An America more like China, and vice versa
The Hollywood hit Confessions of a Shopaholic tells the story of a shopping addict who finds love and learns frugality in these economically trying times. It has an uplifting moral for American consumers who suddenly discover the joy and virtue of thrift.
But the comedy may turn out to be a horror show for everyone else. For if Americans have turned their backs on the greatest shopping binge the world has known, where are exporting countries such as Japan, China and Germany going to sell their products?
Economists and policymakers have long recognised the profound imbalances in the world economy, even before the current crisis. The global recession has forced painful readjustments, for example, by forcing Americans to save more and Chinese to boost domestic spending. The current account surpluses of high-saving and export-oriented nations have all been shrinking while America's current account deficit is falling. There is, however, no guarantee this will continue.
The promised land of a sustained recovery around the world is one of rebalanced growth based on private demand, which replaces government stimulus or spending. But to get there, a number of things have to happen, such as continuing the narrowing of the current account gap between the high savers and the reformed big spenders.
One reason why global stock markets, led by Shanghai, fell out of bed at the beginning of last week was because of recurrent doubts about the strength of the economic recovery and the adequacy of government responses around the world. Wall Street took a plunge because the numbers for consumer confidence were not picking up as strongly as predicted. Shanghai was worried that Chinese bank lending would be curbed. Many investors, apparently, were still hoping for a return to the past and for the party to resume.
Later in the week, the bulls regained lost ground. They point to figures showing Japan, France and Germany have returned to growth. China's output grew at a spectacular annualised rate of 16 per cent from April to June. US Federal Reserve chairman Ben Bernanke made his most optimistic assessment on the US economy on Friday, helping to send the Dow Jones index up more than 155 points. But unless the major economies are truly committed to making the changes that are necessary to reorient themselves, the world's recovery rests on fragile ground. The current crop of green shoots needs to be sustained and nourished by more than just government-induced liquidity.
Key policymakers recognise what they need to do, but it is not clear they will succeed. White House economics director Larry Summers recently said the US economy needed to become more export-oriented rather than consumption-based.
Beijing is building social safety nets in education, health care and housing so ordinary households can spend more rather than save for a rainy day. The jury is still out on whether Japan and Germany - or for that matter, China - intend to revamp their export-oriented growth strategies.
In the best economic scenario, America would be more like China and China more like America. Whether or not that will ever come to pass is difficult to predict. Perhaps filmmakers from high savers like Germany and China should jointly produce another comedy, to be titled Confessions of a Workaholic, about a hero who learns to produce less and shop more.