The growth of America's economy recently began to slow in response to the nation's tighter monetary policy. Now there is the question whether it will slow down too dangerously and cause a recession -- not only in the U.S., but also in Europe and Asia. RFE/RL correspondent Andrew F. Tully reports.
Washington, 28 December 2000 (RFE/RL) -- U.S. President Bill Clinton has been differing recently with his elected successor -- George W. Bush -- over the state of the American economy.
Bush sees what he calls "warning signs" that the recent economic slowdown could be dangerous. Clinton and his allies say the economy has simply moderated to a more acceptable level of growth. And they accuse Bush of pandering to Americans' recent concerns about the nation's financial health.
For the past few years, the U.S. economy had been growing at a high rate -- at least 4 percent a year. Most leading economists believed that rate of growth was unsustainable. They included Alan Greenspan, the chairman of the Federal Reserve Board, America's central bank.
Unsustainable growth can suddenly exhaust itself and collapse into economic recession -- in which the economy shrinks rather than grows. It can also cause inflation. To moderate this growth, the central bank has gradually raised interest rates since June 1999. This makes money more expensive, thereby curbing spending by consumers and businesses.
In the past two months, there has been evidence that raising interest rates had worked: The American economy's growth has finally slowed to a more sustainable annual rate of about 3 percent.
But that has led Americans to become less confident in the economy, which could slow the economy even further. And economists say that could be bad news not only for the U.S., but for Europe and Asia as well, because Europe and Asia are so economically dependent on America.
Economic analysts are split on whether Bush is merely playing politics with the American economy.
Barry Bosworth, a widely published economist, says Bush's observations are -- as he put it -- "largely political." In an interview with RFE/RL, he concedes that during the past two months, the American economy slowed surprisingly abruptly.
"But people should remember that that was the objective of monetary policy, and Mr. Greenspan in particular. And if it's too much for them, all they have to do is reverse some of the interest-rate increases that they undertook in prior months."
Bosworth says consumers and businesses alike will respond to lower interest rates by spending more on goods and services -- and the economy will resume growth.
But another economist -- Claude Barfield of the American Enterprise Institute, a Washington thinktank -- says the abruptness of the recent slowing of the economy surprised many analysts. Therefore, he says, Bush's concern is probably justified. Still, Barfield says he does not expect a recession in the foreseeable future.
Stephen Moore is an economist with the Cato Institute, another Washington thinktank. He told RFE/RL that he foresees no recession soon, but he adds that several months of slower growth could be painful in America.
"For Americans, that's going to feel like a recession because we've been so accustomed to 4 percent growth now. We've had four years of 4 percent growth."
Bosworth, Barfield and Moore agree on one thing: If a slower economy feels like a recession to Americans, it will feel far worse to some nations in Europe and in Asia.
Bosworth says many countries rely too heavily on exports to the U.S. He says businesses in these countries do not have enough domestic customers to sustain them, so they rely on the American market. Bosworth says this is less true of nations in Europe and more true of those in Asia. In fact, he says, the surging American economy was the most effective factor in ending the Asian economic crisis of the late 1990s.
Therefore, Bosworth says, even a moderate drop in the rate of growth of the American economy can mean trouble for other nations.
"I think a slowdown in the United States is not good news for the rest of the world. I mean, it weakens one of their major markets."
Bosworth says these nations should work harder to develop their domestic markets so they will not have to rely so heavily on American customers.
Barfield agrees, and he adds that not all European and Asia financial experts believe that they would benefit in the long run if the American economy is growing at an unsustainable rate. Barfield told RFE/RL that would risk a recession -- known in America as a "hard landing" from a high-flying economy.
"I think that the more sensible economic leaders both in Asia and in Europe realize that if this gets out of control and you do have a hard landing, they would be worse off."
Moore cited what he called the "old clich" of economists that when America catches a cold, the rest of the world contracts pneumonia.
Like Bosworth, Moore says it is time for the countries of Asia and Europe -- particularly those of Asia -- to develop more domestic customers and not rely as much on America to keep them economically healthy.