Politics & Media
Jun 11, 2010, 08:14AM

Globalization and market downturn

Falling stock prices, high unemployment, it's all part of the cycle.

How does one maintain optimism in an economy that is currently defined by bailouts, panics, crashes and bankruptcies? An economy in which traditional power stocks such as Google and Microsoft are down nearly 20 percent from their 52-week highs, and modest efficiency businesses such as Campbell Soup and McCormick have experienced steady growth in the past year. People are cutting back, and luxuries that we once took for granted are no longer within the reach of many Americans. Although this decade may prove to be lost in terms of economic prosperity, I have not lost faith in our nation’s ability to cope with the most profound shocks to its financial system. It may not arrive as soon as we would like, but the rebound is inevitable.

The American economy has endured some of the most drastic financial shocks in human history, starting with the post-American Revolution debt and hyperinflation, then moving to the railroad scares of the late 19th century, the Great Depression of the 1930s, and ultimately the Internet and housing crises of the millennial era. However, the economy has stayed afloat through these fluctuations due to a certain embedded free-market ideal that lies at the very heart of American finance. This belief in laissez-fair economics has allowed The United States to become the very articulator of the global economy, as our fiscal and monetary actions ripple heavily within foreign markets. Our nation’s economic durability is the result of its deep integration into the new global system, allowing our economy to become more flexible, open, resilient, and self-correcting.

Take a walk through Baltimore’s Charles Village; you pass establishments such as Tower Cleaners, Gordon’s Florist, and Eddie’s Liquor. Maybe you just walk by, maybe you notice the nice window display, maybe you step inside, maybe you even make a purchase; the point is that few stop to ponder the fact that small free-market enterprises such as these comprise the unique identity of our domestic American economy. The competitive free market that operates within American borders today owes itself to two centuries of entrepreneurial trial and error. The American people and government alike have repetitively tried to maximize their profit through various monetary avenues; some have proved successful and others have proved disastrous. This process causes natural fluctuations within the market that lead to booms and busts. However, it is the persistence and experimentation of Americans with capitalism through private investment that has allowed such a productive economic system to emerge within The United States.

Globalization has transformed the foreign money market into a necessity for many nations today if they are to develop and continue to broaden their economic reach.  However, some nations are reluctant to involve themselves too deeply in foreign markets due to home bias and fear of fluctuations in foreign capital. The United States is not one of these nation; it has become the single largest foreign trader on the planet, holding over 47 trillion dollars in domestic financial assets. This deep integration into the global market has allowed our nation to lower its investment risk through diversification, and also to smooth consumption shocks through the Trade Balance.

How does this information apply to the current economic situation in the United States? Although the recession left over from 2008’s credit crunch is commonly thought to be over, there are still economic obstacles to be dealt with, such as the financial downturn on Wall Street of the past couple weeks and the dismal condition of the labor market.  However, these symptoms are not indicative of deep-rooted problems within the American economic system, but they rather show part of the natural cycle that this economy has ridden throughout its history. The economic growth and prosperity that we enjoyed throughout the 90s could only be maintained for so long before it had to be balanced out by forces such as bubbles and inflation.

The economic downturn of the past decade is simply a continuation and demonstration of the trial and error evolution of our economy. The dot-com and housing bubbles that have both popped in the past 10 years demonstrate the boom and bust nature of the American system. We are able to maintain such a volatile path due only to the durability of the American people, their willingness to persevere in the face of adversity, and the advantages that they reap from American financial openness to global partners.

We have experienced a period of economic Darwinism in the past decade; the shocks to consumption have weeded out the weaker and less necessary businesses. The American market is becoming leaner and more efficient than it has been in the past 15 years, and as the government begins to loosen its grip, consumer confidence will rise and an economic rebound will ensue. It is the resilience of the American people in tough times that characterizes this durable economy; an economy equipped with the tools of globalization which allow it to rebound from even the most profound shocks.


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