Fascinating piece from one of James Fallows’ guest bloggers at the Atlantic. Eamonn Fingleton discusses “The Myth of Japan’s ‘Lost Decades‘”:
Question 1: Given that Japan’s current account surplus (the widest and most meaningful measure of its trade) totaled $36 billion in 1990, what was it in 2010: (a) $18 billion; (b) $41 billion; or ( c ) $194 billion?
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Question 2: How has the yen fared on balance against the dollar in the 20 years up to 2010: (a) fallen 11 percent; (b) risen 24 percent; ( c ) risen 65 percent?
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The answer in each case is ( c ). Yes, all talk about “stagnation” and “malaise” to the contrary, Japan’s surplus is up more than five-fold since 1990. And, yes, far from falling against the dollar, the Japanese yen has actually boasted the strongest rise of any major currency in the last two decades.
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How can such facts be reconciled with the “two lost decades” story? I don’t think they can. There is clearly a contradiction here, and after studying the facts on the ground in Tokyo for decades I find it hard to avoid the implausible-sounding conclusion that the story of Japan’s stagnation is a media myth.
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Certainly anyone who visits Japan these days is struck by the obvious affluence even among average citizens. The cars on the roads, for instance, are generally much larger and better equipped than in the 1980s (indeed state of the art navigation devices, for instance, are more or less standard on many models). Overseas vacation travel has more than doubled since the 1980s. The Japanese boast the world’s most advanced cell phones, and the biggest and best high-definition television screens. Japan’s already long life expectancy has increased by nearly two years. Its Internet connections are some of the world’s fastest — something like ten times faster on average than American speeds.
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True, not all of Japan’s indicators are equally impressive. The Tokyo stock market, for instance, has never recovered from its 1990s slump. Neither has the real estate market. (In the latter case, however, there is a silver lining in a major boost living standards, in that young home buyers now get far more space for their money. In any case the implosion since 1991 has merely restored some sanity to valuations that had previously become — very temporarily — outlandish).
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On the negative side, there is also the fact that Japan’s economic growth rate, as least as calculated officially, has averaged little more than 1 percent a year in the last two decades. For those who propound the “stagnation” story, this is their strongest card. But it does not accord with the common observation — undeniable to those who have known the country since the 1980s — that the Japanese people have enjoyed one of the biggest improvements in living standards of any major First World nation in the interim…
Go read the whole story; as far as my economically unsophisticated mind can parse Fingleton’s argument, he’s saying that Japan has spent the three decades since the early 1980s carefully hiding its increasing economic might, based on government support for sophisticated high-value production manufacturing… and as a result (corollary?), the average Japanese voter-consumer has enjoyed a better life even as the country’s ‘global image’ has suffered. Which, you know, kinda sounds like the inverse of a certain nation dear to many of our hearts. Given my choice, I’d certainly have preferred to spend my most productive earning years in an environment where the average citizen’s economic life was gradually improving, even if it meant we birthed fewer Masters of the Universe privileged to demonstrate their massive statesmanship with grinding global wars both actual and figurative…
Perhaps it is not surprising that on his own blog Fingleton concludes his argument:
I have never wavered from my view, expressed among other places in Blindside in 1995, that thanks to the almost incredible, if unnoticed, speed with which Japan has been building its lead in advanced manufacturing, the United States has been losing economic position faster than any Big Power since the implosion of the Ottoman empire a century ago. Nothing indeed has shaken my conviction that already by 2000, the United States had become an economic Potemkin village — a largely hollowed-out hulk whose eroding competitiveness was overlooked at the time merely because so many commentators, not least the ten highly influential observers on this invitation list, were busy proclaiming the myth of Japan’s economic oblivion.
Robert Waldmann
I don’t think that you can assess the claim that there was a lost decade based on change over three decades. No one thought the 80s were lost, so comparisons should be to late 80s levels not early 80s levels.
Also the naughties are not considered a lost decade. One lost decade is not equal to three lost decades.
