EDITORIAL: RIDE A HIGH HORSE, TAKE A GREAT FALL

The continuing Japanese crisis should serve as a warning to all against hubris. No one has all the answers all the time. No economy is so big it cannot be tripped up by mistakes. No one can make correct decisions all the time. No policy makers are infallible — not even Alan Greenspan.

A decade ago Japan was ascendant. Its economy and industries seemed unstoppable. They were eating America’s lunch, not only overseas, but in our own markets. American companies were being urged to emulate their Japanese rivals. American executives were traipsing through Japanese plants hoping to learn how to manage better. Economists and professors at America’s leading universities were lauding Japan’s kind of capitalism as the wave of the future. The Nikkei Index, Japan’s equivalent of the Dow Jones Industrial Average, topped 40,000.

How the mighty have fallen. The vaunted Japanese economy is in its eighth year of recession, its longest in the post-war era. The Nikkei has languished between 15,000 and 20,000 for most of that time, and today sits just above 16,000.

Japan’s leaders have time and again refused to take the steps necessary to fix the country’s problems. Finally, last week, Japan’s weary voters sent the ruling Liberal Democratic party a message by slashing its representation in the upper house and causing the prime minister to resign.

Perhaps the new prime minister will find the political will to correct the country’s fundamental economic problems — for example, forcing banks to recognize and write off the billions in bad real estate loans they made in the early 1980s — and provide a stimulus to the economy. The payoff would be exponential: Japan’s weak economy is contributing to the Asian crisis because the country is a prime market for Asia’s exporters.

Meanwhile, the U.S. economy looks unstoppable. Even the Asian crisis has barely scratched it. U.S. companies have downsized and reorganized, sometimes borrowing Japanese techniques, until they’ve become the world’s most efficient and productive.

Executives in other countries, particularly in Europe, are emulating U.S. methods — cutting employment, moving manufacturing to cheaper countries, dropping low-margin businesses. The Dow is setting records, as is Standard & Poor’s 500 stock index, and price/earnings ratios are at historic highs.

The American way is seen as the wave of the future for all cultures, all economies, all seasons.

Let’s not get carried away, however.

Yes, America got its economic house in order in the early 1990s. It wrote off the huge bad debt portfolios of the savings and loan associations. It brought its deficit under control. Its companies restored competitiveness.

But that does not mean the U.S. cannot stumble again, get fat, dumb and happy again. Investors would do well to remember: Pride goeth before a fall.