The inability to change one’s mind in light of new evidence is perhaps the greatest obstacle—bar stupidity—to attaining the wisdom with which our evolved psychologies burden us.
Alphatuosity blog
When the facts change, I change my mind. What do you do, sir?
J. M. Keynes (attributed)
The Myth of Japan’s Failure
The New York Times, January 6, 2012DESPITE some small signs of optimism about the United States economy, unemployment is still high, and the country seems stalled.
Time and again, Americans are told to look to Japan as a warning of what the country might become if the right path is not followed, although there is intense disagreement about what that path might be. Here, for instance, is how the CNN analyst David Gergen has described Japan: “It’s now a very demoralized country and it has really been set back.”
But that presentation of Japan is a myth. By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.
Japan has succeeded in delivering an increasingly affluent lifestyle to its people despite the financial crash. In the fullness of time, it is likely that this era will be viewed as an outstanding success story.
How can the reality and the image be so different? And can the United States learn from Japan’s experience?
It is true that Japanese housing prices have never returned to the ludicrous highs they briefly touched in the wild final stage of the boom. Neither has the Tokyo stock market.
But the strength of Japan’s economy and its people is evident in many ways. There are a number of facts and figures that don’t quite square with Japan’s image as the laughingstock of the business pages:
• Japan’s average life expectancy at birth grew by 4.2 years — to 83 years from 78.8 years — between 1989 and 2009. This means the Japanese now typically live 4.8 years longer than Americans. The progress, moreover, was achieved in spite of, rather than because of, diet. The Japanese people are eating more Western food than ever. The key driver has been better health care.
I only really have one word to say to this: Cuba, which according to the WHO had an average life expectancy at birth of 74 in 1990 and 78 in 2009, despite being an “economic basket-case”. Manifestly, the strength or otherwise of a developed country economy only has the scantiest of bearings on longevity or life expectancy gains. Indeed, hampered by a high initial starting point for life expectancy, Japan’s gain over the last two decades looks distinctly mediocre on an international comparison.
1990 2009 Gain
Japan 79 83 4
Australia 77 82 5
Brazil 67 73 6
Canada 77 81 4
China 68 74 6
France 77 81 4
Germany 75 80 5
Italy 77 82 5
Korea 72 80 8
New Zealand 75 81 6
Spain 77 82 5
UK 76 80 4
US 75 79 4
I particularly relish Fingleton’s breezy explanation, unsubstantiated by any evidence (of course), for the cause of the gain in life expectancy over the last two decades, even though isolating the factors at work in changes in life expectancy is widely regarded to be notoriously difficult. The Japanese may well be “eating more Western food than ever”, but they are doing so in moderation; given the startlingly low levels of obesity, which have next to nothing to do with “better health care”, it is surprising that Japan has just a one-year lead in life expectancy over, say, Italy or Spain.
For a bias-free and more disturbing interpretation of the recent Japanese longevity picture, I recommend turning to an expert. Here’s Christopher J. L. Murray, Professor of Global Health at the University of Washington, writing in The Lancet in an article titled Why is Japanese life expectancy so high?
The third and more troubling phase for Japan begins in the mid to late 1990s. Since that time, the pace of decline in mortality for adult men and, to a lesser extent, adult women (aged 15—59 years) has been slower than other nations. Japan has fallen behind Sweden, Italy, and Australia for men and behind Sweden for women. If recent trends continue, other nations are likely to achieve lower rates of adult mortality than Japan. Given the previous two decades during which Japan remained in the top rank, this recent change is dramatic. Many explanations for this worsening relative performance are offered by Ikeda and colleagues, including high tobacco consumption compared with other high-income countries, a modest rise in body-mass index, and high and rising rates of suicide. Unstated is the hypothesis that although Japan has a universal health-care system, the quality of the care delivered might be low. Treatment coverage for high cholesterol, for example, is much lower than in other high-income countries. Given poor measures on quality of care, further reduction in mortality may require that Japan revamp its health-care system. Economic stagnation and rising income inequality could also be part of the explanation of recent trends.
• Japan has made remarkable strides in Internet infrastructure. Although as late as the mid-1990s it was ridiculed as lagging, it has now turned the tables. In a recent survey by Akamai Technologies, of the 50 cities in the world with the fastest Internet service, 38 were in Japan, compared to only 3 in the United States.
You can access Akamai Technologies’ State of the Internet Report by registering here. The most recent one that seems to be freely available is for 2011 Q2. Our first lesson is on the use and abuse of statistics. That the Japanese city with the fastest average Mbps, Shimotsuma, ranked 3rd in the world, is a small Tokyo dormitory community to which very few Japanese could point on a map, and that one of the Japanese “cities” in the top 50, Marunouchi, is not a city, nor even a ward of Tokyo, but a few blocks of office buildings clustered around Tokyo station, make it readily apparent that if you are a largish country for which Akamai has a lot of data collection points and you have a highish average connection speed, then of course you are going to dominate the city rankings. For a more truthful picture of Internet infrastructure, we need to turn to a country-level analysis.
