<p>Bouncing back and forth only deepened my conviction that an important shift in the gravity of global economic power from the West to the East could well be at hand.<br /><br />It’s not just the Asian miracle that reinforces my belief in such a possibility. America has lost its way. In the years I was away, it has become a very different place. The despair of chronically high joblessness is sapping the nation’s sense of self and poisoning the political debate.<br /><br />Back in mid-2007, when I moved to Hong Kong, the US unemployment rate stood at just 4.6 per cent. Today, it is more than double that at 9.6 per cent. Nor is there much hope of a spontaneous resurgence of hiring that will temper the angst of this jobless recovery.<br /><br />Arrogance of power<br /><br />How could Asia get it so right, and the US get it so wrong? I suspect a good deal of the answer has to do with the arrogance of power. Long the dominant global power, America took its image for granted and its dominance as an entitlement. Asia, on the other hand, was far more humble. It learned painful lessons from a series of very tough experiences — the post-Cultural Revolution chaos of the Chinese economy, the post-bubble aftershocks of Japan, and the ravages of its own financial crisis in 1997-98. <br /><br />But Asia also benefited from a deep appreciation of the limits of policy. Stability became the mantra of the region — especially social and economic stability. Asian policies — fiscal, monetary, currency and regulatory — are all focused on avoiding the types of disruptions that have wreaked such havoc on America.<br /><br />Once that genie is out of the bottle, Asians are dubious of a policy fix. That is the lesson they take from Japan and now from the US. It is a lesson that keeps Asian authorities committed to a preemptive approach in avoiding major threats to stability.<br /><br />China is an obvious and important case in point. Hit hard by the collapse in global trade in late 2008 and early 2009, Chinese authorities implemented an aggressive proactive fiscal stimulus to counter the functional equivalent of a full-blown recession.<br /><br />Yes, there were serious consequences of those actions that have also had to be addressed — namely, deteriorating loan quality of a bank-funded infrastructure stimulus and a liquidity driven bubble in high-end residential property markets. But Chinese authorities wasted little time in dealing with these aftershocks as well.<br /><br />Significantly, China’s regulators have been quick to build firewalls between the real economy and distressed bank lending and asset markets. That stands in sharp contrast with the approaches in Japan and the US, where asset and credit bubbles were condoned and allowed to infect the real side of their respective economies with devastating and lasting aftershocks.<br /><br />America, on the other hand, has yet to get it. The great debate over yet another stimulus is dominating pre-election posturing in Washington and Wall Street. Implicit in this debate is the presumption that the first stimulus — all $787 billion of it — was actually too small to jump-start a classic recovery. Up the ante, goes the argument, and the economy will finally heal.<br /><br />Don’t bet on it. The lessons of Asia should give considerable pause for thought in accepting that premise on blind faith. As Japan’s experience suggests, post-bubble economies have an extremely tough time achieving policy traction. If Japan’s debt-to-gross domestic product ratio of 200 per cent can’t pull its economy out of the quagmire, why should America be any different?<br /><br /></p>
<p>Bouncing back and forth only deepened my conviction that an important shift in the gravity of global economic power from the West to the East could well be at hand.<br /><br />It’s not just the Asian miracle that reinforces my belief in such a possibility. America has lost its way. In the years I was away, it has become a very different place. The despair of chronically high joblessness is sapping the nation’s sense of self and poisoning the political debate.<br /><br />Back in mid-2007, when I moved to Hong Kong, the US unemployment rate stood at just 4.6 per cent. Today, it is more than double that at 9.6 per cent. Nor is there much hope of a spontaneous resurgence of hiring that will temper the angst of this jobless recovery.<br /><br />Arrogance of power<br /><br />How could Asia get it so right, and the US get it so wrong? I suspect a good deal of the answer has to do with the arrogance of power. Long the dominant global power, America took its image for granted and its dominance as an entitlement. Asia, on the other hand, was far more humble. It learned painful lessons from a series of very tough experiences — the post-Cultural Revolution chaos of the Chinese economy, the post-bubble aftershocks of Japan, and the ravages of its own financial crisis in 1997-98. <br /><br />But Asia also benefited from a deep appreciation of the limits of policy. Stability became the mantra of the region — especially social and economic stability. Asian policies — fiscal, monetary, currency and regulatory — are all focused on avoiding the types of disruptions that have wreaked such havoc on America.<br /><br />Once that genie is out of the bottle, Asians are dubious of a policy fix. That is the lesson they take from Japan and now from the US. It is a lesson that keeps Asian authorities committed to a preemptive approach in avoiding major threats to stability.<br /><br />China is an obvious and important case in point. Hit hard by the collapse in global trade in late 2008 and early 2009, Chinese authorities implemented an aggressive proactive fiscal stimulus to counter the functional equivalent of a full-blown recession.<br /><br />Yes, there were serious consequences of those actions that have also had to be addressed — namely, deteriorating loan quality of a bank-funded infrastructure stimulus and a liquidity driven bubble in high-end residential property markets. But Chinese authorities wasted little time in dealing with these aftershocks as well.<br /><br />Significantly, China’s regulators have been quick to build firewalls between the real economy and distressed bank lending and asset markets. That stands in sharp contrast with the approaches in Japan and the US, where asset and credit bubbles were condoned and allowed to infect the real side of their respective economies with devastating and lasting aftershocks.<br /><br />America, on the other hand, has yet to get it. The great debate over yet another stimulus is dominating pre-election posturing in Washington and Wall Street. Implicit in this debate is the presumption that the first stimulus — all $787 billion of it — was actually too small to jump-start a classic recovery. Up the ante, goes the argument, and the economy will finally heal.<br /><br />Don’t bet on it. The lessons of Asia should give considerable pause for thought in accepting that premise on blind faith. As Japan’s experience suggests, post-bubble economies have an extremely tough time achieving policy traction. If Japan’s debt-to-gross domestic product ratio of 200 per cent can’t pull its economy out of the quagmire, why should America be any different?<br /><br /></p>