Samuelson on the Japan Comparisons

Robert Samuelson made some interesting points in yesterday's column:

The president says that Japan's history demonstrates the need for his "stimulus package." To the contrary, claim Hannity and other conservatives, Japan shows that stimulus plans don't work. Up to a point, they're both right. But the possible parallels between Japan's experience and our own are much broader and pose the question of whether we, too, might face a "lost decade."

What happened to Japan in the 1990s?

It did not, as some commentators say, suffer a "depression." Not even a "great recession," as others put it. Japan experienced a listless, boring prosperity. Its economy expanded in all but two years (1998 and 1999), although the average annual growth rate was a meager 1.5 percent. Unemployment rose to 5 percent in 2001 from 2.1 percent in 1990. Not good, but hardly a calamity. Japan remained a hugely wealthy society.

[Break]

The trouble is that this system broke down in the mid-1980s. The rising yen made Japanese exports costlier on world markets. New competitors -- South Korea, Taiwan -- emerged. Japan lost its engine of growth and hasn't found a new one. That is Japan's central economic problem.

[Break]

Since the early 1980s, American economic growth has depended on a steady rise in consumer spending supported by more debt and increasing asset prices (stocks, homes). Just as the mid-1980s signaled the end of Japan's export-led growth, the present U.S. slump signals the end of upbeat, consumption-led growth. But its legacy is an overbuilt and overemployed consumption sector, from car dealers to malls. The question is whether our system is adaptive enough to create new sources of growth to fill the void left by retreating shoppers.

As Samuelson notes, Japan was a fantastically rich society at both the start and the end of the 1990s, and the economy was significantly bigger at the start of the decade than at the end, yet it's universally considered a disaster. But this is a bit silly; it may have been a statistical disaster, but it wasn't one in terms of living standards. Of course, the situation today is different in a number of ways, not least because the world is more dependent on American consumption than it was on Japanese exports, but still, a decade of 1.5 percent growth wouldn't be a disaster.