In 2011 Q2, Japan ranked third for average connection speeds, at 8.9Mbps, behind South Korea at 13.8Mbps and Hong Kong at 10.3Mbps. Impressive, to be sure, but not quite the picture of global leadership that Fingleton insinuates it has. Indeed, the broader the metric becomes, the worse the picture looks for Japan: for high broadband connectivity (above 5Mbps), the Netherlands ranks first at 68% of all connections, Japan ranks 6th, at 55%, and the US 13th at 42%, while for good old-fashioned broadband connectivity (above 2Mbps), 10 mostly European countries have penetration rates over 90%, the US ranks 35th at 80%, and Japan is actually behind the US, coming in 39th place at 76%. What’s more, Japan’s high broadband connectivity actually fell 8.9% YoY and its broadband connectivity fell 12% YoY, while the rates of almost all other countries surged. Not all that stellar a performance at the broadest end of the spectrum, especially given how suited relatively small, very densely populated Japan is to the build-out of broadband.
This Akamai saga, I should add, is a textbook example of Fingletonian deceitfulness, whereby he cherry-picks a data set that severely distorts the truth and ignores the evidence that is inconvenient to his case.
• Measured from the end of 1989, the yen has risen 87 percent against the U.S. dollar and 94 percent against the British pound. It has even risen against that traditional icon of monetary rectitude, the Swiss franc.
The strength of the yen has absolutely no relationship with “the strength of Japan’s economy and its people”. All that yen strength is doing, on the liability side of the ledger, is to hollow out those domestic “hard industry” jobs beloved of Fingleton—an astounding 550,000 manufacturing jobs were lost in just the three months to end-November 2011, according to the latest Labor Force Survey (Japanese only)—while on the positive side of the ledger, yen strength makes agricultural and energy imports cheaper and Mr. and Mrs. Watanabe can take that retirement cruise for which they have been saving for so long a year or two earlier. I challenge Fingleton to explain the mechanisms whereby yen strength works to the sustained net benefit of the Japanese economy.
• The unemployment rate is 4.2 percent, about half of that in the United States.
Japan’s Hidden Jobless Hits 4.69mn, Worse Than After Lehman Shock
Nikkei, November 16, 2011
TOKYO (Nikkei)—The number of Japanese that want to work but are not actively seeking employment has surpassed levels from after the global financial crisis erupted, according to government data released on Tuesday. …
The hidden jobless in Japan jumped by 190,000 from a year earlier to 4.69mn in the July-September quarter, excluding the three prefectures hit hardest by the March 11 disaster, the Internal Affairs Ministry said.
The figure is nearly 70% larger than the number of officially unemployed people. It is also higher than the 4.61mn in the July-September quarter of 2009, when the employment market deteriorated sharply after the financial crisis.
Adding the 2.80mn officially unemployed and the 4.69mn hidden unemployed together and dividing by the number of employed (62.60mn) yields a “real” unemployment rate of very close to 12%. Of course, all countries have their hidden unemployed, to a greater or lesser extent; my intention here is merely to highlight how the Japanese employment paradise that Fingleton would have his poor readers conjure up from a single statistic is not by any means as rosy as he claims. Japan’s artificially low jobless rate, kept down by a tacit agreement among players in “Japan, Inc.” (for which there is ample indirect evidence), may look attractive from the US, the UK, or any other unemployment blackspot, but paradoxically it gravely weakens the competitiveness of exporters, impedes productivity growth in the service sector in particular and economy as a whole, and serves as a massive barrier to wealth creation.
Even the headline unemployment number, while low, has more than doubled, to 4.5% in the latest Labor Force Survey, from 2.1% in 1990. And Fingleton would rather not let you in on some of the other features of the Japanese labor market in the “outstanding success story” of the last two decades: the rapid growth in the number of poorly paid non-regular workers (now approximately a third of the workforce), the evisceration of the middle class, stagnant or falling real wages, and rising inequality, all extensively, indeed exhaustively, documented in the vernacular press and readily apparent in the data.
• According to skyscraperpage.com, a Web site that tracks major buildings around the world, 81 high-rise buildings taller than 500 feet have been constructed in Tokyo since the “lost decades” began. That compares with 64 in New York, 48 in Chicago, and 7 in Los Angeles.
Now we enter the realm of the surreal. No one of sound mind would take skyscraper construction as anything other than the loosest conceivable proxy for economic vitality. Take Rome: no skyscrapers at all by the 40-storey/150m/500ft definition, with the tallest building being the 22-storey Palazzo Eni, constructed way back in 1962. Yet who would dispute “il miracolo economico”, Italy’s equivalent of France’s long Les Trente Glorieuses post-war boom. The pace of skyscraper construction is dictated by a myriad of factors, among them cultural predilections, population densities, technical considerations, the already installed skyscraper base, and the availability of land, to name a few, with the state of the economy—as long as it is not in a state of utter collapse—at best a bit part player in the drama.
And of course Japan was busily building skyscrapers in the 1990s and beyond: the Earthquake Nation was very much a latecomer to the skyscraper party. There was no skyscraper by the above definition in Japan until arrival of the Tokyo World Trade Center Building (1970), and it was not until the 1980s that quake-resistance technologies advanced to the extent that Tokyo skyscraper designers pushed past the 150m mark with confidence. Even by 1990, neither Osaka nor Nagoya had a single skyscraper, and Tokyo a mere handful.
