Will America come to envy Japan’s lost decade?

by on October 5, 2010 at 4:39 pm in Economics, Political Science | Permalink

That's Ezra's question, read this too.  Moving away from traditional macro, I would add two points:

1. Japan has seen numerous quality improvements over the last twenty years, and Japanese consumers are renowned for valuing quality.  The CPI mismeasurement problem may be greater for Japan and real Japanese living standards perhaps have risen a bit more rapidly than the numbers indicate.

2. Japanese politics is less competitive and Japanese rent-seeking is less competitive than in the United States.  Sustained near-zero growth in the United States would mean that interest groups tear apart the social fabric and grab too lustily at the social surplus.  Whether we like it or not, we are "built to grow" and we use the fruits of that growth to buy off interest groups as we go along.  Japan in contrast has greater capacity to stifle these grabs for new redistributions because their politics is more of an insider's game.

Imagine a future world history where, fifty years from now, we look back and decide that Japan was the one country that made a semi-success of near-zero growth.  Which means we are now watching a Golden Age there of sorts.  I'm not betting on that, but if you're looking for strange scenarios that's my suggestion for the day.

Barkley Rosser October 5, 2010 at 5:05 pm

Life in Japan is pretty comfortable. The place is in pretty good shape for a supposedly long-recessed economy. Yes, one does see the occasional beggar now on the streets of Tokyo, but still does not come close to the numbers one sees in major US or European cities.

Ed October 5, 2010 at 5:39 pm

I think this is one of the better recent posts. I am just going to quibble with the comment about Japanese politics being an “insider’s game” and this being some sort of advantage.

Japanese culture was formed in sort of the ultimate “low growth” environment; the government maintained a strict isolationist policy for hundreds of years, and even before that they didn’t have many people to trade with, really just the Koreans and Chinese. The country went through its frontier/ settlement phase over a thousand years ago and has been densely populated for a long time.

I’ll also note that they are unusually ethnically and culturally cohesive/ homogenous and save some later commentator the trouble.

Even with these advantages for maintaining stability and a reasonably good standard of living during a low or no growth period, the last time the Japanese hit the “limits to growth”, in the Great Depression, the reaction of the government was to try to conquer a vast new labor pool to exploit, and to take resources from other people.

The frontier in the US closed only in 1890. Ethnically at least, the US is one of the more hetrogenous countries. The political system still retains aspects of a federation, with various regions sending representatives to the center to try to grab as much federal money for their region as they can.

Plus US history is characterized by an endless series of new frontiers to exploit, the last one being the entire world after 1945. We were going to go to outer space as the “new frontier”, right? The Moon was going to be the next place to be exploited.

So I think its reasonable to conclude that if the world enters a long low growth or no growth period, the US is in trouble. Its simply “built for growth”. I think that is what Tyler is saying. But why does he think the world is entering into a low growth or no growth era? I don’t think that is necessarily wrong, I just missed the posts where he laid the rest of his argument out.

darwish October 5, 2010 at 5:54 pm

Here’s a good blog that chronicles the destitution of rural Japan.

http://spikejapan.wordpress.com/2010/10/03/omuta-the-shopping-arcades-of-a-thousand-bankruptcies/

The question, Will America envy the lost decade? could be answered by searching for every post tagged “the culture that is Japan” on MR

John Thacker October 5, 2010 at 6:04 pm

Japanese politics is less competitive and Japanese rent-seeking is less competitive than in the United States.

The Joetsu Shinkansen had no chance of ever making money, and has lost tons. It travels through the lightly populated mountain area in order to get to Niigata, one of the few cities of Japan on the other side of the mountains. It was built entirely because of Niigata-born PM and power broker Kakuei Tanaka and his support group in Niigata.

Japanese politics is intensely competitive and always has been. During the long periods of LDP rule, intense competition between LDP factions substituted for multiparty politics. Kakuei Tanaka, Takeo Miki, and Takeo Fukuda practically could have been in different parties, and it made a HUGE difference for pork barrel spending and the results of rent-seeking who won.

John Thacker October 5, 2010 at 7:24 pm

Jim:

I’m pretty sure that whatever point you’re trying to make with #2 is clearly using “we” to mean “the Government.” After all, you seem to think that “we” should keep immigrants out, and it’s always “the Government” that does so.

maguro October 5, 2010 at 8:20 pm

“Japanese politics is less competitive and Japanese rent-seeking is less competitive than in the United States.”

This statement completely bizarre, do you have anything to back it up? I find the culture of graft and rent-seeking in Japanese politics really quite amazing. Some of their rural prefectures even put Bobby Byrd and West Virginia to shame when it comes to massive infrastructure projects in the middle of nowhere.

Hoosier October 5, 2010 at 9:26 pm

Who were the rent seeking winners of the last 10 years in Japan? Did any region specifically benefit from having their representative in a position of power? There’s lots of pork barrel spending in Japan, but it seems to be pretty evenly distributed throughout the country (Okinawa being one obvious exception).

Yancey Ward October 5, 2010 at 10:37 pm

From Hoosier:

Did any region specifically benefit from having their representative in a position of power? There’s lots of pork barrel spending in Japan, but it seems to be pretty evenly distributed throughout the country (Okinawa being one obvious exception).

