THE IDEAS EXCHANGE: ECONOMIC VIEW - America Still Has the Drive to Build More Success Stories ; Last Week's Catastrophe Could Spur the Dynamic Country into More Technological Innovations
McRae, Hamish, The Independent (London, England)
Everything has changed. All those precise calculations about the direction of world economic demand, the worries over the euro or the Japanese banking system; they all seem so utterly unimportant now. The world economy will be profoundly affected by this blow to its largest component, but in ways we can largely only guess.
We can be almost certain there will be damage in the short term, with an increased risk of a global recession. We can be sure too that some sectors of the world economy will be particularly depressed, and a few will experience increased importance. But beyond that, what?
The greatest question of all, surely, is whether this ends the period of US exceptionalism or indeed prolongs it.
It is hard to grasp by quite how far the US outpaced the rest of the developed world in the Nineties. That started the decade in recession and amid fears the US would be beaten in the economic race by Japan and Germany. Best sellers were written about the triumph of those two systems, with their reliance on banks rather than markets for finance and their stress on supposed long-term development of industry. Now we know that view was rubbish. Japan and Germany were not only the two worst-performing members of the G7 but both continue to be the worst now. Instead we saw a period of American triumph, reflected in the surge of US share prices and the dollar, as charted here.
These years were, in slightly lesser measure, a British success story too. Most people don't realise that real UK take-home pay for such diverse groups as factory workers, teachers and secretaries is now higher than in France, Germany or Italy.
But nothing, as we have so horrifically been shown, is forever. There is no inevitable reason why the US should continue to outpace other nations. Its success has been partly the result of Americans working harder, or at least longer, than Europeans, including ourselves, something most people would consider a negative aspect of American life. To be fair, it has also been partly because the US has significantly lower unemployment than much of the Continent, a negative aspect of European life.
But in the latter part of the past decade, two other factors came into play. One was that America was living beyond its means, its growth pumped up by consumer borrowing. The other was the speed with which the US embraced new technologies and used them to boost productivity.
That overspending was just starting to be corrected and there are sad reasons to believe it will now be corrected more swiftly. This is not the time to buy a new BMW. That will inhibit American growth in the near future, with the result that this may be the first year for a decade when the US grows more slowly than Europe.
But if the American lead in applying the new technologies is real and can be continued, US exceptionalism will be sustained. As it happens, an intriguing speech on this was made on Friday by Sushil Wadhwani, a member of the Bank of England's Monetary Policy Committee. He reviewed all the evidence and concluded that real gains in productivity had been made in the US and the UK as a result of the New Economy.
There are, Dr Wadhwani made clear, reasons to question the extravagant claims sometimes made for the New Economy gains, particularly since some enthusiasts claimed it would make recessions a thing of the past. …