Fortunately I have some numbers to hand that gives a more nuanced view of the Tokyo office market than Fingleton cares to concern himself with. They slice the data a different way: here we are dealing with office buildings with gross floor areas of over 10,000 meters squared. As the Bubble inflated, the number of these buildings going up rocketed, and remained in the 40-50 annual new build range between 1989 and 1994, before collapsing to around 15 annually in 1999-2001. There was a spike up to 42 in 2003, which was the consequence of large tracts of former Japan Railways marshalling yards becoming available at Shiodome and Shinagawa in the late 1990s, coupled with the colossal Roppongi Hills complex, but the 1994 Bubble high of 47 buildings (I count 1994 as part of the Bubble era for these purposes because of the three to five years it takes to build a large Tokyo office block) was never regained. Mori Building, a major property developer, expects the supply of office buildings of this size to collapse over the next few years, falling to just five in 2015.
There’s another way of slicing the data, too: total office space in Tokyo’s 23 wards. Let’s compare 1980-1994 (the end of the Bubble for real estate) and 1994-2009. For the former period, office space rose from 33.2mn meters squared to 65.7mn, effectively doubling. For the latter period, it rose from 65.7mn meters squared to 89.6mn, up by just over a third, a marked slowdown in growth indeed, with the annual percentage gain between 1999 and 2009 exceeding 2.0% in only one year, very much what you would expect in an economy with nominal GDP growth closing in on zero.
Skyscraper demand has been driven by the shift to service industries (another belated phenomenon in Japan that helps to explain why the skyscraper boom came late), more office space per worker (a trend that has gone into sharp reversal if my experience is anything to go by), and of course population growth (up by a quarter in Tokyo and its three key surrounding prefectures between 1980 and 2010). But the Tokyo Metropolitan Government, in its Tokyo Worker Projections, expects the number of office workers in Tokyo’s five central wards, which had been rising last decade, to flat-line between 2010 (1.88mn) and 2020 (1.86mn), which does not bode well for asking rents, which are now at a post-1990 low, vacancy rates, which are now at a post-1990 high, nor the future of skyscraper construction, apart from the odd replacement one, in Tokyo.
• Japan’s current account surplus — the widest measure of its trade — totaled $196 billion in 2010, up more than threefold since 1989. By comparison, America’s current account deficit ballooned to $471 billion from $99 billion in that time. Although in the 1990s the conventional wisdom was that as a result of China’s rise Japan would be a major loser and the United States a major winner, it has not turned out that way. Japan has increased its exports to China more than 14-fold since 1989 and Chinese-Japanese bilateral trade remains in broad balance.
Though some may say current account surpluses and deficits don’t matter, I’m tempted to give Fingleton the benefit of the doubt on this one—the only quarter he will get from me—as the surplus plays a critical role in funding chronic government indebtedness. But those current account surpluses will not be with us forever.
Current Account Surplus Down 85.5% in Nov
Nikkei, January 12, 2012
TOKYO (Dow Jones)—Japan’s current account surplus contracted for the ninth straight month in November, falling 85.5% from a year earlier, the Ministry of Finance said Thursday.
The surplus in the current account, the broadest measure of Japan’s trade with the rest of the world, stood at Y138.5bn in November before seasonal adjustment, the data showed.
As longtime Japan watchers like Ivan P. Hall and Clyde V. Prestowitz Jr. point out, the fallacy of the “lost decades” story is apparent to American visitors the moment they set foot in the country. Typically starting their journeys at such potent symbols of American infrastructural decay as Kennedy or Dulles airports, they land at Japanese airports that have been extensively expanded and modernized in recent years.
As these opinions are wholly subjective and not open to analysis, I will only add a couple of subjective comments of my own. A US informant tells me that both Kennedy and Dulles are still perfectly serviceable airports. Not having had the pleasure of their acquaintance—I don’t get out much—I couldn’t say. But I do know that compared to the sterile, deserted concentration camp that is Narita (Tokyo’s principal international airport), with its scant retail pleasures, I much prefer the teeming souk of my own London Heathrow, for all its shabbiness, as a future vision of the world.
William J. Holstein, a prominent Japan watcher since the early 1980s, recently visited the country for the first time in some years. “There’s a dramatic gap between what one reads in the United States and what one sees on the ground in Japan,” he said. “The Japanese are dressed better than Americans. They have the latest cars, including Porsches, Audis, Mercedes-Benzes and all the finest models. I have never seen so many spoiled pets. And the physical infrastructure of the country keeps improving and evolving.”
We should be grateful to Fingleton, really, for so many belly-laughs in a single piece, but in particular perhaps for this gem of a paragraph, which had me RoFL, as I believe young people say these days. William J. Holstein is not, by any measure, “a prominent Japan watcher”—he is a minor-league journalist and business consultant who doesn’t have his own Wikipage, has never written a book about Japan, almost certainly doesn’t speak more than a word or two of the language, and as far as his career profile reveals, has never spent more than a couple of months in the country at most.