The Yen Dollar exchange rate is purely nominal. One would excpect it to appreciate if Japan had lower inflation than the USA. A key claim of those who say that Japan had a lost decade was that Japanese inflation was too low. It makes absolutely no sense to equate appreciation of a currency with increased real wealth of country that prints it. This isn’t comparing apples and oranges, it is comparing apples and falacies.
The assertion that there was a lost decade is basically the claim that Japanese per capita GDP is roughly two thirds that forecast in, say 1990. This is exactly true. The confident guess of leading experts on economic growth was that Japan was going to pass the USA as if we were standing still and be clearly much richer than the USA by now. I don’t see any claim to that effect in the quoted article.
Mary G
Wow. Feels very true. It seems like while some people spend all their time blathering on about American “exceptionalism” no one notices how much farther and farther behind America is falling. It seems like when I read about medical advances, it’s being researched at a university in Europe or Asia or Latin America now instead of the US. I wish ordinary people would just get serious about turning so many things around in our country. Sad, I haz one. Now I am going to try to do my “Nixonland” homework and then I will need chocolate, lots of chocolate.
John Voorheis
A cursory look at Japan’s real GDP from 1990 to the present more or less obviates the argument. Net exports are only one sector of the economy. Just because Japan’s export sector is doing relatively well doesn’t mean that the overall economy is. Again, just look at Real GDP and the price level since 1990 and you can’t conclude anything other than that Japan has been stuck in a deflationary stagnation for two decades.
But you know, I guess its possible that the Media and Japan’s Statistics Bureau could be engaged in an elaborate conspiracy. To what end, I have no idea.
Michael
Fascinating indeed. Thank you, Ms. Laurie.
Alex S.
Thanks, extremely interesting. I think that there will soon come a time when ‘growth’ ceases to be the overriding paradigm. Maybe a word like ‘progress’ will take its place. But the planet can only carry so many people and some resources will get scarce, like oil, food and water. This will have tremendous effects on the current system of capitalism unless science advances in similarly quick fashion. Stock markets always pay more attention to the future than to the present. Medicare needs a steadily growing population to pay for a steadily growing pool of recipients. And I wonder what effects these circumstances will have on inflation, prices and the like.
Japan might already be there. The population is slowly shrinking, and these islands might not be able to carry many more people anyway. Nominal growth is low, deflation is a constant threat. So it is very interesting to see how Japan deals with the situation. Government debt is pretty high, but I’ve also read that the government has borrowed mostly from their own citizens, not from other countries. The living standard is extremely high, Japan already decided to ditch growth for progress and efficiency. They even decided against more immigration, maybe because of their already isolationist culture. Anyway, very interesting…
Elvis Elvisberg
Well who gives a shit?
The point has to be average income levels, does it not? If real GDP is shrinking, that’s the story.
(No offense to you, Anne Laurie, I appreciate your throwing this out there for discussion. I am just wondering why these stats were highlighted, what’s the theory behind it).
ppcli
Interesting article, but he puts his finger on the scale talking about the “lost decades”. I’ve only heard people talk about the “lost decade”. It’s instructive to try a Google search: even if you try to force the issue by putting “lost decades” in quotation marks, all the hits but one are about the “lost decade”. The only exception, which does talk about “lost decades” is the very Fingleton article excerpted above.
It is one thing to conjecture that villagers get taken in by simple-minded narratives. That happens with depressing regularity. But the “lost decade” has been studied extensively by serious economists. Krugman draws detailed parallels with it all the time. Of course, Krugman and the rest of the dismal scientists could be wrong, but it isn’t credible that they’ve just been taken in by a kind of confidence trick on the part of some inscrutible wizards of the Orient playing ‘possum.
joe from Lowell
The “lost decade” narrative was overhyped, as a reaction to the fear-mongering about Japan burying us in the 80s. I’m afraid that now we’re lurching back in the other direction, and overcorrecting yet again by pushing a story about a powerful Japanese economy – a story that, like the others, is more a projection of our own anxieties than a sober look at the reality of Japanese economic performance.
