-Caveat Lector- The Outlook (Wall Street Journal) Feb. 1, 1999 DAVOS, Switzerland -- "Responsible Globality" is the official theme of this year's World Economic Forum, which has brought to this snow- smothered Alpine village a remarkable collection of celebrities, from Nelson Mandela to Bill Gates. While no one can say exactly what "globality" means -- the spell check on Mr. Gates's Microsoft Word program refuses to acknowledge the term -- it suggests we are all in the same boat. But a sampling of the discussions here about the state of the world economy makes clear that there are really two boats: One carries most of the nations of the world and is sputtering under the burden of a global financial crisis. The other holds only the United States and speeds through the choppy waters as if nothing much has happened. Last fall, Federal Reserve Board Chairman Alan Greenspan opined that the U.S. can't remain an "oasis of prosperity" while the rest of the world languishes in the dumps. Since that time, the Brazilian currency, the real, has collapsed, threatening to drag all of America's southern trading partners into recession. Asia remains stalled. Eisuke Sakakibara, Japan's vice minister of finance, predicted here that his nation's economy has "bottomed out," only to have his U.S. counterpart, Lawrence Summers, remind the group that Japanese officials had said something similar at each of the past seven Davos conferences. Even Europe, the only other significant source of growth in the world economy, is now struggling. "We see a sharp slowdown in economic activity since August," said Heiner Flassbeck, Germany's top international financial official. But the U.S. goes blithely on its way, undaunted by the problems of the world and inured to its own political crisis. U.S. consumers continue to spend more money than they earn, buoyed by a stock market that drives share prices higher than any reasonable estimate of earnings can justify. Friday's announcement that the U.S. economy grew at a 5.6% rate in the fourth quarter sent analysts once again scurrying to mark up their forecasts for the coming year. Much of the discussion here has circled around the question of whether the U.S. economy generally, and the U.S. stock market more particularly, is merely a bubble that will soon burst. The presence of Jeff Bezos, chief executive of Amazon.com, did nothing to discourage countless references to insanely highflying Internet stocks, including a suggestion from Mr. Summers that Brazil might solve its problems by renaming its currency "real.com." C. Fred Bergsten, who runs an economic think tank in Washington, predicted that this irrational exuberance would soon end, with a 20% to 25% market correction. (Mr. Bergsten encapsulates the main drawback of the Davos conference. Asked in a casual hallway conversation if he was "learning anything," Mr. Bergsten responded: "I'm here to impart knowledge." So, too, were most of the other conferees.) Even more intriguing was the discussion of what happens if the U.S. keeps growing while the rest of the world stagnates. With U.S. consumers alone at the shopping mall, one result is certain: U.S. imports will surge, U.S. exports will shrink, and the nation's trade deficit will swell to magnitudes not seen since the early 1980s. The dangers of that situation were laid out by Vice President Al Gore, who surprised his audience with an unusually thoughtful and eloquent speech on the global economy. "America cannot be the importer of only resort," he warned. Growth in the rest of the world "is essential if we are going to prevent the financial crisis of 1998 from becoming the trade crisis of 1999." For his part, Mr. Gore restated a commitment to global free trade, and he issued a new call for a reduction in world agricultural tariffs. Meanwhile, U.S. Trade Representative Charlene Barshefsky met with her counterparts from other nations to push for a new global round of trade negotiations. But the fuss over steel imports, much noted here in Davos, underscores how difficult it will be to win congressional support for that agenda while the trade deficit is swelling. Some analysts also warned that giant trade deficits could wreak havoc on currency exchange rates. More than one Davos conferee reminded the group of the experience of the mid-1980s, when accumulating current-account surpluses led a soaring U.S. dollar to drop by half. U.S. Treasury Secretary Robert Rubin echoed the views of others when he told the group: "The international system cannot sustain indefinitely the large imbalances created by the disparities of growth and openness" between the U.S. and the rest of the world. For all the hand-wringing here, though, it's still hard to escape the sense that the U.S. is the envy of the world. The unbounded optimism of American consumers, businessmen and investors may be exaggerated, but it is not wholly without reason. A remarkable surge of technology-induced productivity is helping to lift the economy. Moreover, if problems do arise, the government is in better shape to deal with them than it was in the 1980s, when large budget deficits and fears of inflation restricted its ability to act. If the U.S. economy stalls, the Fed and the Treasury have the tools to get it going again, with interest-rate cuts and possibly even tax cuts. And that means the longest peacetime economic expansion in American history may still have a few more years left in it. --Alan Murray Copyright (c) 1999 Dow Jones & Company, Inc. All Rights Reserved. DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! 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