Tuesday, February 23, 2010

The Great Asian Rebound

Dean Baker is right to note that New York Times misleads its readers (I however personally thinks it is likely unintentional so I wouldn't use the word "deceive") when they write that Thailand's GDP rose 3.6% in the fourth quarter. Since New York Times is an American news paper they should use the American way of expressing growth, which is to say that they should in this case write that Thailand's GDP grew 15% at an annual rate.

But apart from that technical note, the Thai numbers confirm the existence of a vigorous recovery in Asia. Like in Taiwan, that I discussed yesterday, Thailand has now recovered the entire loss in output that it suffered during the slump.

This means that while the rather dramatic drop in demand associated with the panic following Lehman's collapse did disrupt the Asian economies as the drop in demand was unexpectedly large and sudden and as it takes time to re-organize factors of production, they have been successful in reducing their dependence on net exports to the West and instead re-organize the factors of production for the purpose of domestic demand (for Asia as a whole).

Meaning that they can now themselves use the products they produce instead of sending them to the West, and get securities of dubious value in return. As I wrote two years ago, this means that the value of their production will be higher, just like Americans were better off after World War II ended despite the fact that official GDP fell. Even if you grant that the massive military expenditures during World War II was necessary to destroy the threat from Imperial Japan and Nazi Germany, military expenditures didn't represent real wealth, meaning that the decline in GDP was misleading. Private consumption and investments did in fact soar after the end of the war, meaning that real wealth increased. Similarly, current output in Asia arguably represents more genuine wealth than the one represented by the accumulation of dodgy Western securities.