The Myth of Japan's lost Decade
theatlantic.com
theatlantic.com
He talks a lot about a strong currency, about a trade surplus, and some other numbers that, if GDP is meaningless, then these numbers are meaningless squared. Impressive trade numbers could be a sign that Japan is undervaluing consuming its own goods, as people lately have been saying about Germany. Or these numbers could be a sign of a number of other things. They don't really tell us much, by themselves; they need to be interpreted in some context. He tells us the true fact that Japan's growth has been stagnant for a long time, but the author claims despite this Japan has some growth in real prosperity, an increase in living standards... then never tells us how. It's a bunch of talk and bluster with some useless numbers thrown in that never answer the crucial question of, if Japan really is doing better, how real standards of living have increased for the Japanese.
Furthermore, the concluding lines about a $5000 offer for invitees to "debate" him smells trollish, as well as his shameless plug of his blog.
[1] http://www.straitstimes.com/BreakingNews/Money/Story/STIStor...
"'The yen's historic rise, coupled with catch-ups by emerging nations, has caused a crisis of unprecedented industrial hollowing-out,' Yoshihiko Noda told lawmakers in his first major policy speech."
and http://academic.csuohio.edu/makelaa/history/courses/his373/N... "A survey last summer for the financial newspaper Nihon Keizai Shimbun found that half of Japan's largest companies planned to increase production overseas — and 71 percent of those planned to do it in China. At the same time, in a second poll, 65 percent of people surveyed believed that imports from China threatened the Japanese economy."
http://www.nytimes.com/2009/02/22/business/worldbusiness/22j...
Quote: "And the nation is losing interest in cars; sales have fallen by half since 1990."
Another article about the Japanese youth sleeping in Internet cafes:
http://www.reuters.com/article/2007/05/07/us-japan-cyberhome...
"A by-product of the economic crisis that hit Japan and its lifelong employment guarantees in the 1990s, freeters drift between odd jobs.
"Earning around 1,000 yen ($8) per hour, they often struggle to pay the rent in Tokyo, one of the most expensive cities in the world where a modest 30 square meter (320 square foot) flat in a central location can easily cost 150,000 yen ($1,250) a month."
Plus, he's excellent about responding to email. Send him a note with your comment and I guarantee you'll get a respectful reply.
We could start by comparing the average household income in 1991 and 2011, in 2011 yens. However, that doesn't account for certain increases in the standard of living that can't be captured by the usual inflation indices: better cars, computers, cell phones, cheaper international travel, etc.
However, that doesn't account for certain increases
in the standard of living that can't be captured by
the usual inflation indices: better cars, computers,
cell phones, cheaper international travel, etc.
"Quality of life" is always relative to the rest of the world.
E.g, the BLS uses something called hedonic adjustment to account for changes in the quality of goods over time (http://www.bls.gov/cpi/cpihqaqanda.htm#Question_2). So, if vendors of mobile devices keep throwing in new functionality for the same price, that will reduce reported CPI numbers.
This is obviously fraught with all sorts of difficulties (and causes lots of conspiracy theories). I have no idea how Japan does it, but these things have a great effect on the relationship between reported and perceived standard of living.
http://www.fingleton.net/an-open-letter-to-professor-edward-...
with more details of his basis for saying that Japan's economy has been growing steadily for the last two decades.
AFTER EDIT:
In one of the funniest comment-and-reply exchanges I have ever seen on HN, three years ago biohacker42 asked, "Anyone here lived through the Japan depression care to share their experiences with us?"
http://news.ycombinator.com/item?id=328819
and then hugh replied, "It was terrible. People were forced to eat raw fish for sustenance. They couldn't get full-sized electronics, so they were forced to make tiny ones. Unable to afford proper entertainment, folks would make do by taking turns to get up and sing songs."
Since then, I've been much less worried about Japan, which continues to be a very prosperous country. But today I'd glad to be updated on the situation in Japan, and what the "lost decades" really mean for people who live there, if anything.
So for me the article presents a non-falsifiable claim: Japan is doing better than ever. However, his claims could be checked by someone in a Japanese manufacturing company.