Ben
Inevitable comment about Japan’s aging population:
At what point does Japan’s aging population start to claw back at some of that progress/efficiency/whatever? Already 22% of the population is 65 or older and it’s going to get higher. A country whose largest age cohort doesn’t contribute to the production side of the economy can’t keep going forever.
Are the trends dire enough that fundamental changes in Japan’s economic or social strategy become necessary?
Woodrowfan
but whenever we point out that we are falling behind the response is the same, we “hate America” and the problem is ignored, or made worse…
Alex S.
By the way, the theory that the Japanese are exaggerating their own woes reminds me of a South Park episode in which the Japanese deflect from their plans of world domination by pointing at their small penises.
El Cruzado
Maybe they managed to spread the love around better than the US?
Remember that average per-capita GDP means shit if it all is dealt by and for the top ten guys. Median income is a much better indicator of the actual experience of the average guy/gal on the ground.
Woodrowfan
Is it fair to say that whenever an empire falls, it does so after the conservatives take over. That’s when it stagnates.
Spain, China, the Turks, the Russian Czars, hell, even the USSR.
PeakVT
Actually, real per-capita GDP is what matters, not headline GDP growth.
That’s not true, either, of course. While their Human Development Index rating is just about as high as America’s score, the Japanese seem to be significantly less satisfied with life than we are despite having a lower Gini coefficient.
mclaren
Anyone with functioning eyes and ears recognizes that Shithole America is now effectively a third-world country. Whenever you see news of some cutting-edge technological or medical breakthrough, it always comes from Europe or Asia: Shithole America only leads the world in one area…torture technology.
Why do I hate Shithole America? Count the ways: world’s slowest broadband, world’s crappiest roads, world’s cruddiest public libraries, world’s greediest and most corrupt monopoly corporations, world’s worst army (the United States Army can’t even win a war against barefoot teenagers in Afghanistan who are armed with bolt-action rifles), world’s most corrupt news media, world’s most incompetent politicians, world’s world public schools…the list goes on.
To find equivalents to Shithole America’s rock-bottom institutions, you have to look to Bulgaria (broadband) or Zimbabwe (corruption of banks).
magurakurin
@Woodrowfan:
Yep. Rah, rah, USA. I’ve been in Japan since 1998. Don’t come here. It’s a hellhole. Stagnant cesspool of economic ruin. Much better to stay in the US. go go USA. It’s the best all the way.
“go ahead, bite the Big Apple, don’t mind the maggots. I’ve been shattered…”
stuckinred
@mclaren: you need a fucking hobby before you give yourself a coronary
PeakVT
Japan’s harmonized unemployment rate is about half that of the United States, too. Also. (Pick ‘unemployment rate’ then ‘level, rate, or quantity series, s.a.’ in the dropdown boxes.)
NobodySpecial
Color me unconvinced. Not only because of ppcli’s trenchant observation, but because of that typically Japanese habit whereby the men get dressed for work, leave the house – and go hang out in a noodle shop all day because they’re unemployed and don’t want to let anyone know, because unemployment is shameful.
You can Google ‘Japan NEET’ to get an idea about it.
stuckinred
@NobodySpecial: But, but America is a shit-hole because it has “world’s slowest broadband, world’s crappiest roads, world’s cruddiest public libraries”. Uh huh
Yutsano
@Ben:
This would be manageable if Japan had a birthrate that could replace the aging population. It doesn’t. In fact the population of Japan is currently shrinking. One of the solutions mentioned is to loosen their immigration policies, but that hasn’t been discussed seriously.
acontra
@PeakVT: Regarding the “satisfaction with life” index, these things should be taken with a grain of salt. For example, Bhutan, of $1800 per capita GDP, “expelled about one hundred thousand people and stripped them of their Bhutanese citizenship on the grounds that the deportees were ethnic Nepalese who had settled in the country illegally” (wikipedia), yet has a much higher satisfaction of life index than the US.