But Fingleton needs Holstein, because there are precious few people left on the planet who will subscribe to his bizarre worldview. Fingleton’s sheer desperation for comrades-in-arms is nowhere better revealed than in his willingness to quote this sentence: “They [the Japanese] have the latest cars, including Porsches, Audis, Mercedes-Benzes and all the finest models.” This is a pitch-perfect instance of what I have come to call the Grand Hyatt School of Journalism, or what we might label “Roppongi Class Syndrome”, a severe deep-vein thrombosis of the mind that results from never leaving a cosseted, gilded circle of central Tokyo, where yes—surprise, surprise—there are lots of expensive German cars on the road, as there are indeed in every single world capital of a country with a per capita GDP of over $25,000 (and in many poorer ones, too). Here’s a modest little challenge to Fingleton and Holstein, though: go and stand in summer clothing on a mid-February afternoon on a street-corner in Wakkanai, Hokkaido, about 200km from any German car dealer, even a VW one, and count me out half a dozen Porsches, Audis, or Mercedes-Benzes before you cry uncle for fear of hypothermia. German cars account for a paltry 3%-5% of the total Japanese passenger vehicle market.
Why, then, is Japan seen as a loser? On the official gross domestic product numbers, the United States has ostensibly outperformed Japan for many years. But even taking America’s official numbers at face value, the difference has been far narrower than people realize. Adjusted to a per-capita basis (which is the proper way to do this) and measured since 1989, America’s G.D.P. grew by an average of just 1.4 percent a year. Japan’s figure meanwhile was even more anemic—just 1 percent—implying that it underperformed the United States by 0.4 percent a year.
A look at the underlying accounting, however, suggests that, far from underperforming, Japan may have outperformed. For a start, in a little noticed change, United States statisticians in the 1980s embarked on an increasingly aggressive use of the so-called hedonic method of adjusting for inflation, an approach that in the view of many experts artificially boosts a nation’s apparent growth rate.
On the calculations of John Williams of Shadowstats.com, a Web site that tracks flaws in United States economic data, America’s growth in recent decades has been overstated by as much as 2 percentage points a year. If he is even close to the truth, this factor alone may put the United States behind Japan in per-capita performance.
If “he is even close to the truth”, then the US has been in what must have been an almost relentless recession for the last couple of decades (simply deduct 2ppt from 1.4ppt). It must have been a very strange recession, though, for most of that time, what with employers vigorously hiring rather than firing, inflation-adjusted wages rising (slowly, admittedly) rather than falling, and corporate profits and the stock market soaring (the S&P 500 rose from 360 on January 1, 1990, to 1,277 on January 1, 2012).
Perhaps, then—I just suggest this as an alternative interpretation—he is nowhere close to the truth, and neither is Fingleton. I would also suggest that Fingleton knows nothing at all about hedonic regression, hedonic price indices, hedonic quality indices, and the like, and that his “many experts” are nowhere to be found. Attentive readers and those familiar with Fingleton’s oeuvre will by now be beginning to glimpse the two vast and mirror-image conspiracy theories that motivate the Fingletonian world-view: that there has been a long-enduring conspiracy, at the highest levels of the US government, to manipulate the data to present a falsely positive picture of the economy, so as to blind the US people to their growing immiseration, while in Japan, nebulous elites have been furiously massaging the data to present a falsely negative picture of the economy, so as to “blindside” those dull-witted Americans and secretly overtake the US as the world’s preeminent economy. Those nefarious Orientals!
It only takes a moment’s investigation, though, to unearth a 1999 Federal Reserve Board of Chicago working paper, Measurement Errors in Japanese Consumer Price Index, by economist Shigenori Shiratsuka, who is currently Associate Director-General at the Institute for Monetary and Economic Studies of the Bank of Japan and who is an expert on hedonic regression, in which the author tentatively concludes that the Japan CPI has an upward bias of around 0.9%, a very similar level to the 1.1% upward bias to the US CPI found in the Boskin Commission report of 1996, from which Fingleton would presumably be forced to conclude that Japan’s growth has been overstated by a very similar degree to that which US growth has. I challenge Fingleton to explain why the Japanese CPI data must be accurate and the US data not.
If the Japanese have really been hurting, the most obvious place this would show would be in slow adoption of expensive new high-tech items. Yet the Japanese are consistently among the world’s earliest adopters. If anything, it is Americans who have been lagging. In cellphones, for instance, Japan leapfrogged the United States in the space of a few years in the late 1990s and it has stayed ahead ever since, with consumers moving exceptionally rapidly to ever more advanced devices.
No, no, Fingleton, stop it, please, I implore you! My sides are splitting, the laughter is too painful now! While it is true that for a brief spell in the early years of the last decade, Japan’s mobile internet and its advanced feature phones were at the cutting edge, the world has long moved on and left Japan trailing in its wake. Here’s wired.com in December 2011, courtesy TomiAhonen Consulting, ranking 42 countries by smartphone penetration rates. Japan, whose consumers are “consistently among the world’s earliest adopters”, Fingleton would have you believe, could well be number one, no? No. Top ten, though, surely? No. In fact, Japan is tied for 33rd place with Romania and Brazil, at 14%, just behind Thailand in 32nd place. The survey sensibly notes a proviso that both Japan and South Korea have advanced feature phones—but then South Korea’s smartphone penetration rate is already 34%, fully 20ppt ahead of Japan. No doubt Japan will play catch-up rapidly over the next couple of years, but catch-up is not exactly what “leapfrogging” Fingleton has in mind.