In the meantime, I don't see why it is surprising that Japan is doing well. As a nation they have positioned themselves well. The major challenge they face -- lack of natural resources -- has not materially affected their growth in the last 20 years. Instead, they are continuing to focus on the entire manufacturing vertical. Not just steel mills and consumer brands (ok, I'm making the U.S. seem dumber than they are).
This was in the late 1990's, then they began a program of liberalized immigration which now in 2011, sees over 30% of Singapore's resident population as foreigners. The influx of so many immigrants over two decades has caused severe strains upon the fabric of our country, a tiny island city-state.
Yet the story remains the same. The new immigrants are unlikely to suddenly produce more children [say three or more] and ironically, if they stay on, they will simply add on the the oncoming demographic crunch since they are mostly working class, and we all know how that particular segment of society is assaulted by growing inequality around the world.
[Most amusing, the incumbent political party which has governed Singapore since our independence has largely expended all its political capital. But that's not really relevant to our discussion on aging + demographics]
I suspect Britons in the U.K can tell a similar story, since Blair & co went on a similar tilt after they got in a decade ago.
Thus, I would caution against the popular view that immigration is needed to avoid the oncoming demographic crunch in societies. It probably can't fix the old issue, and instead generate many huge socio-political issues.
Keep in mind that this article was written right before the earthquake/tsunami. I read this article when it came out and it seemed plausible to me at the time. One big reason is that Japanese people are not the 'toot my own horn' type and if they were doing quite well, they would probably just tell you that they're only getting by. Not in an attempt to fool you, but because it isn't respected to speak about yourself that way.
Of course, there are also a lot of problems in Japan as well. The demographics are not great (in my town they will pay you a subsidy if you have kids), the younger generation is doing a lot more temp work and doesn't have the security that their parents had, and people are showing frustration toward politicians in ways they haven't before. The rural parts of Japan have seen decline as younger people wish to move to the city. I have a friend out in the country who says that half of the buildings in his town are empty and will never be filled again. I think many places in the world are facing these kinds of pressures though.
I live in a nice part of tokyo so I can't speak for all of Japan but I find the living conditions to be quite nice. It is young, energetic, and lively. Everyone talks about how much debt Japan has but at least they use it to build nice things. The train system is absolutely amazing. Everything is earthquake-proof and bolted down. They have been working on the road by my house for almost six years and when you realize what they are doing it's quite amazing. They're putting several lanes of traffic underground (boston big-dig style) and while the total work is slow, everyday there is activity, traffic is rerouted, people are moving things around, and the quality of work is absolutely stunning.
I am always shocked by stores that sell services that I can't imagine being profitable. A small shop selling house slippers. A store selling tatami mats. A little gift shop. I don't really understand how they stay in business but here they are. It's one of the biggest metropolis areas in the world and it still has a small-town feel. I still can't say I understand it all.
Overall, I think viewing Japan through a western lens can be hard. I would be pretty suspicious of any foreign reporting on the state of the country just because the measuring stick will be different. You could say that there were 'lost decades' in that it is obvious that Japan will not be leading the world economies the way they were in the past. However, as an island nation, I don't think there is much sense of disappointment that they haven't expanded their economic reach. I think the people here seem pretty satisfied with the slow growth they have seen. I think when Japanese people dream of success, they want to be well known and respected in Japan. I think playing on the world stage is less of a concern.
But then again, I don't know. My view on all of this changes all the time. Macroeconomics are complex so the lessons learned from one country don't always apply to another.
Offtopic, but this is something that was very striking when I watched, what is one of my favorite TV shows, http://wiki.d-addicts.com/Haikei,_Chichiue-sama. The show is set in Tokyo, and centers around the lives of people who run a ryotei restauarant. It has beautiful shots of the streets, and it feels very much like a small town. The whole atmosphere feels so classical that at some point in the show when some of the characters are inside a car with a modern GPS system, it feels bit surprising and one realizes that this is actually happening sometime around 2005.
http://www.makeleaps.jp/blog/en
Hope to see you there.
At some point, all societies will have to face a stable/decreasing population pattern. The later, the more severely they will have to face this situation. Japan has done it without falling to pieces.
