anyone would characterise as a recession in certain
parts of the country.”
Mr Lazear made particular reference to California, where
unemployment rates are somewhat higher than elsewhere
across the US. To the broader, national economy he was
applying, in advance, the technical definition of a recession:
two consecutive quarters of economic contraction. Many
analysts expect the American economy to show contraction
over the final three months of 2008 and the first three
months of 2009.
Mr Bush’s economic adviser was otherwise more upbeat,
suggesting that a significant impact from a $700 billion
rescue package cobbled together by the White House and
Congress would be felt in “a few months.” The intention is
to recharge the economy by injecting cash and confidence
into the shattered American lending industry.
Some of what Mr Lazear said was distinctly representative
of the Republican administration he served, notably his
suggestion that some projects under consideration for
funding, such as road and bridge construction, are too slow
and too centred on one industry to give the economy a
measurable boost.
Of course these comments came before the presidential
election, held 4
th
November. The decisive Democratic
victory will mean that such undertakings are seen through
a different prism. An earlier Democratic president, Franklin
Delano Roosevelt, brought the US out of the Great
Depression of the 1930s by spending heavily on just such
projects. Many of them – although the worse for wear – are
still in service.
Northeast Ohio provides an example of an area that
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would stand to benefit from significant outlays on public
infrastructure. According to a recent Cleveland State
University study, lifting the economy of the region will
take at least a decade, given its low ranking in vital
growth measures. As reported in the Cleveland Plain
Dealer (2
nd
October), the study from CSU’s Center for
Economic Development ranks the metropolitan areas of
Cleveland, Akron, Canton, and Youngstown in the lower
half of metros across the US on measures of growth in
employment, per capita income, productivity, and gross
metropolitan product.
Statue of Liberty Image from BigStockPhoto.com
Photographer: Marty