There are hosts of other fascinating metrics that show how tentative the Japanese embrace of the Internet has really been: online sales as a percentage of retail sales are far lower in Japan than the developed country average, due to credit-card security concerns (which interestingly are not shared by the South Koreans), online media time consumption is lower than it is in South Korea, China, the US, or the UK, online advertising spending as a percentage of total advertising spending is likewise lower, the money that is spent on advertising is more focused on display than on (more sophisticated) search than elsewhere, usage rates of social networking services such as Facebook are far below those of peer countries, and the Internet is used overwhelmingly for its old-school features—news, search, and e-mail—rather than more up-to-the-minute features such as online music, online gaming, and online banking.
Much of the story is qualitative rather than quantitative. An example is Japan’s eating-out culture. Tokyo, according to the Michelin Guide, boasts 16 of the world’s top-ranked restaurants, versus a mere 10 for the runner-up, Paris. Similarly Japan as a whole beats France in the Michelin ratings. But how do you express this in G.D.P. terms?
I think I will retch if I hear once more the “argument from Michelin” from Japan’s professional boosters—and there are dozens of them, in a Baskin-Robbins array of flavors, out there, however much Fingleton would like the world to think he is a lonely, embattled crusader. We could choose, should we wish, to demolish this comparison on demographic grounds—the Tokyo Michelin guide also includes Yokohama and Kamakura, giving us very roughly one three-starred restaurant per million people, while the city of Paris has only a couple of million folk, and likewise Japan has more twice the population of France—or on pedantic grounds—France has 558 starred restaurants, Japan only 509, but I’d prefer to hone in on the complete and utter irrelevance to the culinary habits of 99% of the population of three-starred Michelin restaurants. All that Tokyo’s 16 three-starred restaurants show is that—surprise, surprise—there is a well-heeled elite in a huge and quite prosperous city that takes its food very seriously indeed. For those of us not privileged to be one of the 1%, our dining-out options are necessarily more limited. For every Michelin-starred restaurant, there are countless thousands of hole-in-the-wall purveyors of affordable eats. The real Japanese food experience, for many a harassed salariman or office lady, is to be found in the cheap solace of a convenience-store bento lunchbox.
Similar problems arise in measuring improvements in the Japanese health care system. And how does one accurately convey the vast improvement in the general environment in Japan in the last two decades?
How does one begin to know what “the vast improvement in the general environment in Japan in the last two decades” could possibly mean?
Luckily there is a yardstick that finesses many of these problems: electricity output, which is mainly a measure of consumer affluence and industrial activity. In the 1990s, while Japan was being widely portrayed as an outright “basket case,” its rate of increase in per-capita electricity output was twice that of America, and it continued to outperform into the new century.
Forgive my unparalled ignorance, but I have never encountered anyone other than Fingleton attempting to use electricity output and its rate of change as a(nother) proxy for economic vitality. But let’s have a look at the data, anyway, from the US Energy Information Administration. What follows is electricity consumption in billion kilowatt/hours per million people and the rate of change over the decade, 1990-1999.
1990 1999 Pct. chg.
Australia 7.82 9.08 16.1%
Canada 15.49 15.79 1.9%
France 5.70 6.83 19.8%
Germany 6.14 6.05 -1.5%
Japan 6.25 7.48 19.7%
UK 4.97 5.57 12.1%
US 11.41 12.38 8.5%
The first thing to note, obviously, is that the rates of change are all over the place: if we were to apply Fingletonian logic, then France must have been truly flourishing in the 1990s, while consumers and industry in Germany and Canada must have really been suffering. No more than a moment’s reflection is needed to show this up for the arrant nonsense it is. What the high-growth countries—Australia, France, and Japan—have in common is that they are all (mostly) hot in their summers, and I will wager (although for now I lack any hard evidence) that much of the growth in electricity consumption was driven by the—late, compared to the US—spread of air-conditioning. And Japan’s power consumption between 2000 and 2008, years which even Fingleton, I think, could be persuaded to admit were much better for the Japanese economy than the original “lost decade” was, completely stagnated, further undermining his case.
Part of what is going on here is Western psychology. Anyone who has followed the story long-term cannot help but notice that many Westerners actively seek to belittle Japan. Thus every policy success is automatically discounted. It is a mind-set that is much in evidence even among Tokyo-based Western diplomats and scholars.
Take, for instance, how Western observers have viewed Japan’s demographics. The population is getting older because of a low birthrate, a characteristic Japan shares with many of the world’s richest nations. Yet this is presented not only as a critical problem but as a policy failure. It never seems to occur to Western commentators that the Japanese both individually and collectively have chosen their demographic fate—and have good reasons for doing so.
