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 Recent commentary from National Journal: Media: The Social X-Ray (May 6, 2003) The flap over over Rick Santorum's remarks about homosexuality shouldn't be lamented, but welcomed. By William Powers. Legal Affairs: Santorum on Sex: Where the Slippery Slope Leads (May 6, 2003) Santorum's remarks are more plausible as legal analysis than most critics have acknowledged. By Stuart Taylor Jr. Political Pulse: The Turbo-Charged Challenger (May 6, 2003) In attacking Bush's tax cuts, Gephardt is betting the economy will remain the nation's top concern. By William Schneider. Media: A Great Grubby Festival (April 28, 2003) In the great, grubby festival of news, we've slipped back to Situation Normal. Is that so bad?. By William Powers. Social Studies: With His Tax Cuts, Bush Pre-empts the Future (April 28, 2003) Bush is a time bandit, encouraging rather than taming politicians' natural tendency to embezzle from the future. By Jonathan Rauch. Political Pulse: The Wide Partisan Divide (April 28, 2003) Republicans and Democrats are much further apart on this president than on his father in 1991. By William Schneider. Legal Affairs: The U.N. Is Often Grotesque, but We Need Its Help (April 28, 2003) The presence of U.N. inspectors would help allay suspicions that the U.S. is planting phony evidence. By Stuart Taylor Jr. More from National Journal. |
Wealth of Nations 
A Struggling Economy? It Depends on Your PerspectiveMost nations would be only too grateful to have America's current set of economic problems by Clive Crook .... Anybody inclined to feel disappointed by America's current economic performance might find it a useful pick-me-up to look abroad. America may be worried that it faces a spell of jobless growth, but jobless growth is still growth. Europe—and especially Germany, hitherto the Continent's economic powerhouse—is falling further into recession. Japan, once seen as the country that would challenge the United States for global economic supremacy, has been stagnant for a decade and shows no sign of reviving. Most nations would be only too grateful to have America's current set of economic problems. How the world arrived at this pattern of economic performance is striking. Economists tend to have a puritan cast of mind, setting great store by virtues such as prudence, self-restraint, and taking the long view. Economies, they believe, should always exhibit "sustainability." It is right, in this moral universe, that excess must give way in due course to remorse, that reckless risk takers should get their brutal comeuppance, and, in general, that bust should follow boom. But the world does not seem to work this way. In the 1990s, America had a prolonged bout of wild optimism, colossal overinvestment, and surging debt-financed consumption. This was followed not by the wrenching depression that the canons of economic fair play seemed to demand, but by the briefest and mildest of recessions. Europe and Japan, meanwhile, had no binge in the 1990s to compare with America's, no great surge of growth and incomes, and far less exuberance, irrational or otherwise. And the reward for this commendable sobriety? The feeblest of expansions, with slower growth, and, in Europe's case, far higher unemployment than in the United States. Perhaps sobriety is overrated. Or maybe the policies and arrangements that are conducive to spells of rapid growth are the very same policies and arrangements that cushion downturns when they come along. This happy creed is far removed from orthodox economic puritanism, but it seems to be true nonetheless. New global forecasts just released by economists at the Organization for Economic Cooperation and Development, the Paris-based intergovernmental think tank, drive the point home. The figures underline just how much better America is doing, despite the bursting of its dot-com bubble, than any of its principal economic competitors. Bouncing back from the shallow recession of 2001, American output grew by 2.4 percent last year; it is projected to rise by 2.5 percent this year, and by a strapping 4 percent in 2004. Employment failed to grow in 2001 and fell by 1 percent in 2002; but the forecasts say it will rise by 0.6 percent this year and by nearly 2 percent in 2004. That would be enough, first, to stabilize the unemployment rate, at just under 5.8 percent, and then to put it on a gently falling trend. Compare this with Germany. Output there grew by just 0.2 percent last year and is expected to rise by only another 0.3 percent this year. In 2004, when America is expected to be growing at 4 percent, Germany will be growing at less than 2 percent, according to the OECD's forecasters. German employment fell by 0.6 percent in 2002, not as bad a drop as America's 1 percent decline. But employment in Germany is expected to fall another 1 percent this year, compared with the expected rise of 0.6 percent in the United States—and then to be static in 2004, compared with America's rise of nearly 2 percent. As a result, Germany's unemployment will stay stuck at well over 8 percent of the labor force. If that does not work for you, try Japan. After years of stagnation, its output rose only 0.3 percent last year, fully 2 percentage points less than growth in America. The OECD expects Japan's growth