An occasion for redo economics

Mr. Summers may have left Harvard, but he has not lost his edge.

THREE MONTHS AGO, I was able to write in this space that, in economics, "the main thing we have to fear is the lack of fear itself." This is no longer true. With clear evidence of a crisis in the subprime U.S. housing sector, risks of its spread to other credit markets, sharp increases in market volatility and signs of slowing economic growth, there is enough apprehension to go around.Although it would be premature to predict a U.S. recession, there are now strong grounds for suggesting that the U.S. economy will slow significantly in 2007. Whether, in retrospect, 2007 will prove to have been a "pause that refreshed" nearly a decade-long expansion (like the growth slowdowns in 1986 and 1995) or whether it will end that expansion is not yet clear.What is clear is that the global economy has been relying on the U.S. as an importer of last resort; that the U.S. economy has been relying on the consumer for its primary impetus, and that until now consumers have been enabled and encouraged to spend their incomes fully or more than fully by their ability to access the wealth in their homes.This growth syllogism has appeared fragile for some time, but American consumers have kept spending even after the housing market peaked. And foreigners, particularly those in the official sector in Asia and the Middle East, have continued financing the United States, on very attractive terms, as it imported nearly 70% more than it exported.


Los Angeles Times: An occasion for redo economics