The story begins in the terrible winter of 1945-6, when, newly bereft of their empire, the Japanese nearly starved to death. With overseas expansion no longer an option, Japanese leaders determined as a top priority to cut the birthrate. Thereafter a culture of small families set in that has continued to the present day.
Japan’s motivation is clear: food security. With only about one-third as much arable land per capita as China, Japan has long been the world’s largest net food importer. While the birth control policy is the primary cause of Japan’s aging demographics, the phenomenon also reflects improved health care and an increase of more than 20 years in life expectancy since 1950.
Fingleton here is referring to the Eugenics Protection Act of 1948, which essentially legalized abortion on demand and felled the post-war baby boom just as it was getting into its stride. But to infer from a single piece of legislation passed at a single point in historical time, now 64 years ago, that—perhaps by some heroic act of the Jungian unconscious unavailable to other, lesser nations—“the Japanese both individually and collectively have chosen their demographic fate” is preposterous. The drafters of that act—politicians and bureaucrats, two species not widely known for their deep foresight—could not possibly have known with any precision what the consequences of their legislation would be five years into the future, let alone a century. They were not by any means burning their midnight candles calculating the ratio of workers to retirees in Japan in 2050.
Two other points, both of them vital: yes, a low birthrate is “a characteristic Japan shares with many of the world’s richest nations”, but this emphatically does not mean it shares a demographic profile with them. Largely as a consequence of the Eugenics Protection Act, Japan is aging far faster than any other developed country and its population will decline far faster. Second, Fingleton insinuates that it is only ignoramus Western commentators who regard Japan’s demographic profile as a “critical problem” (which it is) and a “policy failure” (which it is, and a far too late to rectify one). This does a gross, gross travesty to the depth and breadth of the debate in Japan: presumably Fingleton must believe that the 1.3mn search-engine hits that “shoshika mondai” (roughly, “low-birthrate problem”) generates must be misguided foreigners writing in Japanese in a forlorn attempt to persuade a people that have “chosen their demographic fate” to repent and see the error of their ways. For a real understanding of the Japanese demographic situation, I recommend—as I have done before on these pages—Shrinking-population Economics: Lessons from Japan, by National Graduate Institute for Policy Studies professor Akihiko Matsutani, from which for now I offer the following passage (de-italics mine):
The wrenching demographic change in store for Japan will do worse than slow the pace of economic growth; it will shrink the nation’s economy. Negative economic growth will become the norm in the nation that until recently set the pace for the industrialized world. This is because of the all-too-rapid pace of Japan’s aging and of its population decline. The aging of society at a more moderate pace, as in France, would not push the economy into negative growth. Even Germany, whose demographic profile is more similar to Japan’s, appears likely to enjoy positive economic growth for another 20 years or so.
Technological progress raises labor productivity. Japan’s continuing advances in technology would offset the economic effects of a moderate decline in the workforce and support continuing GDP growth. The problem is that Japan’s working-age population will shrink far too fast for the decline to be offset through technological advances and resultant gains in labor productivity.
The all-too-rapid pace of Japan’s aging is also the villain in the nation’s pension system drama. Everything would be a lot more manageable if the aging of Japanese society was proceeding a little more slowly. As things stand, the number of people who pay into the system will decline rapidly even as the number of people who receive benefits increases rapidly. Something has got to give soon and in a big way. Japan will need to increase premiums, reduce benefits, or devise some combination of the two. The outlook for pension systems is also a concern in the European nations, but the problem there is nowhere near as severe as in Japan. That is because the pace of change in the populations of payers and beneficiaries is far more moderate.
Back to Fingleton.
Psychology aside, a major factor in the West’s comprehension problem is that virtually everyone in Tokyo benefits from the doom and gloom story. For foreign sales representatives, for instance, it has been the perfect get-out-of-jail card when they don’t reach their quotas. For Japanese foundations it is the perfect excuse in politely waving away solicitations from American universities and other needy nonprofits. Ditto for the Ministry of Foreign Affairs in tempering expectations of foreign aid recipients. Even American investment bankers have reasons to emphasize bad news. Most notably they profit from the so-called yen-carry trade, an arcane but powerful investment strategy in which the well informed benefit from periodic bouts of weakness in the Japanese yen.
To which I only ask: if the beneficiaries of “the doom and gloom story” are so numerous and the losers so thin on the ground, why does the predominant economic narrative in all countries and at all times not accentuate the negative? (We’ll leave the ludicrous misdescription of the yen carry-trade for another time…)
Economic ideology has also played an unfortunate role. Many economists, particularly right-wing think-tank types, are such staunch advocates of laissez-faire that they reflexively scorn Japan’s very different economic system, with its socialist medicine and ubiquitous government regulation. During the stock market bubble of the late 1980s, this mind-set abated but it came back after the crash.
Japanese trade negotiators noticed an almost magical sweetening in the mood in foreign capitals after the stock market crashed in 1990. Although previously there had been much envy of Japan abroad (and serious talk of protectionist measures), in the new circumstances American and European trade negotiators switched to feeling sorry for the “fallen giant.” Nothing if not fast learners, Japanese trade negotiators have been appealing for sympathy ever since.
