Saturday, January 26, 2008

Andrew Leonard on decoupling

in this post:
"What seems remarkable at this juncture is that the decoupling thesis ever gained any traction in the first place. While it is undoubtedly true that Europe, the U.S. and Japan are no longer the sole pillars holding up the global economy, the fact that there has been a wide diffusion of economic vitality does not necessarily imply that the separate pieces now have separate destinies. If anything, the opposite is true.

Globalization is built not just out of the telecommunication and computer network linkages that make financial markets anywhere accessible from your iPhone. The bricks-and-mortar of global production supply chains have turned that iPhone into a product requiring the efforts of multiple nations and multiple companies. An earthquake in Taiwan affects Dell's quarterly earnings. High corn prices in Iowa lead to an expansion of soybean farming in Brazil. Bad investment bets by New York bankers lead to an infusion of funds from Singapore and Abu Dhabi and bankruptcies in small towns in Norway. In every direction one looks the linkages are multiplying.

The decoupling thesis suggested that if the U.S. stumbled, China could keep on running. It would be lovely if this were true. It is not a happy thought to think that the welfare of hundreds of millions of poor people around the world depends on the buying power of American consumers with maxed-out credit cards teetering on the brink of foreclosure. But the jitters visible in global markets this week tell us that when the king stubs his toe, everyone starts limping."

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