Working Papers

Anglo-American Outperformance

The Anglo-American economies are outperforming in the current global economic downturn, as Chris Dillow observes:

The “Anglo Saxon” model - lightly-regulated financial markets and high debt - makes their economies unusually vulnerable to boom and bust…

This has become conventional wisdom. Today’s figures, though, seem to contradict it. They show that euro zone fell 1.5% in Q4 (6% annualized!), as much as it did in the UK and more than in the US. With next week’s figures likely to show a huge fall in Japanese GDP, this means that the major “non-Anglo” economies are doing at least as bad as the US and UK.

As Chris notes, this is partly due to the exposure of the non-Anglo-American economies to highly cyclical manufacturing industries.  However, the importance of manufacturing to these economies is itself a function of the mistaken strategic industry and trade policies pursued by these countries.

The cyclical outperformance of the Anglo-American economies reflects their structural outperformance, which affords them higher trend growth rates around which their economies cycle.  Japan’s trend growth rate of around 1.5%-2% is so low that it takes only a modest downturn to throw its economy into recession, which is why Japan experiences so many of them.

Fiscal stimulus packages and other interventionist policy responses in the Anglo-American economies will undoubtedly hurt their structural performance.  However, these polices are no worse than those being pursued elsewhere, so the Anglo-American economies and asset markets still have scope to outperform in the context of the current downturn.

It should not be surprising then that those who followed the asset allocation advice of some of the leading permabears are now seeing their portfolios underperform.

posted on 14 February 2009 by skirchner in Economics, Financial Markets

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Er, but the “Anglo Saxon” model of lightly-regulated financial markets and high debt created the whole freakin’ problem!  Sure, the big manufacturing/exporting nations (Germany, Japan, and yes China) are being hit hard but this is hardly a vindication of the low-regulation, big debt model.  Germany would be fine today if the Anglo-American credit bubble had not exploded.

I know of one South-Pacific economy that’s very exposed on the even more cyclical resources sector, that’s currently engaging in a lot of self-congratulation on avoiding the global recession.  Meanwhile, Asian trade has collapsed and they’re getting reading to play hardball in mineral contract negotiations.

Japan’s trend growth is so low because their bubble economy exploded in the late 80s and they’ve been in a balance-sheet recession ever since.  The same script that the U.S. seems determined to follow today.  Japan’s trend growth in the 1980s looked pretty-damned healthy!

Fiscal stimulus packages and other interventionist policy responses in the Anglo-American economies will undoubtedly hurt their structural performance.

“Deficit spending will be absorbed into the financial sinkholes in private sector balance sheets and will not become effective until those holes have been filled”.

Great quote from this: No ordinary recession

Here’s another:

the American ideological taboo against “nationalisation” also stands in the way of dealing with the matter in the straightforward way that Sweden did. The present administration, like the last, would like to recapitalise the banks at least partly by attracting private capital. That can hardly be accomplished as long as the value of large chunks of the banks’ assets remains anybody’s guess.

Posted by .(JavaScript must be enabled to view this email address)  on  02/15  at  05:35 PM

Japan GDP: -3.3% for Q4 or 12.7% annualised.  Wow!

A slump in external demand was the main culprit behind the historic contraction

That floating currency is really working for the Japanese eh?!

Oh, isn’t Japan like, Australia’s major export market?  Never mind, we’ll just re-inflate the credit bubble, and start furiously selling houses to each other.

Posted by .(JavaScript must be enabled to view this email address)  on  02/16  at  12:45 PM

Q1 industrial production in Japan is expected to decline as much as 20% q/q, so Q1 GDP could be even worse than Q4.

Posted by skirchner  on  02/16  at  04:36 PM

Seriously?  20% q/q, not annualised?  That really is depression territory.

Ok, so if Japan is in depression.  Korea and Taiwan are falling off a cliff.  Singapore and Hong Kong are in recession, Thailand and Malaysia are probably in recession, yet we are expected believe the Chinese economy is still growing at 7%.  We are also expected to believe that despite the economic cataclysm across Asia, Australia will escape with a mild downturn.

Posted by .(JavaScript must be enabled to view this email address)  on  02/17  at  09:32 AM

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