MikeJ
@mclaren: If you think slow broadband constitutes shithole, you really need to do some traveling.
Ann B. Nonymous
@mclaren: If there were any clearer proof that you’re a do-nothing malcontent in a basement, I can’t think of it.
stuckinred
@Ann B. Nonymous: I think he thought he was at Jane’s.
stuckinred
YES, the HOKIES BEAT DUKE FOR THE TRIFECTA!
Parallel 5ths (Jewish Steel)
@mclaren: Plus ludicrously femmy boy bands, our lolcats are just barely funny, and these chips are way too salty, blech. This is Shithole America!
As BGinCHI says, better trolls please.
Cacti
@mclaren:
As someone who spent multiple years in a third world country, where a full third of the population lived in squalid shanty towns…
Ummm, bullshit.
Mike Kay (Chief of Staff)
GODZILLA!!!!
General Stuck
Ot
Just Walker on by
Martin
The economic growth in Japan wasn’t hidden, it just wasn’t handed over wholesale to shareholders. US corporations are turning greater profits than ever before. Is that where our economic recovery should reside, or should it instead be going to infrastructure and consumers?
Martin
@mclaren: Indeed. Can you believe that only 75% of US households have an HDTV set? Time to throw down these shackles!
Townleybomb
While the ‘Lost Decade’ narrative is somewhat overhyped, this guy is going to need a whole lot more than ‘what those Asians don’t say is more important than what they do say’ to convince me that the Japanese are wrong about their situation. I returned there 2 years ago after close to a decade away and the increases in homelessness, crime and general decay were striking.
PeakVT
@acontra: I know indexes like that are a wee bit suspect, but I think looking at numbers other than GDP is useful just because GDP doesn’t measure anything more than it measures.
Mark S.
@General Stuck:
Huh, Walker’s going to have to deputize a teabag militia to get all those protesters out now.
red plaid
To add to the comments expressing scepticism, here are a couple links:
Growing gap between rich and poor in Japan
The lost younger generations
Personally I have been tracking Japan’s situation with great interest. It seems we are following a similar path. They had a real estate bubble and stock market bubble that popped. The government refused to allow the banks fail which hindered recovery. We already have the income gap problem. Hopefully at some point we also have a big political change though it hasn’t led to much.
MikeJ
@General Stuck: I’d really like to see another source on this story. Especially:
General Stuck
@MikeJ:
The police union leaders call for police officers to join the protesters, so it doesn’t seem like a stretch to hear they are. But it is always best to get a second source, or more.
cyd
Japanese government debt is now at 196% GDP, higher than Greece. If the Lost Decades were nothing but an accounting fiction caused by a Japanese government conspiracy to mask its trade surplus, why did it bother to spend tremendous sums on stimulus packages?
electricgrendel
I have always been interested in why GDP growth is presented as a percentage instead of a raw value. If the American GDP for a year is, let’s say, 5 trillion then a 3% growth is much greater than a 5% growth in an economy with a GDP of 1 trillion in a particular year. I don’t understand why a smaller economy growing at a faster clip but with a smaller absolute value added to the GDP is preferable to a larger economy growing a rate that is perceived as a smaller percentage only because the starting GDP is larger.
Amir_Khalid
@General Stuck: Bad linky. You fix?
By the way, has anyone seen this yet?
General Stuck
@Amir_Khalid:
guess I could check to see if my dern links actually link. Sorry. try again
Odie Hugh Manatee
@General Stuck:
If this is true then this is excellent! If the people stand together and face off these teabagging fuckwits who are trying to run roughshod over them then there just might be hope for us yet. I feel like I have been holding my breath on the fourteen state senators on the lam, hoping that they have the guts to stand their ground and not budge a fraction of an inch. I am so used to seeing Democrats fold like some line of easy-to-store lawn furniture that it’s unusual to see them actually taking a stand and not backing down as they so often do.
I really believe that this is a line that the Republicans can be made to regret having crossed. As much as unions support Democrats, many union members are conservative. Pissing all over them to spite the Democrats is pretty shortsighted on their part. No matter how conservative a union member may be, when someone they voted for is gunning for them you can bet they will be looking elsewhere in the next election.
