The Good News About the Recession

A recession may be upon us, which would mean fewer jobs, declining tax revenues, and sinking consumer confidence.

But for some (congenital Bush-bashers, the Irvine Housing Blog, critics of rampant consumerism), the parade of bad news is an occasion for schadenfreude. They enjoy seeing inhabitants of the formerly high-flying sectors that got us into the mess—real estate and Wall Street—being laid low. Others hold out hope that a recession will iron out distortions in the housing market, thus allowing them to move into previously unaffordable neighborhoods. Some econo-fretters hold out hope that reduced imports and the weaker dollar—both likely byproducts of a recession—will help close the trade deficit. And a few killjoys believe recessions can be morally uplifting. "High costs of living and high living will come down. People will work harder, live a more moral life," as Treasury Secretary Andrew Mellon put it in the disastrous aftermath of the 1929 crash and ensuing Depression. Not for him stimulus packages and enhanced unemployment benefits. "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." (Thanks in part to such comments, voters liquidated Republicans for a generation.)

Given this legacy, arguing that something good could come out of a recession would seem as cockeyed as, say, arguing that good things come from bubbles. But in this instance, if you delve deeply into the black economic clouds, it might be possible to detect a lining that looks a little like silver.

Lets assume for the next 500 words or so that we're in a recession. This is an odd moment in the global economy. In the past, a U.S. recession would have been really bad news for our trading partners. (When America sneezes, the world catches a cold.) This time around, it's likely to be marginally bad news. A recession will take a bite out of China's growth, but just a bite. Around the world, things are going gangbusters. In 2006, 104 countries grew at more than 5 percent, and most kept up that pace in 2007. None of the world's other major economies (save perhaps Japan) is in imminent danger of shrinking.

The juxtaposition of a shrinking U.S. economy with a continuing global boom should function as a wake-up call. Yes, we matter. But we don't matter nearly as much as we used to. Between 2000 and 2006, according to Goldman Sachs, America's share of global GDP fell from 31 percent to 27.7 percent. Last year, with the pace of U.S. economic growth lagging that of the world, the slippage continued. In January 2001, the New York Stock Exchange and NASDAQ accounted for 48.4 percent of the globe's stock market capitalization. In December 2007, by my calculation of data from the World Federation of Stock Exchanges, that proportion had fallen to 31.4 percent.

The world is running away from us. The volume of global trade in merchandise has been increasing rapidly. And it's not just the United States importing goods from China. It's China importing natural resources from everywhere and building infrastructure in sub-Saharan Africa, sub-Saharan Africa buying oil from the Persian Gulf, Dubai investors purchasing Indian real estate, Indian builders buying German engineering products and services, and German engineers buying toys made in China. With each passing day, an increasing number of transactions in the global marketplace do not involve the United States. We're still a powerful engine. But the world's economy now has a set of auxiliary motors.