Robert J. Samuelson warns that the United States has a very good chance of duplicating the Japanese experience. Like Japan, the US has an aging population and consequently a shrinking domestic market, problems producing affordable exports, and a tax and regulatory regime not encouraging to new start-ups.
It’s hard to remember now that in the 1980s Japan had the world’s most-admired economy. It would, people widely believed, achieve the highest living standards and pioneer the niftiest technologies. Nowadays, all we hear are warnings not to repeat Japan’s mistakes that resulted in a “lost decade” of economic growth. Japan’s cardinal sins, we’re told, were skimping on economic “stimulus” and permitting paralyzing “deflation” (falling prices). People postponed buying because they expected prices to go lower. That’s the conventional wisdom – and it’s wrong.
Just the opposite is true: Japan’s economic eclipse shows the limited power of economic stimulus and the exaggerated threat of modest deflation. There is no substitute for vigorous private-sector job creation and investment, and that’s been missing in Japan. This is a lesson we should heed.
Japan’s economic problems, like ours, originated in huge asset “bubbles.” From 1985 to 1989, Japan’s stock market tripled. Land prices in major cities tripled by 1991. The crash was brutal. By year-end 1992, stocks had dropped 57 percent from 1989. Land prices fell in 1992 and proceeded steadily downward; they are now at early 1980s’ levels. Wealth shrank. Banks – having lent on the collateral of inflated land values – weakened. Some became insolvent. The economy sputtered. It grew about 1.5 percent annually in the 1990s, down from 4.4 percent in the 1980s.
Despite massive stimulus, rapid growth hasn’t resumed two decades later.