From my point of view the demographics of Japan ARE great.
In 1, 2 or 3 generations time we will see (whoever lives to see it) what happens to ever-rapidly-growing demographic areas. I suspect it isn't going to be pretty if they wait until they hit a hard limit to stop.
Much of Europe used to have developing country demographics in the 19th century. They didn't hit a hard population limit.
- An entire generation of baby-boomers working as middle-manager types got highly-inflated mortgages during the bubble, only to be downsized or have their pay/benefits cut in the aftermath. These people have been hit very hard.
- I'm not sure of the latest numbers, but Japan has a deficit problem that rivals the US. As a % of GDP it might be worse.
As mentioned by others, trade surplus or worse currency "power" are about as meaningless as you can be. Those are related to typical misconceptions and bias (mercantilism, etc...). About one year ago, there was a much more convincing article about the Japan myth: http://www.project-syndicate.org/commentary/gros18/English. The gdp growth figures show a much better story than they do if you only take into account the workforce (it basically outdid both Europe and the US). Also, there is still a largely unused part of the population for economical growth: women.
Two things come to mind with this:
1) The huge divide between big business and small business. There are so many small businesses in Japan that don't scale. They run from small run-down shops run by old people to super-trendy, artisan shops run by young people. Most of these younger people just want to run a small artisan-type business, they're not interested in being a part of the next big thing, or going public, looking for investor backing, etc.. These businesses are essentially confined to a community and neighborhood. The largest I've seen is one that spreads across the prefecture.
On the other end, you have the zaibatsu/keiretsu, which are run by oligarchies (Mitsubishi, etc.). A lot of young businesses talent is driven to these companies because they run essentially everything. I feel like this is what's driving the economy, and it's also not a part of the consciousness of the everyday Japanese person.
2) Japan's global stance. Japan is very traditional and modern in very awkward and confusing ways. People may have high definition TVs, but they live in hundred-year old houses with antiquated heating systems.
A friend once told me that Japan may be inefficient or wrong in some ways, but Japanese people like it and want it that way, and they are willing to work hard for it.
I feel like maybe the whole Japanese economic boom was some type of fluke. It was an odd advantage that a naturally introverted society had, and the economy is just going back to the way it was always supposed to be. I don't know if they're supposed to have a large economy, or really want one if it comes with a certain price.
Do you guys get what I'm saying?
The only evidence he really pushes is the trade balance, but that seems unsurprising to my amateur eyes: if domestic demand is low, then wouldn't imports drop and export industries do better (due to cheaper labor, cheaper materials, cheaper money)?
I've made similar arguments in the past claiming that US growth is also understated. According to official statistics, for example, US real wages have stagnated since the 70's. Yet would anyone be willing to trade in their 2010 basket of consumer goods for a 1970's basket of consumer goods? If real wages truly did not go up, then most people should be indifferent.
I find Japan endlessly facinating, and cringe when I see one dimensional reporting in any direction. There is much more subtlty involved.
I read somewhere that most of that debt is owed to local companies though (like Japanese banks, mutual funds etc.), not foreigners, so that should provide them with a small safety cushion.
One thing that I'm curious about and too lazy to search for right now is to know what happened to the proposed privatization of the Japan Post? Some say that it's the largest holder of personal savings worldwide, it would be really interesting to see how that turns out.
The Japanese deflation was good for consumers and tourists alike. Unfortunately the exchange rates are making it expensive to visit again. Too bad - it's such a fascinating place.
Moreover Debt-servicing is 21.9 trillion yen, a quarter of the planned budget of 90.3 trillion -a mind bending 51% of estimated tax revenue to service debt.
A full 49% of the budget will be financed by bonds. So only half the budget will be financed by taxes!
The shortfall is filled by +45T worth of new borrowings. Ouch.
Fingleton is misguided. There is no real increase in living standards since the bubble was popped. Goods are getting cheaper, and Japanese people are increasingly consuming cheaper goods. If you only visit the major cities, you won't see the urban decay. If you travel outside of the urban cities, you'll see the decay in full bloom (a la Spike Japan blog.)
