Japan fact of the day

by  Tyler Cowen in

Japan’s nominal [correction: real] gdp growth for 2014 turns out to be about…zero.

The primary source is here, via Ben MacLannahan.

Comments

ohwilleke

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Better than a serious recession or depression, I suppose.

Phillip

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This post should be corrected. Nominal GDP growth was actually 1.6%. It was real GDP growth that was 0%. Look at the csv files in the linked source. The correct file for nominal is:

Changes from the previous year (at current prices: calendar year) (csv:5KB)

Interestingly, it looks like that's the best nominal GDP performance for Japan since 2010.

Phillip

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Perhaps even more interestingly, aside from 2010, this is the highest nominal GDP growth Japan has had since 1997! During a year when real GDP was basically flat.

Brian Donohue

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Hey Tyler, it would appear Phillip is correct, in which case your sentence needs to be changed.

God knows people want Abenomics dead and buried, but we really should stick to facts.

Ray Lopez

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But monetarists like you and Sumner seem to think somehow nominal GDP translates to real GDP. If that was true, Zimbabwe during their inflation years would be a economic powerhouse. The only illusion in such thinking is from the monetarists themselves.

Brian Donohue

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I'm coming after your pile Ray. At 2% per year. Gold or BitCoins for you?

Ray Lopez

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@BD - "I’m coming after your pile Ray. At 2% per year. Gold or BitCoins for you?" - but you have not read the fine print BD. Sumner believes (insofar as I can tell) in targeting NGDP say at 2%/yr, but if the economy does not respond as he expects, but stays static (as it well might since money could be superneutral), then Sumner would have the Fed continuously print money by buying paper backed by any kind of asset, even "kid's lemonade stands" as one of his followers colorfully put it, until such time NGDP responds. Do you see how pushing on a string could cause problems? If monetary policy is a string, not a rod, and I wish to push dirt in a clogged pipe by stuffing toilet paper into one end of it, rather than a metal plumber's snake (i.e., a rigid rod), the pipe is going to get even more clogged until it explodes, spraying the room (which happens to have a fan spinning in it). Got it now?

Cliff

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What I "got" is that you are completely clueless and worse, never admit when you are wrong even when caught with your pants down

Brian Donohue

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Ray, take it up with Milton Friedman.

Japan is, and will continue to be, ok, so long as it continues to pursue sensible monetary policy.

JaredN

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I see the same thing as Phillip. Although the nominal GDP growth is the best it's been the last couple years, real GDP apparently grew at 1.8% in 2012 and 1.6% in 2013. I guess they are managing to get some inflation?

Brett

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How is that possible, especially with the Bank of Japan pushing monetary expansion? They should be getting nominal GDP growth from that alone.

Moreno Klaus

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# Births + # Immigration < # Deaths + #Emigration ?

Moreno Klaus

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= very slow growth

XVO

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Because

GDP per capita*population=GDP

I'm happy as long as my personal GDP stays the same or grows.

Lord Action

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We don't buy cancer cures with GDP per capita, we buy them with GDP.

Brian

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GDP per capita represents the market for luxury goods like cancer drugs.

Lord Action

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GDP per capita times capita represents the market. That's what you have to amortize the development cost over.

To illustrate by reduction to absurdity, it does no good to have one guy with a personal GDP of $1,000,000, even though that would be a really big improvement in GDP per capita. He can't afford the development even if he could pay a high unit price himself.

JWatts

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"He can’t afford the development even if he could pay a high unit price himself."

Pragmatically, you let the American's pay for the development cost and then use your Japanese per capita income to buy it at their cost. Which would explain why the Japanese appear to be doing fine.

Also, if your the Canadian government, you tell the pharmaceutical companies to sell it to you below the Capital Cost recovery rate but above Marginal Cost rate, or you'll just ignore their IP and produce it at the Marginal Rate.

Brian

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GDP per capita times capita doesn't represent the market for luxury goods like cancer drugs.

To illustrate by reduction to absurdity, an economy of 10 trillion people each with an annual income of 1 dollar has no market for luxury goods like cancer drugs. Government monopsonies have no incentive to purchase luxury goodsl ike cancer drugs for everyone.

Lord Action

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"Pragmatically, you let the American’s pay for the development cost and then use your Japanese per capita income to buy it at their cost. Which would explain why the Japanese appear to be doing fine."

This only works as long as the rest of us don't start acting like Japan or Singapore. It's moving the problem around, or measuring a big enough group of people so that we're back to a situation where both per capita GDP and actual GDP are rising. And it doesn't work for the Japanese debt as other people have appropriately pointed out.

I'm not sure Brian is being sincere in his argument, but I don't think per capita GDP is irrelevant. I just think actual GDP is very relevant. If either are falling, it's a problem, and the other is probably going to follow.

Brian

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I'm being completely sincere. GDP per capita is what's relevant for luxury goods like Apple products and cancer. .

Lord Action

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"I’m being completely sincere."

I'm sorry to hear that. I was giving you the benefit of the doubt.

