NYT Japan Write-up Downplays Decades of Stimulus, Fails to ID Causes of Malaise
Only the New York Times could burn through 2,500 words about Japan's economy and not use the word "stimulus." The Old Gray Lady's Martin Fackler did refer to Fed Chair Ben Bernanke's just-announced second attempt to "stimulate" economy, but dodged the central lesson: The government created the Japanese people's malaise, and our government, despite Japan's experience, seems determined to do the same to us.
The Times item is the first in a series, so I suppose Fackler may get around to it in subsequent reports, but it doesn't seem likely.
Here are some paragraphs from Fackler's report that show how intent he and the Times were on not getting to the real root causes of Japan's nearly two-decade malaise (bolds are mine):
Once Dynamic, Decline Leaves Japan Disheartened
Few nations in recent history have seen such a striking reversal of economic fortune as Japan. The original Asian success story, Japan rode one of the great speculative stock and property bubbles of all time in the 1980s to become the first Asian country to challenge the long dominance of the West.
But the bubbles popped in the late 1980s and early 1990s, and Japan fell into a slow but relentless decline that neither enormous budget deficits nor a flood of easy money has reversed. For nearly a generation now, the nation has been trapped in low growth and a corrosive downward spiral of prices, known as deflation, in the process shriveling from an economic Godzilla to little more than an afterthought in the global economy.
... Even as the Federal Reserve chairman, Ben S. Bernanke, prepares a fresh round of unconventional measures to stimulate the economy, there are growing fears that the United States and many European economies could face a prolonged period of slow growth or even, in the worst case, deflation, something not seen on a sustained basis outside Japan since the Great Depression.
Many economists remain confident that the United States will avoid the stagnation of Japan, largely because of the greater responsiveness of the American political system and Americans’ greater tolerance for capitalism’s creative destruction. Japanese leaders at first denied the severity of their nation’s problems and then spent heavily on job-creating public works projects that only postponed painful but necessary structural changes, economists say.
“We’re not Japan,” said Robert E. Hall, a professor of economics at Stanford. “In America, the bet is still that we will somehow find ways to get people spending and investing again.”
Still, as political pressure builds to reduce federal spending and budget deficits, other economists are now warning of “Japanification” — of falling into the same deflationary trap of collapsed demand that occurs when consumers refuse to consume, corporations hold back on investments and banks sit on cash.
... Just as inflation scarred a generation of Americans, deflation has left a deep imprint on the Japanese, breeding generational tensions and a culture of pessimism, fatalism and reduced expectations. While Japan remains in many ways a prosperous society, it faces an increasingly grim situation, particularly outside the relative economic vibrancy of Tokyo, and its situation provides a possible glimpse into the future for the United States and Europe, should the most dire forecasts come to pass.
... And the future looks even bleaker, as Japan faces the world’s largest government debt — around 200 percent of gross domestic product — a shrinking population and rising rates of poverty and suicide.
But perhaps the most noticeable impact here has been Japan’s crisis of confidence. Just two decades ago, this was a vibrant nation filled with energy and ambition, proud to the point of arrogance and eager to create a new economic order in Asia based on the yen. Today, those high-flying ambitions have been shelved, replaced by weariness and fear of the future, and an almost stifling air of resignation. Japan seems to have pulled into a shell, content to accept its slow fade from the global stage.
The clear evidence is that the budget deficits and the easy money, instead of failing to prevent Japan's decline, have instead extended it.
The quoted Robert E. Hall can say, "We're not Japan" all he wants, and try to claim we're in better shape to absorb economic stress. But in some important ways, we're in worse shape. No one can credibly deny that the U.S., like Japan, "at first denied the severity of their nation’s problems and then spent heavily on job-creating public works projects that only postponed painful but necessary structural changes." But a lot of our spending also went to direct transfer payments with no future value, especially in the beginning, as the president himself has admitted that his core early-2009 contention that there were all kinds of shovel-ready projects just waiting to be funded was a load of rubbish.
Additionally, our savings rate is nowhere near Japan's, meaning that a shift to intense frugality might be have a more negative effect here than it did in Japan, where many people were always quite frugal.
The point at which our deficit hits 200% of GDP is not that far away, but because of our relatively low savings rate, America's point of malaise may be much lower than that. No, Martin Fackler didn't deal with that topic, although I suppose he might go there sometime during the rest of his series. But don't count on it.
Cross-posted at BizzyBlog.com.