I'm sure that what you say is true in many places, but I lived in Fukuchiyama, northern Kyoto, from 2001-2003 which seemed to be a fairly average city of 70,000, about 90 km from any substantially larger city. I happened to visit again recently, and I was struck by all the gleaming new construction, and the impressively rebuilt train station.
These two statements contradict each other.
Now, it all depends, some of this choice could increase living standards (more PP) or it could decrease them (subpar goods).
> In the case of Japan over the last decade, we have seen a significant rise in popularity of inferior goods and a decrease in demand for premium goods. Japan’s most notable inferior good of the moment is “third-category beer” — a beer-like beverage with nearly zero malt content that sells for slightly less than real beer. Japanese consumers facing no economic constraint would choose Japan’s most iconic (and not particularly expensive) mass market beers such as Asahi Super Dry or Kirin Ichiban Shibori over third-category beer. So what does it say about the consumer market when Japan will soon have a majority “fake beer” market for malt-flavored beverages? Even with falling demand for beer-like drinks, third category beer is seeing growth. This is a sign that the consumer living standard considered normal just a decade ago has fallen dramatically into a new “basket of goods” that would once have be seen as only appropriate for the relatively destitute.
http://neojaponisme.com/2011/11/28/the-great-shift-in-japane... linking to http://www.cnngo.com/tokyo/drink/2010-looks-bad-real-beer-62...
Here's a good example: http://www.google.com/url?sa=t&rct=j&q=does%20the%20...
The paper, among other things, describes how the GDP of the oil-producing nations is dramatically overstated, because most of their oil revenue should really be counted as conversion of capital rather than accessions to wealth.
Not directly relevant to Japan, but part of the overall debate of getting past the use of GDP as a touchstone metric.
Although unemployment increased compared to the past, seems pretty good to me compared to the USA and some EU countries.
Source: http://www.tradingeconomics.com/japan/unemployment-rate
An unemployment rate of below 5% isn't very achievable outside of extremes like slave labour; in a healthy economy, there will be people moving from job to job as they find a good fit; this turnover should show up as unemployment. If it doesn't, it either means huge numbers of people are "trapped" inside corporations, or the unemployment statistics are not very comparable. 5% in most Western economies is considered a very tight market with potential problems of overheating and wage inflation. I'd put my money on a different accounting method.
To see why, suppose I have 0 Yen in the form of a 100 Yen note and a 100 Yen loan. Further suppose that the domestic real interest rate is 0 (this is approximately true and will make the math easier, but know this follows even if the interest rate is positive but smaller). As holder of Yen debt and cash, if I invest in a 10 year Yen CD I'd have 100 - 100 = 0 Yen after 10 years time. Alternatively, suppose I convert to dollars at $1 per 100 Yen, invest the $1 in a 10 year CD paying 10% every decade compounded every decade (interest rates are usually quoted in different units but again this will make the math easier). I will owe 100 Yen and I will have $1.10. I can lock in all these transactions today, and other than counter-party risk I will have $1.10 and 100 Yen. If I enter into a contract promising to trade dollars for Yen in the future (this would be a "forward" contract but that's just terminology) the agreed upon future exchange rate had better be $1.10 for 100 Yen for some hedge fundie is about to make free money. So the easy way to make your currency rise 65% is to pay no interest.
This seems like an impossible contradiction until you think though what you would have to do to capitalize on this, slash interest rates. So while this would lead to currency appreciation against other currencies in the long term, it would cause a drastic drop in the short term.
tl;dr; the easiest way to rapidly increase your elevation is to dig a hole with some stairs
Your explanation was interesting, but you totally lost me with that analogy.
Higher interest rate - more money converted to the currency to take advantage of the interest rate, and so the currency becomes more expensive.
In my country, we are closing public parks, in many locations the roads are in very bad shape, the fraction of people in college has drastically decreased in the last two decades, many businesses are closing, etc. We have problems just like other countries.
It seems common to diss on other countries. I view my country as being as good a place to live as other prosperous developed countries. Thinking that we are "special" is a mistake. I think that the author's main point is that we have been "propagandized."