Lord Action

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"Brian is right"

Can you elaborate? I know we don't always agree, but you're usually pretty sensible. (You were right about COL differences between Mass and Arkansas, in retrospect.)

It sounds like he is considering only the marginal cost of producing these goods, and not the fixed costs of developing them, building factories, building whatever supporting ecosystem is necessary, that all subsequently has to be amortized over a user base.

There's a reason why money poors into ED drugs, but nobody spends money on osteogenisis imperfecta. There's a reason why rich people have the same smartphones poor people have. Market size matters. Small markets won't pay for development. Small markets can't pay for big things.

Lord Action

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If your point is "Japan is fine with falling GDP and growing per-capita GDP because global GDP is growing and therefore the global market for innovations like drugs, robots, rockets, etc, will encourage the necessary investment, which Japan can still buy into using their high per-capita GDP" well fine. There's a bit of misdirection in that argument, but it does help a little in the short term. It doesn't really change the point that we can't all be like Japan. The argument doesn't scale. Somewhere, there needs to be increasingly big pots of money to pay for that sort of progress.

And it doesn't do anything to address things like debt load, or bridges and power plants which nobody else is going to buy and maintain for you.

Brian

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It's funny that you bring up ED drugs, which are luxury goods like Apple electronics and cancer drugs. The market for these goods is determined by GDP per capita.

The notion that a government or some other monopsony is going to magically generate the demand for the creation of these sorts of luxury goods is absurd. The government might be buying something called "Apple iPhones", but they're not going to look like anything we understand today as Apple iPhones. They're going to be more like Obama Phones.

Lord Action

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Dude, I have no idea what you are talking about.

Thomas

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The compromise is obviously correct, pure GDP per capita is meaningless, and pure GDP is meaningless.

Agra Brum

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Yes, GDP growth may be down, but GDP per capita may be up...(or at least GDP per working age capita may be up).
I don't know that, though...

Cooper

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You can't pay interest on the debt with GDP/capita.

Japan needs its aggregate economic output to increase steadily over time in order to have any hope of raising the taxes necessary to pay the interest on its debt AND provide pensions to its rapidly greying population.

Cliff

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Inflation helps with that

Y

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Too bad they are xenophobes. Luckily we don't have that problem in the US in spite of the undue concentration of them in the comment section at this blog.

Cliff

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Yes, we have quite different problems than Japan

Judah Benjamin Hur

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Too bad they won't give up a nation they've spent thousands of years building in exchange for a few GDP points? Don't these people understand economics??

Y

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I'm sorry the most important thing about you is the color of your skin and the shape of your eyes. It must be hard living such a boring life.

Brian Donohue

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Well, that and they remain one of the richest countries in the world.

Judah Benjamin Hur

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I’m sorry the most important thing about you is the color of your skin and the shape of your eyes. It must be hard living such a boring life.

Wait, did you call me a racist?? I'm melting. I'm melting....aarrgggghhh

Besides the irrelevant physical traits that you note, the Japanese are (ON AVERAGE) highly intelligent and have no plans on pissing away their only nation to please naive liberals. (I'm being nice about the "naive," it's often far more sinister).

Hopefully, they'll start having babies. If not, they're screwed either way, but by limiting immigrants, they have a chance to recover.

Patrick MacAuley

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The 21st Century is the century of Robots and Artificial Intelligence. The Japanese understand that and lead the world in robotics, among other technologies. By relying on technology rather than American advice, Japanese will keep their GDP per capita high and their culture intact.

Thomas

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Coastal elites manage to build themselves enclaves separate from Arizonian illegal immigrants. They aren't xenophobes though. Definitely not.

Y

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Is that heavy chip hurting your shoulder yet?

jeff

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Because demand is weak.

prior_approval

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But their military spending is up - maybe a short war will help with the Japanese kicking their innovation into a higher gear, thus blessing them with future growth? 'SHINZO ABE, Japan’s prime minister, returned to power in 2012 promising to reverse a long-term fall in military spending. He has kept that pledge. On August 29th the country’s defence ministry put in a record budget request of 5.5 trillion yen ($53 billion), for next year, up 3.5% from FY2014. If accepted by the Diet, it will be the third consecutive rise in spending, making up for a decade of decline.' http://www.economist.com/blogs/banyan/2014/09/japans-military-spending

I seem to recall a GMU econ professor writing something along those lines. Ah, here is commentary concerning that from that outrageously socialist rag known as Forbes - http://www.forbes.com/sites/johntamny/2014/06/29/tyler-cowen-promotes-a-scarily-obtuse-narrative-about-war-and-economic-growth/

Brian

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So does this mean that nominal GDP per capita rose in 2014?.

Paul

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With a declining population (2014 fall of ~260k ppl) their GDP per capita would marginally be positive if the absolute is zero. Its not going to be a great number either way but adjusting for net population changes can be important when comparing relative country GDP growth rates.

Britmouse

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This is wrong, that figure is for real GDP. Nominal GDP growth by year:

2011: -2.3%
2012: 0.8%
2013: 1.1%
2014: 1.6%

Tyler Cowen

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Thanks, corrected...