The strategy seems to have been particularly effective in Washington. Believing that you shouldn’t kick a man when he is down, chivalrous American officials have largely given up pressing for the opening of Japan’s markets. Yet the great United States trade complaints of the late 1980s—concerning rice, financial services, cars and car components—were never remedied.
The “fallen giant” story has also even been useful to other East Asian nations, particularly in their trade diplomacy with the United States.
A striking instance of how the story has influenced American perceptions appears in “The Next 100 Years,” by the consultant George Friedman. In a chapter headed “China 2020: Paper Tiger,” Mr. Friedman argues that, just as Japan “failed” in the 1990s, China will soon have its comeuppance. Talk of this sort powerfully fosters complacency and confusion in Washington in the face of a United States-China trade relationship that is already arguably the most destructive in world history and certainly the most unbalanced.
I trust that those who came to this unfamiliar with the paranoid machinations of the Fingletonian mind are beginning to see the light.
Clearly the question of what has really happened to Japan is of first-order geopolitical importance. In a stunning refutation of American conventional wisdom, Japan has not missed a beat in building an ever more sophisticated industrial base. That this is not more obvious is a tribute in part to the fact that Japanese manufacturers have graduated to making so-called producers’ goods. These typically consist of advanced components or materials, or precision production equipment. They may be invisible to the consumer, yet without them the modern world literally would not exist. This sort of manufacturing, which is both highly capital-intensive and highly know-how-intensive, was virtually monopolized by the United States in the 1950s and 1960s and constituted the essence of American economic leadership.
Those sly Orientals! They have only gone and hidden “their ever more sophisticated industrial base” from prying Western eyes! I challenge Fingleton to explain in what way it is a graduation to shift from manufacturing, say, a car to manufacturing components for it. Let’s wholly invert what Fingleton says to give an alternative and more accurate reading of developments over the last few years in particular: having been beaten back by the competition in a slew of end-products from mobile phones to TVs, Japan’s manufacturers find their last redoubts are in capital goods and precision equipment. Good places to be, admittedly, for a nation on the technology frontier—no one is disputing for a nanosecond that there are deep reservoirs of strength in the industrial base—but beats have most assuredly been missed.
Japan’s achievement is all the more impressive for the fact that its major competitors— Germany, South Korea, Taiwan and, of course, China—have hardly been standing still. The world has gone through a rapid industrial revolution in the last two decades thanks to the “targeting” of manufacturing by many East Asian nations. Yet Japan’s trade surpluses have risen.
Unease As Japan Nears 1st Trade Deficit In 31 Years
Nikkei, January 9, 2012
TOKYO (Nikkei)—Japan almost certainly saw its first trade deficit in 31 years in 2011, and experts warn that unless the gap is plugged with interest and dividend income from abroad, Japan will continue to see an outflow of money and have to rely on overseas funds for its fiscal management, such as by issuing government bonds.
Japan booked a deficit of Y2.3trn in its balance of trade—exports minus imports—in the January-November period of 2011, according to government data. The red ink is attributed to a slowdown in exports due to the yen’s record-breaking appreciation and an increase in imports of liquefied natural gas for thermal power generation to make up for the suspended operation of nuclear plants in the wake of the catastrophe last March.
The last time Japan incurred an annual trade deficit was 1980, at Y2.6trn. …
“Japan’s trade deficit will expand unless the world economy achieves a high growth rate, as it did in 2002 to 2007, and the yen continuously weakens,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. …
Japan should be held up as a model, not an admonition. If a nation can summon the will to pull together, it can turn even the most unpromising circumstances to advantage. Here Japan’s constant upgrading of its infrastructure is surely an inspiration. It is a strategy that often requires cooperation across a wide political front, but such cooperation has not been beyond the American political system in the past. The Hoover Dam, that iconic project of the Depression, required negotiations among seven states but somehow it was built—and it provided jobs for 16,000 people in the process. Nothing is stopping similar progress now—nothing, except political bickering.
“Japan’s constant upgrading of its infrastructure”—for which read its insistence on wasting money building roads and bridges and trains to nowhere and airports that no one wants to fly to or from—is no inspiration, merely testament to the last gasps of the Construction State in its death throes.
There are many, many more splendid pearls of ignorance on Fingleton’s website, Sandcastle Empire, one of the top drop-down bars of which proclaims, hilariously, “forty years of foresight” and suggests that Fingleton, to paraphrase Churchill on Clement Attlee, is “an immodest man who has little to be immodest about”. So many pearls of ignorance indeed that I may have to pen a follow-up, but for now I’ll lay my blood-soaked quill aside.
It is a disgrace to the Gray Lady that it should have stooped to printing this gibberish. What’s sad is that Fingleton has half a case—there have been a few rays of sunlight amid the pervasive gloom of the last two decades—a case which he proceeds to ruin through truculence and a remorselessly misdirected focus.
Fingleton was a fool when I first encountered him on the Dead Fukuzawa Society message board in the late 1990s and remains an undiluted fool to this day. I can come up with three explanations, plausible and not so plausible, for his behavior: that he is genuinely, unfortunately stupid; that his mentality is such that once cornered, he can cede no nuance of grey in a debate; or that, to cast a Fingletonian conspiracy theory to work on the man himself, he is in the pay of sinister Fulfordian forces, perhaps the “fascist cabal known as the Bilderbergers”. Readers, what do you think?
