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From the
February 2002 issue of
World Press Review
(VOL. 49, No. 2)
The
Global Economy
Cold Winter, Early Spring
Wolfgang
Uchatius, Die Zeit (liberal weekly), Hamburg, Germany,
Nov. 29, 2001
It’s
beginning to look a lot like the 1970s. Recession has staged
a comeback, dragging down the world’s major economies simultaneously.
Today’s open markets have spurred unprecedented growth
while exaggerating the effects of the decline.
It’s getting cold in Germany and throughout the world.
The United States, Japan, and Germany have fallen, for the first
time since 1974, into a simultaneous recession. The German government,
already on the defensive in the budget debate, is worried about
the next elections. The economic think tanks are lowering their
predictions for growth, and many economists are even forecasting
a depression like the one in 1929. In winter, people begin to
feel cold, and during recessions they get scared: That’s
what studies of previous crises show. Those who remain optimistic
and predict an upswing are in the minority.
But this is a minority that may, in the end, turn out to be
right. The economic pessimism reflects two serious shocks. The
New Economy had scarcely taken off when the dot-coms began to
go bankrupt. The Internet economy collapsed. The second shock
was Sept. 11. After that, who was willing to say that the economy
would not suffer harm? Suddenly, confidence in the world evaporated.
Self-respecting economic analysts are now pessimists. Anything
else would be old-fashioned. Old-fashioned? Nonsense, say the
Cassandras, who believe that economic forecasting has nothing
to do with the Zeitgeist and everything to do with numbers.
Anyone who believes that the crisis will not be bad had better
come up with some good, hard numbers.
Let us look at the facts, then. The reality is that Germany
is mired in a recession. The question is, how long will it last?
Another piece of the reality is this: According to estimates
by Morgan Stanley, the American investment bank, Americans in
recent years have accounted, directly or indirectly, for over
40 percent of worldwide economic growth. The boom in the United
States, the longest upturn in the past 150 years, has also pushed
profits up on the other side of the Atlantic. This means that
[German Chancellor] Gerhard Schröder was wrong when he
claimed that the German boom in 2000 was a domestic success.
And it means that he is now right when he says, in the midst
of this recession, that the fate of Germany’s economy depends
on the Americans.
More precisely, it depends on American consumers. For months
they kept the U.S. economy afloat despite the implosion of the
dot-coms. Until Sept. 11. After the attacks, consumer confidence
plummeted—and this has become the pessimists’ biggest
piece of evidence. Since American investors overinvested in
the Internet boom, they now must save. Again, consumers are
asked to take up the slack. But the pessimists neglect two American
names: CNN and [U.S. Federal Reserve Chairman] Alan Greenspan.
That the terror attacks and then the war in Afghanistan would
cripple spending is easy to grasp. Instead of continuing to
shop, Americans sat in front of their televisions—this
is the “CNN effect,” well known from the Gulf War.
Back then, when newscasters gave the all-clear signal, people
got up and went out again. The same thing seems to be occurring
again. The Taliban have been defeated, the government has cut
taxes, and the stock market is rallying. Consumer spending is
slowly creeping back up.
Another reason is that stores are offering shoppers interest-free
credit—thanks to Alan Greenspan. The head of the Federal
Reserve has reduced interest rates to the lowest level since
1961, and the banks are passing on the reductions to their clients.
The earlier in a recession that interest rates come down, the
better. History says that there is a link between how quickly
central banks react and the severity of economic crises. The
least-harmful recession in the United States since World War
II occurred in 1990-91.
At that time, Greenspan cut interest rates quickly, even before
the crisis really began. And he has succeeded in doing so again
this time. In January he cut rates—two months before the
economy slid into an officially declared recession. So an upturn
may well come soon. And such an upturn would be quickly felt
in Germany, not just because of rising exports to the United
States. The International Monetary Fund has determined that
the U.S. economy is even more influential than that. For German
corporations, its influence is so dominant that a better economic
climate there warms things up here, too. Experts refer to this
as the globalization of moods.
Pessimists who would rather look at the numbers here will find
that they are not all that bad. It is true that consumption
is weak and that capital investments and construction have collapsed.
But those numbers measure the past; they merely confirm the
known diagnosis of recession. Anyone wishing to know the duration
of the illness will have to rely upon other factors. Before
Sept. 11, there were already signs pointing to an early recovery
by the German economy. The shock of the attacks slowed this
down, but the process is still under way. In the meantime, the
stock indexes in Germany have rebounded to the levels seen at
the end of August. Investors, at least, believe in the upturn.
In addition, corporations here have not invested as wildly as
their U.S. counterparts. In the third quarter, they greatly
reduced inventories; consequently, they will be producing that
much more when demand rises. European central banks, too, have
cut interest rates, far more slowly than in the United States,
but credit here is cheaper. And if, as the chancellor has asked,
firms allow many workers to work shorter hours rather than laying
any of them off—so much the better. Consumer spending will
rise again at a faster rate if fewer people are laid off.
For further stimulus, perhaps the government ought to follow
the U.S. example and cut taxes. That is what many experts have
recommended. But they are overlooking the existing stimulus
at the gas pumps. World oil prices are now lower than they have
been in a long time. Since oil is the fuel that keeps the economy
running, both consumers and corporations are saving billions,
which they can invest. In the information-age economy, it may
sound old-fashioned to be talking about gasoline. But last year’s
gas-price hike in Euroland cost the community no less than 1
percent of total economic output. For now, oil will remain cheap—unless
war intervenes. History teaches us that a severe recession never
occurs when oil prices are falling. Soon the economy will probably
be warming up, in the world and in Germany. 
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