to be 1 percent this year and about the same next year. In other words, the gap between America and Japan will widen further. Employment in Japan continues to trend downward. It fell by 0.2 percent in 2000, 0.5 percent in 2001, and 1.3 percent last year. It is predicted to fall another 0.6 percent this year and another 0.2 percent in 2004. The unemployment rate is now 6 percent—extraordinarily high by Japanese standards, and greatly understated as well, because much of Japanese unemployment is disguised—with no sign yet of topping out. In some ways, this divergence in the post-bubble global recovery is even more startling than were the gaps of the late 1990s. America raced ahead back then, but one expects America to race ahead from time to time. The other countries should now be catching up. Instead, they are falling further behind. This is not to say that all is well with the American economy. People and firms are financially overextended. Over the next year or two, consumption needs to grow moderately—but in an orderly way, not too abruptly. Business investment then needs to pick up. The data show signs that this is happening, but it is best to take nothing for granted. Until the mix of output and demand has completed that necessary transition, the American economy is also vulnerable to other risks. The current-account deficit, which must be financed by borrowing from abroad, remains massive. This exposes the dollar to the danger of a further sharp devaluation; if that went too far, it could spur inflation and oblige the Federal Reserve to start raising interest rates again. The administration, in addition, has embarked on a dangerous course of heavy borrowing: Projected deficits will stay large even after the economy has fully recovered from its slowdown. That will keep long-term interest rates higher than they should be. So the United States is not free of economic risk or errors in economic policy. What is remarkable is that, bubble or no bubble, the downside risks—not to mention the mistakes in economic policy—are so much larger in the world's other big economies. Where is the justice? There is a paradoxical aspect to this. It seems wrong—a typical piece of self-serving capitalist propaganda—to argue that the best way to keep unemployment low, for instance, is to make it easier to fire people. That is what labor-market flexibility really means. Yet the contrasting experience of America and its competitors shows that this is in fact the case. Policies that make it harder to fire people in downturns make companies reluctant to hire during recoveries. An unimpeded labor market lets companies seize opportunities for growth more readily, and cushions them against downturns in demand. People may be laid off more often, but they are rehired more speedily as well. The net effect appears to be not only higher growth and lower unemployment over the course of the cycle, but also—more surprisingly—smaller setbacks in output and employment as the cycle responds to bad news. What goes for the turnover of workers also goes for the turnover of corporations. By international standards, America has high rates of corporate bankruptcy. But it also has high rates of new business start-ups. The important and unexpected point is that the one goes with the other. Europe's labor-market policies, and Germany's above all, are notoriously obtuse. Heavy regulation of the terms of hiring and firing is increasingly recognized, even in Germany, as inimical to success. Think tanks and commissions of inquiry have come up with assorted reforms—but the German government has been slow to act. Japan has its own approach to throttling its labor market, based on corporate culture as well as on actual regulation. And Japan's reluctance to embrace economic flexibility—and the creative destruction that inevitably comes with it—goes a long way toward explaining its continuing financial paralysis. The bottom line for all of the world's economies is long-term growth in productivity. Combined with projections for labor-force growth, this yields predictions for growth in potential output. In presenting their new forecasts, the OECD's economists take a stab at estimating such growth for all the major economies. They reckon that growth in potential output will be 3.1 percent for the United States between 2005 and 2008, down just a shade from the 3.3 percent estimated for 1996-2004. All except the most fervent new-economy types ought to find that impressive. But see just how impressive: OECD expects Germany's potential output to grow by just 1.5 percent in both periods; Japan's by 1.3 percent in 1996-2004, and 1.1 percent in 2005-08. And Americans think their economy is in trouble.
What do you think? Discuss this article in the Politics & Society conference of Post & Riposte. More from National Journal. More on politics and society in Atlantic Unbound and The Atlantic Monthly. Clive Crook is a columnist for National Journal and the deputy editor of The Economist. This column appears every week in National Journal, a weekly magazine covering politics and government published in Washington, D.C. For information on National Journal Group publications, see NationalJournal.com. Copyright © 2003 by The Atlantic Monthly Group. All rights reserved. |
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