Saturday, May 2, 2009

Japan's Lost Decade

As can be seen by the above graph, Japan's "Lost Decade" wasn't nearly as traumatic as has been insinuated by American economists - ranging from garden variety libertarians, to liberals like Paul Krugman. Japan's unemployment peaked at 5.5 % in 2003, after hovering around 2 % in 1990. In the United States, 5.5 % is not far from what is considered 'normal' unemployment.

In discussing Japan's perennially lower unemployment rates, the BLS wrote in a 1984 paper that "Institutions, attitudes, and economic and social structures are certainly different in Japan than they are in the United States. Indeed, it is in these differences, rather than in statistical methods and definitions, where we find the real reasons for the low unemployment rates in Japan." Businessmen in Japan are judged by more than the ability to turn a profit - and keeping people employed is part of that.

The "Lost Decade" is really about lower growth and profit in the eyes of most Western economists. Theirs is the liquidationist mindset. Bankrupt the weak, with less regard to the social cost, so that more profitable companies can thrive. And, in terms of growth, Japan has slipped substantially against their international competitors. Its share of world GDP has been cut by over 50 % since peaking in 1994. This would not be tenable in the United States, whose leadership, by and large, seeks to maintain a global empire.

Part of how Japan weathered the 1990's was by expanding their public balance sheet, employing people and stimulating demand through government spending. In many cases, with the proverbial bridge to nowhere. Public debt has grown to 170 % of GDP, according to the CIA Fact Book. But, this is mitigated to an extent by reserves totaling nearly a trillion dollars.

Japan today is still a prosperous country, with a GDP per person basically equivalent to Germany. And, a lower level of inequality than the United States, with a Gini coefficient of 24.9, versus 40.8.

Speaking with doom about "going Japan" seems to be at odds with what actually happened. Are we heading for a Japan-style "Lost Decade" ? Given the current economic environment, we (the average American) should be so lucky.

GDP Sources:1, 2
Japan Unemployment Source: 1