The Economy: Is it Real or is it Virtual?

Back in the days before CDs, Memorex used to run ads showing Ella Fitzgerald singing and then asking viewers, "Is it live or is it Memorex?"

Today, a similar question could be asked of the American economy is it real, or is it virtual?

On the one hand, consumption, employment and the stock market remain at or near historic peaks. On the other hand, many critical industries high-tech electronics, agriculture and engineering services are beginning to reel from the Asia crisis and its global impacts. So which one is real, and which is pointing the way to the near-term future?

On Wall Street, analysts, often sounding less like serious scholars of markets than barkers at a virtual circus, eagerly hawk stocks in the face of almost any contradictory information. Riding a tsunami of hype, Internet issues rise to levels that would have taken traditional firms decades to reach; Yahoo! is now worth more than The New York Times. When all fails, mega-mergers, usually involving the exchange of nose-bleed stocks denominated in sky-high dollars, drive the market upward.

For the last several years, the media have been largely a willing handmaiden to this virtual construct. Magazines like Wired have seen the long expansion as the harbinger of a "Thirty Year Boom" that will solve many of mankind's long-term problems. Mortimer Zuckerman, no doubt gladdened by soaring property prices in New York and Boston, has already declared the 21st will be, like the 20th, an "American Century" and banished professional pessimist James Fallows from his magazine empire.

But one does not have to be a brooder to see the uglier realities of the Asian meltdown. Even as the Asian fallout has pumped billions of Chinese and Japanese dollars into New York's stock and bond market, for industrial America those transfers reflecting weakening Asian currencies and consumer demand also mean diminishing exports and reductions in sales, profits and, ultimately, employment.

The Asian downturn hits Southern California right where it lives. As economist Steve Levy points out, L.A.'s surprising at least to most analysts mid-1990s turnaround was largely fueled by foreign purchases of our aircraft parts, movies, high-tech machinery, farm products and engineering services. The most robust growth markets were found in countries like Korea, where purchases of California products grew 45 percent during the first half of the 1990s, as well as smaller developing nations in Southeast Asia. Today, Korean imports have largely evaporated, as well as those in once ebullient Malaysia, Indonesia and Thailand. Since May of last year, exports to Pacific Rim countries are down better than 20 percent.

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