STILL ATLAS : Despite the dollar’s image, the American consumer still supports the world’s economy on its shoulders

Americans kept yawning but international currency markets kept making history last week. As the long, drawn-out currency crisis develops, it is taking a surprising and even ominous shape: Fifty years after the end of World War II, the United States is once more at loggerheads with Germany and Japan.

Early last week, it looked briefly as if the dollar was going into free fall, losing 4% of its value against the yen in just a few hours. The reaction from German and Japanese officials was clear: It was all America’s fault.

“I want the United States to feel responsible,” said the Japanese finance minister, who went on to suggest the most sweeping currency reforms since 1973.

The Germans were even more pointed. “Each country gets the currency it deserves,” said the head of the Bundesbank. “Discipline,” he added in a characteristically Teutonic tone, is what the United States needs. Otherwise, the “national deficiencies” of the United States would doom any attempt to bring order to international markets.

As the currency crisis has deepened, and as both Japanese and German exporters complain to their governments about the effects of the dollar’s decline on their business outlook, America-bashing has become something of a national sport in Tokyo and Bonn. The U.S. budget deficits, its trade deficits, low savings rate and general habit of “consuming too much and producing too little” are the sins that most irritate the ex-Axis powers. If America would just save more and spend less, say Tokyo and Bonn, world markets would stabilize and the world economy would grow.

It all sounds plausible, and it is true that the elimination of the budget and trade deficits would help strengthen the dollar. But the Germans, especially the Japanese, overlook a central point. Bad as U.S. “overconsumption” is for the dollar, without U.S. consumers, the world economy would slip into recession.

For the last 50 years, the U.S. consumer--supported by the U.S. government--has been the unsung hero of the global economy. In good times and bad, Americans have provided the largest and most open market in the history of the world. The American market allowed Germany and Japan first to recover from the devastation of World War II, then to go on and enjoy the greatest prosperity they have ever known.

In a metaphor economists love, the United States was the “locomotive of world growth,” the engine that pulled the world economy up the hill. The Germans and Japanese rode in the club car drinking sake and beer. Sometimes they criticized the engineer for going too fast, sometimes for going too slow, but both countries assumed the free ride would go on forever.

Unfortunately, it can’t. That is the real meaning of the current dollar crisis. Americans simply can’t go on spending their way out of domestic and global recession. European and Japanese investors and businesses have all the dollars they want and then some; increasingly, the United States will have to pay as it goes, financing more of its imports with higher levels of exports, and financing more government expenditure with taxes rather than with debt.

At the moment, the passengers in the club car are making all kinds of self-righteous comments about how they knew it wouldn’t last, and how it is obvious to anyone that the poor, old, beat-up locomotive can no longer pull the train. “More discipline!” say the Germans. “More responsibility!” say the Japanese.

Meanwhile, of course, nobody is going anywhere. German growth is so slow that, despite mammoth public spending in the former East Germany, unemployment stands at 8.1%, and the costs of the German welfare state threaten to bankrupt its government. Japan’s economy has stagnated for years, and the rise of the yen only threatens to worsen its difficulties by reducing the profits of its export-driven industrial sector.

And if things are bad in the club car, they are worse in the third-class cars, where the developing nations sit. Latin America has already suffered a severe economic shock; many observers are warning that the East Asian economies are next in line. In the last few years, they have borrowed heavily from Japan in yen, but most of their income--from trade with the United States--comes in dollars. The rise of the yen against the dollar means it is harder and harder for East Asians to repay Japanese loans. An East Asian debt crisis would undermine political stability and economic growth in one of the most volatile parts of the world.

If the world economy is to keep moving ahead, the passengers in the club car are going to have to stop complaining and start pitching in. For the Germans this won’t be too difficult, but Japan will have problems. Finance-ministry bureaucrats, with little knowledge of or experience in the wider world, can’t quite face the truth: It isn’t the dollar that is too weak; it is the yen that is too strong. And it isn’t so much that Americans spend too much, as that the Japanese spend too little.

Think about it. If the United States did what the Japanese say they want--eliminated its budget and trade deficits--we would buy fewer Japanese goods and Japan, Inc. would go broke.

The dollar and Japan need the same medicine but, unfortunately, this involves two steps the Japanese bureaucrats can’t bear to think about: a massive economic stimulus combined with a systematic deregulation of the economy. This is what most Japanese voters and many Japanese corporations want; but there is no sign Japan’s weak government can force its bureaucrats to do anything more than pretend to reform. This means the pressure must come from abroad.

This won’t be easy. Japanese bureaucrats are notoriously resistant to pressure from any source. Uncle Sam will have to twist some arms hard to get his way, but he doesn’t have any choice. This isn’t just another trade dispute; Japan’s refusal to manage its economy responsibly is a serious threat to vital U.S. interests.

Americans need to focus on the real issue: It’s not that the Japanese discriminate against U.S. goods; they don’t buy enough goods, period. The Japanese should have better houses, better roads and a better choice of cheaper goods in their stores. Let Japan dismantle the policies that discourage private and public consumption, and we will all be better off. The Japanese will live better; they will buy more American goods; the Japanese trade surplus and the U.S. trade deficit will both shrink; the dollar will stabilize against the yen, and both the U.S. and Japanese economies will grow.

The bureaucrats, alas, are deaf to sweet reason. For Japan to change its ways, the United States will have to speak another language of sanctions and threats. These threats will have to be more than the usual wrist-slapping of trade debates.

This is serious business, and the Japanese must understand it. Economic cooperation is the price of the U.S. alliance. Washington must make this plain to its allies--not as a threat, but as a statement of fact. The U.S. military commitment to Japan will not survive if the U.S. economy goes down the tubes. The free ride is over; Japan must help Uncle Sam shovel the coal, or the locomotive won’t run, and nobody will get where they want to go.

This goes for the North Atlantic Treaty Organization, too. The United States isn’t doing its allies any favors by pussyfooting around the truth: If its allies want military help, they have to help Washington create an economic order that keeps America prosperous enough to maintain its foreign forces. Neither public opinion nor economic realities will support expensive military commitments if the U.S. economy weakens.

Achieving this kind of economic cooperation ought to be the No. 1 goal of the Clinton Administration. Forget the North American Free Trade Agreement. Forget Bosnia. Forget Haiti. If President Bill Clinton can get Germany and Japan to join with the United States in a serious, determined effort to support global growth, then he will be remembered (not to mention reelected) as the President who successfully redefined U.S. foreign policy at the end of the Cold War and put both the nation and the world on the right course for the 21st Century.*