Japan's GDP is about $4T right now. Net exports have increased to 200B. Which is, by the author's estimation "a lot". Japan has had an export policy for the past 30 years. The fact that it's managed to create 4 GDP points worth of net exports in the past 20 years is not exactly a ringing endorsement.
What's happened in Japan is that net exports have become a somewhat larger component of a not-rising-very-quickly GDP. Part of that is because exports have increased. But mostly it's because imports have increased more slowly than exports [remember, we're talking net here].
Here are some contextual data points for you:
Incomes in Japan have decreased in nominal [yen] terms. http://research.stlouisfed.org/fred2/series/JPNCOMPQDSNAQ?ci...
Domestic Consumption has basically not moved since 1995: http://research.stlouisfed.org/fred2/series/JPNPFCEADSMEI?ci...
Manufacturing has basically not changed since 1990 http://research.stlouisfed.org/fred2/series/JPNOTPT?cid=3228...
Exports didn't do much for the first "lost decade", but then exploded in the 2000s , then crashed nighmarishly, then picked up again in the last 2 years. http://research.stlouisfed.org/fred2/series/JPNEXPORTQDSNAQ?...
The government has run deficits up from 50% of GDP in 1990 to 220% (!) today, which some might say is questionably sustainable http://research.stlouisfed.org/fred2/series/GGGDTAJPA188N?ci...
Fewer people work: http://research.stlouisfed.org/fred2/series/JPNLFPRNA?cid=32...
And finally, the way that you know things aren't "quite right" is that the currency has been deflating since 1995. http://research.stlouisfed.org/fred2/series/JPNGDPDEFQISMEI?...
That, among other things, is what led to the stronger yen, which is actually something that constrains japan's net exports, not helps it.
On a more general note, you can't go to tokyo and say "ooh, look at all the shops, the economy must be doing great" any more than you can go to 5th avenue in new york and say, "wow, tiffany's is full of people, the US economy is gangbusters!" Making that argument is just really, really stupid.
Unemployment is artificially low but the labor market is skewed. There is a substantial number of people seeking full-time employment without success. Many able workers are trapped in contract employment or part-time jobs with low pay (in Japan it's prohibitively hard to fire people once they are "full-time" for whatever reason short of sever economic loss or extremely gross incompetence). If you ever put out an ad for a job opening you'll likely be surprised by the number of over-qualified applicants who have ended up "off the rails" of Japanese society for whatever reason.
One thing the article does get right, is that many Japanese probably feel that the lost decade is a myth as well. That is mostly because people have also learned to downgrade their lifestyles gradually (no need for a car in the cities thanks to public transport, no need for TV thanks to YouTube, NicoNico, piracy, no need to buy video games thanks to mobile gaming/social gaming, etc.).
However, the day of reckoning is approaching on many fronts such as the withering competitive advantage of flagship industries (especially electronics), the rapidly aging population, and soaring national debt. Japan has the highest suicide rate among youth across all industrialized nations and a declining birth rate, whether people acknowledge it or not, there is a large segment of the population that doesn't feel confident about Japan's future prospects.
I'd like to know what source you have for this statement, because the last time I checked the issue with World Health Organization figures, the statement you just made was incorrect. The WHO figures are stratified by age groups (which, if followed over time in WHO annual reports, can be tracked as age cohorts), and although Japan has long had a higher AGGREGATE suicide rate than the United States, manifested especially in a high rate of suicide by the elderly (age cohorts born before World War II), it has often in my lifetime had a lower YOUTH suicide rate than the United States. Moreover, in many of the postwar decades the youth suicide rate in Japan was declining while the youth suicide rate in the United States was rising.
Here's a little snippet of a FAQ I prepared in the 1990s to show the youth suicide trend for the United States to that decade: "In the United States, recent studies suggest that between 5 and 10 percent of adolescents have made suicide attempts . . . Suicide is currently the third leading cause of death among 15-to-24-year-olds, . . . Moreover, this incidence has increased threefold from the 1950s to the 1980s (Berman & Jobes, 1991; Fingerhut & Kleinman, 1988) . . ." -- James Zimmerman, "Treating Suicidal Adolescents: Is It Really Worth It?" in Treatment Approaches with Suicidal Adolescents (1995).
