Asia Times: EDITORIAL: A very different species of economy



	February 03, 1999	atimes.com

Global Economy

EDITORIAL: A very different species of economy

Astonishingly, the U.S. economy is proving not only the pessimists but eventhe most starry-eyed optimists wrong: Leading Wall Street analysts in theirconsensus opinion had predicted a not exactly meager 4.5 percent fourthquarter GDP growth; instead it came in at 5.6 percent and, as in 1997,reached 3.9 percent for all of 1998.

Indeed, in its eighth year of expansion, the U.S. economy is not merelycontinuing to grow; it is picking up steam: Second-quarter growth had been1.8 percent and third quarter growth 3.7 percent on an annualized basis.Moreover, three successive years of growth above 3 percent well outshinethe 2 - 2.5 percent long-term growth potential assumed by the FederalReserve Board - and that at a current annual inflation rate of less then 1percent, the lowest since 1959.

The fourth-quarter GDP surge was driven by strong consumer demand, but moreimportantly by investment spending (up 16.7 percent), which hadbeen flat in the preceding quarter but rekindled. Even exports, which Asian crisisworriers had seen as depressing growth, picked up by a high 18.8 percent.

Not just strengthened investments, but also continuing positive fiscal andbudgetary developments provide a broad basis for maintaining growthmomentum. President Clinton will be happily surprised that theCongressional Budget Office predicts a budget surplus of $107 billionfor the current fiscal year - $31 billion more than he himself spoke of onlylast week, to some skepticism on the part of members of Congress trying him for otherexcesses. In the longer run - for the coming decade - the office predictsannual surpluses of over $200 billion per year. The debate in Congress nowis over how to best spend that money, not where to cut - an amazingturnaround considering that Clinton just a few years back cancelled hisattendance at the Osaka APEC summit to deal with an acute budget crisis.

All this leads us to predict that 1999 will be another fine yearfor America - contrary to the pessimists at the IMF anda majority of the pundits at the Davos World Economic Forum(notably including the vice minister for international affairs of the JapaneseMinistry of Finance, Eisuke Sakakibara), who expect U.S. growth to be cut inhalf, U.S. stock markets to go into a tailspin and the dollar to lose 10-15percent in value against the euro and yen.

Growth will continue to be above 3 percent; inflation and unemployment willremain low, and the Dow Jones stock index may very well climb to 11,000 orhigher - some intermediary corrections notwithstanding.

It is high time for economists and market analysts to realize that in thecourse of the past decade the U.S. economy has effectively decoupled fromthe persistent misery of the advanced continental European economies andhas become increasingly immune to the recurrent financial turmoils that havehit Latin America, Asia and other emerging markets.

This is not, of course, because the U.S. has shut itself off from globalmarkets. It is because since the 1980s the U.S. economy has become a verydifferent species of economy than those of most of the rest of the world.

It began with the successful solution of the savings & loan crisis of thelate '70s and early '80s. Brand new financialtechnologies were invented, allowing for more efficient utilization offuture household income streams and for greatly improved risk management. Itcontinued with the massive downsizing and restructuring of Americancorporations through the late '80s (when Japan went on a cheap-money bingeand built up capacities in Japan and throughout Asia of outdated mass-production industries and accompanying asset bubbles). And it continued inthe '90s when American entrepreneurs and financial institutions poured evergrowing amounts of venture capital into revolutionary new information andcommunications technologies.

Hand-in-hand with those developments went revolutionary changes in capitaland asset allocation and distribution by and within the U.S. population: the''democratization of capital''. At latest count, 56 percent of Americans orsome 150 million persons now own stock or other financial instruments andnearly one third of those trade on their own account, making use of thefacilities offered by the internet. This has led to much more efficient andtransparent markets and capital allocation.

So, the astonishing performance of the U.S. economy compared with the rest ofthe world is by no means some strange, unexplainable mystery. It should bea clear and unambiguous message to economies, economists, and politiciansstill counting on statist controls for solutions to problems that they and afew oligarchical families sponsoring them - whether in Europe, Asia orLatin America - have created.

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