Monday, February 02, 2009
One of the very few benefits of living through the tumultuous period of the last couple years is that people begin to look around at other parts of the world and other periods in time to gain some perspective.
Sometime last year, U.S. economists began looking back past the last two recessions in 2001 and 1991 for comparable statistics, more often than not seeing a lower low during one of the two recessions of the early 1980s.
But, more and more, you hear that we've reached the lowest level since record keeping began back in the 1960s or 1950s with a few "worst in the postwar period" characterizations thrown in for good measure.
Perspective is important because, among other things, it provides some reassurance that the "end of the world" might not really be at hand, despite those who have already seen fit to throw in the towel (see Japan’s Economy Is Killing Far Too Many Japanese).
This chart from a Christan Science Monitor story earlier today gives a good long-term view of conditions in the U.S. over the last half-century or so and, when looking at things from this vantage point, you'd have to think that the reaction to recent economic developments is, more than anything else, an indication of just how soft we've become.
Based on what's happened so far in the current recession, we've clearly been through much worse before, but, the all-important questions is how much worse things might get due to the fundamental changes in the world economy during "The Great Moderation" (as it was once called) from the mid-1980s up until a year or so ago.
The CSM report provides some details about how things are different this time around.
Not long ago, the world economy overall was enjoying its fastest growth in modern times. The expansion of trade has meant expanding productivity rates and jobs, allowing most nations to grow faster than they could without such ties.We are just starting to see trade tensions develop around the world, a natural response by nations when growth slows and job losses mount.
But many nations relied on US consumer spending as an engine of growth. Now, as American households retrench, there is suddenly less momentum for growth abroad as well as at home. In the long run, economists say other nations must strengthen their domestic consumption to create a more balanced world economy. But that transition may not happen quickly, even if other governments join the US in fiscal stimulus efforts to counter the recession.
Global trade plummeted in the fourth quarter of last year. Those US consumers cut their demand for imports at a 16 percent annual pace.
The delicate US-China relationship faces new tension. As a presidential candidate, Obama pledged to take a tougher line on trade issues with China.
Officials in Beijing weren't pleased when US Treasury Secretary Timothy Geithner told senators at his confirmation hearing that China was manipulating its currency.
Vice President Joe Biden said on Thursday that the Obama administration had made no determination on whether China was manipulating its currency and would not make a unilateral attempt to block its exports.
In a phone call Friday, Chinese President Hu Jintao told Obama that he wanted to strengthen cooperation between the two countries to fight the global economic slowdown, China's Xinhua news agency reported.
Some economists say that it's legitimate for the US to work harder to end abuses of current trade law, with China topping the list of alleged offenders. But most economists also warn that a recession is a risky time for trade relations to fray. In the Great Depression, rising trade barriers deepened the downturn.
Like the near-term prospects for most economies around the world, these tensions are likely to get worse before they get better - maybe all countries need a little better perspective.