As in all such matters, if any participant here can point to current officially gathered statistics by an internationally comparable methodology (for suicide, that is the WHO statistics) with age stratification and a time series for each country, I would be glad to check the details.
http://en.wikipedia.org/wiki/Suicide_in_Japan
My main source was from this blog (in Japanese) which uses statistics derived from OECD.
Japan is the first major example of a culture that got so caught up in technological, economic, and social success that it forgot to insure it's own cultural perpetuation.
It's success comes from the fact that it's been among the most successful at efficiently consuming it's seed harvest.
Or to put it another way it has what can be termed "Cut Flower Syndrome"
You can cut a flower in a certain way, place it in a well formulated solution and then stick it in a strictly kept cool environment with the right humidity and light levels and a cut rose will last for quite a long time, in fact for the near future it's virtually guaranteed to outshine any flower kept in the field on the plant. It's protected from excesses in sun, rain and wind, from the ravaging risk of the pest or happen-chance calamity.
Look at the numbers.
Total Fertility Rate of between 1.2 and 1.4 (depending on what source you feel like believing the CIA or Worldbank respectively).
Cultures don't survive that kind of fertility rate. The math just doesn't work. Not when you've been below replacement fertility for now coming on four decades. In another four decades their population is set to be what it was four decades back, only this time with a population that, on average, is much older.
Then there's the whole 4-2-1 dilemma that accompanies this. Four grandparents and two parents for one worker to support. Look at a family and you've got up to 8 grand parents, four parents, and then the kids to boot, all supported by, at most, two incomes. If you keep the kids at just one then you're just perpetuating the problem, if you support two kids then you're still in some trouble, if you go to three then the ratio of working bodies to those needing support 1:7.5 -- don't forget Japan's life expectancy at around 80 years.
That's some serious supporting to do. Not to mention the fact that all those older people take significantly more capital to support than children, and we know children aren't cheap.
Japan's economy has been on the rocks since the moment their culture started to slip into making it okay to eat the next generation's seed to improve the living conditions of today. Almost four decades of eating that seed is not something you fix with government programs, and even if immigration was more culturally acceptable you'd still have the problem that the rest of the world has been following Japan in their demographic practices for several decades as well. So even if Japanese who have qualms about foreigners come around to loving people who don't have pure Japanese blood then you have to realize that the motivation for them to leave their homeland will be greatly limited as they too will have family to take care of with limited resources in their own native land.
Of course having more kids must needs entail more than the acts of conception and birth. We must not merely have more kids but change our way of seeing kids, we have to want to have more kids since merely the physical acts of 'having more kids' without the corresponding investment of human capital in raising them would be among the greatest of crimes.
Isn't it telling to the profundity of the problem when we're initially not sure what to do with a problem so fundamental?
Kind of like an indebted person taking a long time to discover that he must make more money and spend less than he has. The answer is so simple the fact that we find ourselves in the problem can become a self-parody.
The micro-economic reality is that having kids is expensive, time consuming and seen by many as squandering talented people's time, yet how do these talented smart people ever expect to transfer humanity if the next generation is not being produced? Or not being produced in sufficient numbers? We can make all the advancements in the world but if we don't pass humanity on to the next generation in a sustainable way we can just as quickly devolve into what we were a few 100 years back, or worse.
A colony of wild animals has a problem where the most fit members virtually stop having offspring there's either massive mutation of the colony en route or the species is in trouble.
Having and raising kids is a procurement that once you really realize we lack as a society it's already to late to avoid some very extreme consequences.
how do these talented smart people ever expect
to transfer humanity if the next generation is
not being produced? Or not being produced in
sufficient numbers?
Last I've checked the pressing issue is too many people, not too few - we never had as many humans on earth as we do right now & the global population is still increasing.
I wouldn't mind halving world population if it was possible in non-destructive way (and I wasn't part of the unfortunate half).
http://www.bloomberg.com/news/2011-12-26/women-beating-men-t...