We are living in very interesting times now. Interesting is also dangerous, IMO. This needs to be fought tooth and nail, it would be foolish not to.
Peter
All of which goes miles towards explaining why the Japanese have the dimmest view of their future in the entire developed world by a long shot.
Cliff
So I have this image in my head of the Japanese Salaryman, going off to work sixteen hours a day and coming back too tired to do anything else but eat and sleep.
I’m pretty sure I got this image from “The Lady and the Monk” by Pico Iyer.
Is this still current? Is that still the standard for the Japanese Working Dude?
Martin
@electricgrendel: Well, I’d argue the more important value is GDP/person growth. If the US already has a high GDP/person, then expecting high growth is a bit unrealistic. FWIW, our GDP is about $43,700 according to my handy Wolfram Alpha calculator (I fucking love that thing).
Japan’s GDP/person is $40,800. France and Germany are around $41K. UK is about $36K. South Korea is $18,600. Canada is about the same as ours.
China, for those afraid they’re destroying us economically, are $3,920.
Martin
@Cliff: Don’t know. But it sounds like me.
Edmund in Tokyo
Fingleton is barking mad.
The core claim of the book Blindside was that Japan would overtake the US in GDP by 2000. This was a specific, measurable claim, and it turned out to be complete cobblers. But apparently he doubled down on it.
Nobody would ever have taken any notice of this nutjob but for the fact that he helped justify the US protecting its markets against Japanese competition, even after non-bonkers people had stopped believing that the Japanese were going to take over America.
Edmund in Tokyo
Just to add though: What is true is that GDP growth isn’t the only thing that matters. As technology gets better and infrastructure gets gradually improved, you can improve living standards without growing your economy much.
Robert Sneddon
Japan’s population has nearly stabilised but isn’t actually falling yet — in fact it just topped 128 million according to recent news reports. Part of the recent small increase (0.2 percent from last year) is attributed to increased immigration as the government has become more open to foreigners coming to live and work there.
bob h
I spent three weeks in Japan in November, and came away with the following comparison to the US: they have no observable poverty, much lower unemployment, affordable, universal healthcare, better infrastructure, no violent crime.
My wife had to be hospitalized for a week there, with batteries of tests, drugs, and CAT-scans, and the bill came to all of $5500, which was full freight. That is one day in an American hospital.
gene108
Why does he pick 1980 as a date to compare standards?
Japan’s infrastructure, it’s production capacity and industrial base were destroyed during World War II. The Japanese people really didn’t have a standard of living that rivaled America in the 1950’s and 1960’s, since they were still rebuilding after World War II. Things were looking up at the end of the 1960’s, but the oil shocks of the 1970’s stagnated the Japanese economy and thus put a crimp in improving the standard of living of its people.
One of the big things about the 1980’s in Japan was that their economy grew enough to finally lift the Japanese people up, to the point where they were legitimately having a First World lifestyle.
I really question the authors use of picking 1980 as a point of comparison. I think it could be a date, where the standard of living wasn’t as high as it was at the end of the 1980’s and thus skews any comparisons to now.
Rob
Waldman deconstructs the argument in the first comment. Its a bad economic article in the Atlantic, go figure!
rapier
What would the world have been like if Tokyo real estate had not for a brief moment been valued equal to all the real estate in America? Well it’s banks would be real banks not pretend banks. Insolvent by any measure and unable to function without unlimited free money given them to lend by the Central Bank. Unlike our banks however who now have the same subsidy a far greater portion of the money they lent went offshore, to speculators. Speculators doing simple arbitrage plays on Japans own currency, other currencies or other sovereign debt, stocks and myriad other hot plays as the global speculative flood amounting to trillions a day flew around the globe wrecking havoc. Most often identified as the Yen carry trade. Such waxed and waned but was an important engine in the financialization of the globe and each of the rolling bubbles and panics that have swept the globe during the period.
