> The U.S. stock market is now trying to find its
> footing, though the rest of the world had a
> seizure while our markets were closed yesterday.
> Watching that, I though - so much for decoupling.
As I understand it, the idea of "decoupling" is not about the financial markets, but about the business cycle. In the financial markets people adjust their positions much more quickly to changes in the environment than in the rest of the economy. That's why we can have an argument over how likely it is for a financial mess to lead to a recession in the U.S. Otherwise the financial mess and the recession would be one and the same phenomenon.
Marvin wrote:
> There's little evidence to suggest that China and
> other countries would be immune to a severe US
> depression - that their economic power would, in
> fact, as Patrick suggests, be strengthened relative
> to the US.
>
> The Chinese, Europeans and others don't appear to
> share his sanguine view that their economies have
> decoupled from the US, and that they would be the
> beneficiaries of a serious downturn in the world's
> largest market.
>
> The greater likelihood is for a universal contraction
> in growth and employment, and - particularly in the
> absence of left-wing parties - major social crises
> with potentially barbaric consequences.
What happens in the financial markets has a different economic impact on different countries. Even in the U.S., as Doug has been pointing out, whole and significant areas of the economy report to be in good spirits. I was just looking at the tables of the NABE's business survey and this much is clear. To judge by that survey, the mess in the markets is the mess of the financials and them alone.
Yes, their plight is amplified by the media. They have Bernanke's ear. Etc. But not all banks are money-center banks of the type that move global financial markets. There are many small and medium-size U.S. banks that cater to retail and manufacturing that didn't join the subprime party and are not under the same kind of pressure as Citi or Merrill Lynch. The issue, of course, is whether those banks and their clients are sufficiently "decoupled" from the housing mess, the financial market mess, etc. -- and constitute a critical mass to offset them.
Even in highly interdependent and complex systems, each part has its own dynamics. They don't all just move in tandem. So, yes, the world economy has become more interdependent and complex, but the BRICs (Brazil, Russia, India, and China) have economic structures different from those of the U.S. or the EU. To mention one thing, if China and India continue to build their industrial infrastructure (and they have the resources to undertake this), commodity prices may remain high. And, as a result, commodity exporting countries may stay in the game for longer. That could contribute to shift economic power. In any case, it's not far-fetched to think that the BRICs may have now what is needed to keep themselves from being dragged down by the U.S. and EU economies.
That said, the case for the relative decline of the U.S. in the world economy goes beyond the decoupling of business cycles. It is based on more fundamental trends -- e.g. globalization-driven convergence, demographics, culture, technology, and broader shifts in the distribution of global (human and physical) wealth.