Chuck

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Clearly they haven't printed enough.

Nemo

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What is the figure per capita?

If it is still growing on a per capita basis doesn't that translate into a better quality of life even if the country as a whole is "stagnant"

Lord Action

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Not necessarily, and not long term. There are some things you buy with dollars and not with dollars per capita, like big infrastructure, space programs, or research.

You can buy iPhones with dollars per capita, as long as there are still enough people to warrant the investment to invent new iPhones. But if all the west goes the way of Japan, there won't be. So the per capita basis thing helps for a little while because it slows the manifestation of harm, but it doesn't actually solve the problem.

Brian

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So is that why MacBooks are expensive? Because they want as many people to have MacBooks as possible?

Clearly Apple cares about dollars per capita, not simply numbers of people.

Lord Action

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If you have a million bucks to spend on an iPhone, but nobody else does, Apple is not going to invest the billions necessary to develop the darn thing. Apple cares about both total dollars and dollars per person. It can't operate without both.

JWatts

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From a conversation at school 20 years back:

First electrical engineer: "That Intel chip cost a buck."

Me: "Huh, the one I want to buy costs $700. The mark ups not that much."

First electrical engineer: "No, the first one costs $1 billion, every one after that one costs a buck."

Me: " No, that's not ri..... umm.... yeah. Ok, point conceded."

Ray Lopez

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@Lord Action - your logic is sound, however, in the unlikely event you could raise Total Factor Productivity (hard to do however), you could actually have a falling population and a rising total GDP (not just GDP per capita), and, arguably, a more sustainable economy than one that simply depends on more and more people being born every year. An economist's fantasy to raise TFP, but theoretically possible with long-term structural reforms... like my pet hobby horse, patent reforms.

Brian

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Apple products are luxury products. No market for luxury products, no Apple products.

If you have an economy of 10 trillion people each with an annual income of 1 dollar, then there is no market for luxury goods like Apple electronics. A government monopsony that taxes a dime from each of these 10 trillion people to buy phones will not be getting Apple phones for their 1 trillion dollars. They'll be buying Obama phones.

Ray Lopez

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@myself - actually, thinking about this a bit more, you can have a rising GDP even without TFP increasing, even with a population that decreases. I think all the Nordic countries like Denmark prove that, which with tiny populations that are shrinking have greater GDPs than growing Pakistan (which has a GDP less than Greece, but a population of 18x Greece's). But TFP increasing will turbocharge your GDP.

Lord Action

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@RL

I'd be wary of reasoning from a small part of a larger system. Denmark can increase productivity by importing computers it could never have invented on its' own. The world as a whole can't do that.

MOFO.

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"Not necessarily, and not long term. There are some things you buy with dollars and not with dollars per capita, like big infrastructure, space programs, or research."

Yea, or interest payments on your national debt.

sort_of_knowledgable

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If real GDP per capita is rising because real GDP remains the constant while the population declines then there is money for the big projects. Japan can't afford spending 1 trillion dollars of it's 5 trillion GDP on a luxury rocket ship when it has 120 million people to take care of. But one person with 5 trillion dollars than why not.

Ed

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Gail Tverberg, who posts at the Our Finite World blog (http://ourfiniteworld.com/author/gailtheactuary/), has calculated that half of GDP growth is due to population growth. She says that Japan's lack of GDP growth is entirely explainable by its population decline.

Cooper

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Japanese government debt to GDP increased from 218.8% in 2013 to 227.2% in 2014. [http://www.tradingeconomics.com/japan/government-debt-to-gdp]

A 9 point jump in government debt/GDP is what the US experienced at the depths of the Great Recession.

Forecasts that claim that deficits will shrink are based on the assumption of real GDP growth exceeding 2%/year for the rest of the decade. If that doesn't happen, interest payments are going to dominate the budget and squeeze out stimulus spending.

Falling energy prices alone should shift about 2% of GDP/year in Japan's favor in the form of reduced import costs in 2015 as compared to 2014. (5 million barrels of imported fuel a day, 365 days/year, $50/barrel drop in prices = $90B drop in imports = 1.9% of nominal GDP)

Japan has lots of tailwinds and still can't generate positive, real GDP growth. That's not a good sign.

Todd Kreider

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Falling energy prices are trivial for japan. That isn't a tailwind.

Cooper

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Have to disagree here, Todd. Japan imports around 1.5 billion barrels of oil per year.

A $50 discount per barrel translate into a drop in the oil import bill of $75 billion. Nominal GDP is around $5,000 billion. That discount is worth 1.5% of GDP, just for oil alone.

For the sake of comparison, that's about equivalent to the scale of the recent VAT increase.

Without the drop in energy, Japan would have a current account deficit right now instead of a surplus.

Yancey Ward

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Ah, but without Abenomics, real GDP would have shrunk 5135.335%, so it was a success.

Floccina

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The population of japan is not growing so GDP growth matters little unemployment is important and pretty low.

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