TEXT OF COMMENTARY
KAI RYSSDAL: Nothing like a little federal bailout to get people talking about giant cracks in the financial system. The news this morning that JP Morgan and the Federal Reserve Bank of New York are going to prop up Bear Stearns got everybody’s attention. It was the collapse of two Bear Stearns hedge funds last spring that started the subprime ball rolling toward recession. Usually when the U.S. economy slides, so slides the rest of the world.
Commentator Robert Reich says that’s not gonna happen this time, thanks to China and the Middle East.
ROBERT REICH: Much of the Middle East is swimming in oil money, petro-dollars, while China has built up its own huge stock of savings, call them sino-dollars. These petro-dollars and sino-dollars aren’t just sitting there in the Middle East and in China. They’re being put to work building new infrastructure in both places: skyscrapers, power plants, power grids, roads, ports. And building middle classes that, while still relatively small, want all the things middle classes in advanced nations want: cars, refrigerators, houses, and lots of stuff to fill those houses.
All this spending on infrastructure and by emerging classes, in turn, is pulling in resources, goods and services from the rest of the world, especially from other emerging economies.
This means the world’s developing nations are no longer nearly as dependent as they used to be on the United States and other developed nations to keep themselves going. Consumer spending is rising almost three times as fast in developing nations as in rich nations. Real capital spending is rising by double digits there, while it’s rising only a bit over one percent a year in rich nations. And emerging economies’ trade with each other is rising faster than their trade with richer nations.
Is this decoupling of emerging from developed economies good news for America? Well, yes and no. Yes, to the extent that even as we fall into recession, developing nations will continue to demand our exports and generate good returns for American investors. But in another way, not such good news, because it means the price of many things we buy from developing nations, especially raw materials like oil, will continue to be high because of high demand there, notwithstanding a recession that reduces demand here. China’s ever-increasing need for Middle East oil, for example, is pushing up its price, and contributing to our slump.
KAI RYSSDAL: Robert Reich teaches public policy at the University of California Berkeley.
His most recent book is called “Supercapitalism.”