A provocative essay today by Morgan Stanley's chief economist makes clear that the Asian nations striking fear into many U.S. techies' hearts have plenty to be scared of themselves when it comes to the global economy. While American professionals worry about losing their jobs to lower-paid Indian and Chinese workers, Asian economies have come to depend too much on "the over-extended American consumer," writes Stephen Roach.
In China, for example, one-third of the country's exports now go to the U.S., Roach says.
"If the American consumer ever fades, Asia could be headed for serious trouble," Roach says in the essay, written from Seoul, Korea.
Such a fade seems entirely possible, according to the essay. Roach says U.S. consumer outlays have risen to a record 71 percent of the gross domestic product since 2002 versus a 67 percent norm over the 1975 to 2000 period. But "real private sector wage and salary disbursements are up only 5 percent in the first 39 months of this recovery versus a 15 percent average increase in the five previous cycles." In addition, he says, "debt service payments are near historical highs in an historically low interest rate climate."
What Roach calls "excess consumption" appears to be central to a U.S. trade imbalance: U.S. imports were 61 percent higher than exports as of February, Roach says.
Whether offshoring high-skilled work helps or hurts the U.S. economy has not been studied comprehensively. But it seems possible that the loss of middle-class jobs from sending tasks overseas could well dampen the consumer spending on which Asia heavily relies.
According to the essay, problems in Asia stem largely from the region's own workers lacking steady jobs and incomes: "Job and income insecurity is still a big deal throughout Asia," Roach writes. "In China, worker/consumer insecurities are exacerbated by the absence of a well-developed safety net, with little support from unemployment insurance, worker retraining programs, private pensions, and national social security."
Asian leaders appear unwilling to recognize the danger of depending so much on U.S. consumers, according to the essay.
"Most Asians react with sheer disbelief when I even dare to mention the possible demise of the American consumer," Roach writes. "Believe it or not, one client out here was so angry with me he actually tore my chart of the vanishing personal saving rate into tiny little pieces. Asians want to believe that the income-short, saving-short, overly indebted, asset-dependent American consumer will never stop spending."