So? Really, are we at the point that regional distribution is the only determinate of whether or not pork barrel spending is rent-seeking or not?

Yancey Ward October 5, 2010 at 11:35 pm

The road to hell might be longer than two or five decades.

berg October 6, 2010 at 12:21 am

Get out of Tokyo and the big cities and it can be pretty destitute.

I agree though Japan is built to handle hardship better.

Jim Rose October 6, 2010 at 3:22 am

John Thacker,

I agree totally that Japanese politics is NOT less competitive and Japanese rent-seeking is NOT less than in the United States.

On a 1995 field trip to northern Japan on a spur to Shinkansen, it travelled through the mountains at very slow speed, twisting and turning.

When at the small town train station waiting for the Shinkansen to pick-up us up, I asked my Japanese professor why the Shinkansen came to such a small place.

My Japanese professor said the secretary-general of the LDP was the local Diet member and he had wanted the Shinkansen to come to his district for a long time.

Japanese agricultural policy – need I say anymore, but I will about Japanese money politics.

To close the circle, Japanese farmers work as road contractors in the off-season. They dug-up the road outside my dormitory several springs in a row.

There are so many bridges to nowhere in the 12+ fiscal packages starting from the early 1990s because politicians get more bribes from bridges than from roads.

The postwar Japanese economy was based on a two-tiered system:
†¢ a highly inefficient sector of industries protected from upstart competition; and
†¢ a sector of internationally competitive companies yielding high growth rates.
The fact that Japanese automatic telling machines were open 9 to 5 but the manufacturing plants I visited were world class is my standard example of this.

Japanese elections are notorious for the money that flows between contributors, politicians, and voters.

Andrew October 6, 2010 at 4:19 am

Put simply, we’ve built up debt by investing in things that lower productivity.

Jonathan October 6, 2010 at 8:25 am

“The CPI mismeasurement problem may be greater for Japan…”

http://faculty.chicagobooth.edu/christian.broda/website/research/unrestricted/BrodaWeinstein_me25-s1-81.pdf

“Despite a major effort to improve the index, the Japanese methodology of calculating the CPI seems to have a large number of deficiencies. Little attention is paid in Japan to substitution biases and quality upgrading. This implies that important methodological differences have emerged between the United States and Japan since the former started to correct for these biases in 1999. We estimate that using the new corrected U.S. methodology, Japan’s deflation averaged 1.2 percent per year since 1999. This is more than twice the deflation suggested by Japanese national statistics. Ignoring these methodological differences is misleading, because it would suggest that U.S. real per capita consumption growth has been growing at a rate that is almost 2 percentage points higher than that of Japan between 1999 and 2006. When a common methodology is used, Japan’s growth has been much closer to that of the United States over this period.”

John Thacker October 6, 2010 at 10:01 am

M: How else would you read Jim’s statement: “It is always very telling when people compare nations with huge numbers of immigration with nations with zero numbers of immigration, and find the latter better off — but fail to realize the difference.”

Perhaps he’s referring to some other universal “difference” shared by all “better off zero numbers of immigration” countries that is different from the one thing that he’s stated binds them, the very low immigration. Or perhaps he doesn’t want his nation to be “better off.” But I’m pretty certain that any normal reading does, in fact, require such an interpretation.

If, however, he does know some untold secret about the better off low immigration countries, perhaps he could let us know.

Japan’s employment situation right now is a two-tier system much like that of the UAW. “Real” jobs, the traditional lifetime employment, etc. are very difficult to find, even for top university graduates. The number of “freeters” who take (often short-term) part time jobs has been rapidly increasing.

M October 6, 2010 at 12:37 pm

@John Thacker,

Well, whenever two countries are being compared, it’s usually on some specific metric (income per capita, poverty rate, HDI score, etc) rather than some all encompassing notion of “better off”. Using one of those metrics and choosing some low-immigration comparison country like Sweden, the US could look better in a year’s time if it stopped accepting poor immigrants today. But that type of policy could make many people worse off! The would-be immigrant doesn’t get to move to a higher paying job, his family doesn’t get remittances, his potential US employers don’t get to hire him, and the nation as a whole doesn’t benefit from his productive capabilities.

Thus, any given metric might suggest that the low immigration country is better off than the high immigration country, and yet it’s possible for perfectly amiable folks to advocate against policies that would improve that metric.

That may not be what Jim had in mind, but your assumption struck me as ungenerous.

Andrew October 6, 2010 at 12:55 pm

Btw, one way to do things differently from Japan (in addition to being more ‘bold’ with fiscal policy) would be to allow more immigration- by which of course I mean the legal immigration, not the illegal immigration that is already flowing like a fire hose.

George Hamm October 12, 2010 at 11:05 am

The U.S. has probably the worst immigration system in the entire world. Unlike countries (e.g., Canada) that employ a point system for prospective migrants that are based on education and skills, the foundation of the U.S. system is family reunification. Post-1965 immigration has played a critical role in creating a permanent and ever-expanding underclass in this country. At a time when globalization is putting a premium on skilled, high-IQ workers, the powers that be in the U.S. decided to import millions of leaf-blowers, apple-pickers, and Third World peasants so they could wring a few more pennies in short-term profits out of their operations. Look at the banana republic of southern California and see the future of the U.S.

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