Each panic making it necessary for our Fed to give the same deal to our banks with the same or analogous consequences. Huge flows of capital rewarding traders and ushering in the age of Financial Arbitrage Capitalism. Does that sound sort of familiar as the banks now own us?
Perhaps the BOJ can keep interest rates zero there forever. If they can then debt service on Japans 120% of GDP sovereign debt could eventually take all of their government revenue just to pay and borrowing to pay would no longer be an option.
But that is only what may lie ahead. What lays behind is a world credit system unhinged from rational market forces for the cost of money is the mother of all markets. Now you may not be a particular fan of markets but this so called market has made the majority of Americans net debtors with their main asset deflating, our economy incapable of making rational long term investment and a political economy run by bankers and players.
Thomas
I visited Japan in 1999, near the end of the “lost decade.” The things that stuck out to me were similar to the author. Everyone seemed to be pretty affluent. There were decidedly few old wrecks driving up and down the roads compared to what I as accustomed to in the U.S. Everyone had cell phones before they were nearly as ubiquitous as they are now in the U.S. and the cell phones were half the size of what we had then. As part of the trip I spent three days living with a family engaged in farming (tomatoes and other produce) as their only source of income. They had their own xerox machine and their minivan had an lcd tv in it (again this is over ten years ago before any of this stuff was common in America). Having grown up on a farm myself in Oklahoma and understanding how difficult economically farm life in America was, these items points especially stuck out to me.
As far as GDP and their stock market and real estate valuations etc. I’ll leave that to more credible commentators. But my (admittedly) anecdotal evidence was that Japan was a GREAT place to live.
Jose Padilla
Hey, Martin, can’t just look at average GDP per person. You have to look at how its distributed and the “average” doesn’t tell you that. The Gini coefficient for Japan in 2008 (last year I could find) was 24. For the US it was 41. The higher the number the more unequal the distribution of income (Canada is 32 and the Phillipines is 44, so we’re much closer to the Phillipines than we are Canada). If the average person has more money to spend, their lives will be better. Pretty radical, huh?
Cranky Observer
> I visited Japan in 1999, near the end of the
> “lost decade.” The things that stuck out to me
> were similar to the author. Everyone seemed to be
> pretty affluent. There were decidedly few old wrecks
> driving up and down the roads compared to what I as
> accustomed to in the U.S.
Japanese “safety inspection” regulations make it essentially impossible to keep an automobile for more than 4 years and impossible to keep one for more than 5 years (with the sole exception of the Acura NSX supercar, the only vehicle ever sold in Japan specifically designed to be capable of surviving the 5-year inspection). Cars older than 4 years are sold on the Asian & Indian used car markets; the whole process keeps the Toyota machine humming.
Cranky
burnspbesq
@stuckinred:
I’m sure that Duke’s loss to Virginia Tech will be a source of comfort to you when Illinois crashes out of the first round of the NIT.
LosGatosCA
If the thesis is that with an aging and declining population a long run growth rate of 1% is acceptable to an isolated homogeneous country that does not need higher growth to create jobs above replacement rate, then it could be right.
If the thesis is that this would work for the US fugeddaboutit.
I did not read any mention if the amount of Japanese national debt assumed to attain that 1% growth, but it’s pretty horrific.
Exchange rates are completely superfluous to this analysis. The Japanese have always tried to keep the yen weaker than natural circumstances would suggest to maintain their exports, ask the Chinese who they are emulating. Consequently, secular movement is to strengthen over time (from more undervalued to slightly less under valued).
Sorry to say the whole analysis is simply shoddy.
pookapooka
I live in Honolulu. The Japanese tourist industry continues to inject the vastest amount of cash from outside the islands into our economy. The amount Japanese couples pay to marry here is incredible: this subindustry has been constantly booming and expanding. From this evidence, the article rings very, very true.
Corner Stone
@pookapooka: Most vast.
Anonymous
We already went thru this debate before at D-squared Digest:
Start about 10 or 15 comments down