A Guide For The Confused

Economists at the Hong Kong office of Goldman Sachs predict that output (gross domestic product) in 1998 will shrink 5 percent in Indonesia, nearly 3 percent in South Korea and 1.5 percent in Thailand. Growth in China stems mostly from more efficient factories; it won't prevent rising unemployment. The Goldman Sachs economists figure that joblessness could jump 10 million in 1998 from the streamlining of China's state-owned enterprises. Somehow, more output and fewer jobs seems unhealthy. Meanwhile, the White House wants Japan to spur its economy by cutting taxes or increasing spending by up to $80 billion. Skepticism abounds that Japan will do much. Says Glen Fukushima, head of the American Chamber of Commerce in Japan: ""Many in Japan are pleased to say that because Japan is so weak, it cannot play a strong role in helping Asia recover.''

How will these crosscurrents interact? A continued U.S. boom would ease Asia's crisis by absorbing more exports, which--up to a point--would also dampen U.S. inflationary pressures. (In January, prices of non-oil imports were 3 percent lower than a year earlier.) But beyond some point, production would suffer in trade-sensitive industries: cars, steel, machine tools, computer chips, textiles. And Asia's full effects on U.S. exports remains to be felt. There are other hairline cracks in American prosperity. Economist Mark Zandi of Regional Financial Associates points out that credit standards for consumer lending (mortgages, home-equity loans, credit cards) have loosened in the 1990s. People borrow who couldn't a decade ago. Or they're borrowing more. Lower interest rates may arrest a rise in loan delinquencies and personal bankruptcies, but Zandi thinks that both could balloon when the economy weakens.

An irresistible force (the U.S. boom) and an immovable object (Asia's crisis) are colliding. I admit to a pessimistic bias: a suspicion that our boom is more fragile than it seems. High stock prices sustain strong consumer spending, which sustains high stock prices. The economy is vulnerable to a dip in either; profits could disappoint. I also admit that I've peddled this theory for a while, and so far it's a dud. Each phenomenon--the strength of our boom, the severity of their collapse--is outside recent experience. Economic guesswork is reaching gigantic proportions. The simple truth is that I have no idea what lies ahead. The larger truth is that neither does anyone else.

© 1998