My first thought when I read that article last week was “Oh, he’s going to get Spiked.”
That was an evisceration, deserved. I do not have the background, nor see the need, to add more analysis. Anecdotes, however, come cheaply:
- tourist sites like Asakusa and Nikko look much shabbier now than fifteen years ago, approaching tropical backpacker destinations in ongoing decay
- the Tokyo ‘bedtown’ where I taught follows a similar trajectory
- an in-law is praying to all the gods to get his middling salaryman job back, after spending three years in a small business that failed, and we all agree it is the best he can hope for
- the chances for graduates of good to better universities are poorer than they have ever been, and for middling schools next to non-existent
- every Japanese person I know would ROFL about his article, if they did not cry first
…
I need to go to bed, but could spend all night adding more.
Thank you for the anecdotes. Asakusa I haven’t been to in years, but I was in Nikko not so long ago and as you say, it looks much shabbier than it did when I first made it there about a dozen years ago. And then there’s Lake Chuzenji… I would imagine the whole area is suffering even more now in the wake of 3/11, as despite not being in Tohoku and not eligible for government handouts, the radiation levels were/are very elevated there. Nice blog, BTW, and that Fixes site is a little gem.
A small suggested correction: I think the date for “Unease As Japan Nears 1st Trade Deficit In 31 Years” should be January 9, 2012, not 2011.
Corrected, thank you.
EB, that was my thought upon reading the Times, too. I would have left a link to this blog on the Times article if they had allowed comments, but none were allowed. In any case I’m sure Mr Fingleton will come across this well-argued rebuttal eventually.
He has been informed…
Thanks for the rebuttal. I read the original piece and was not convinced. On the skyscraper question, it’s actually been discussed as a contrarian indicator for economic activity.
http://www.businessinsider.com/chart-of-the-day-the-skyscraper-index-2012-1?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Money%20Game%20Chart%20Of%20The%20Day&utm_campaign=Moneygame_COTD_011112
Thank you for the link–here’s one back, on the same subject (indeed the same Barclays Capital report).
Interestingly, this theory works quite well for Japan over the last four decades: the Shinjuku Mitsui Building (225m) and the Shinjuku Sumitomo Building (210m), the first two skyscrapers to push past the 200m mark in Japan, were both completed in 1974, as the economy tanked due to the first oil crisis, Sunshine 60 (240m) was completed in 1978, on the threshold of the second oil crisis, and the Tokyo Metropolitan Government Building (243m) and Yokohama Landmark Tower (296m) were completed in 1991 and 1993, respectively, just as the Bubble burst. We could also add the NTT DoCoMo Yoyogi Building (272m), completed for the biggest mobile phone provider in 2000, just as the dot.com bubble burst! I find it somehow amazing that Japan still has six of the world’s 200 tallest skyscrapers (only one built in the last decade, though). That won’t last long, though, as there are 67 300m+/1,000ft skyscrapers under construction. I wonder what apocalypse the completion of the kilometer-plus-high Kingdom Tower in Jeddah in 2016-2017 will presage?
Anyone who watches or listens to NHK have to wonder what planet Fingleton lives on.
No mention of debt in Fingleton’s article either – the over-200%-of-GDP elephant in the room.
Japan’s internal debt is a curious thing. I look at it as people being able to buy bonds instead of being taxed.
Since the Japanese owe this quadrillion of yen to themselves, should a jubilee be declared nothing would change — “savers” would be somewhat poorer and debtors would be less screwed going forward, so if anything the situation would improve for Japan as a country.
But I really don’t understand why Japan can’t get its act together wrt the tax level. The politics of pain avoidance, I guess.
Since the Japanese owe this quadrillion of yen to themselves, should a jubilee be declared nothing would change — “savers” would be somewhat poorer and debtors would be less screwed going forward, so if anything the situation would improve for Japan as a country.
By “jubilee”, do you mean the government completely reneging on its duty of debt repayment? If you do, the savers would not be “somewhat poorer”, they would see their entire savings (or the bulk of them at the very least) wiped out. You don’t for a moment imagine that Japanese people’s principal commitment to the Japanese Government Bond (JGB) market comes through the voluntary purchase of JGBs, do you? That accounts for about 5% of the market, off the top of my head. The other 90% is funneled through banks, the postal system, and the life insurers and is not in any way voluntary by any normal definition.
If you do, the savers would not be “somewhat poorer”, they would see their entire savings (or the bulk of them at the very least) wiped out
Japan’s level of indebtedness to itself is indeed difficult. It is allegedly a nation of savers, yet its savings is coming from simply not taxing people enough to pay for government:
http://www.gfmag.com/tools/global-database/economic-data/10403-total-debt-to-gdp.html#axzz1jqdAMTjd
so Japan is also a nation of debtors, the #1 nation at that on a per-GDP basis.
Who are these “savers” and “debtors” — where is the overlap? Are the savers otherwise solvent without their alleged savings? Can and will the debtors ever repay what they owe the savers?
This is all something of a Carrollian rabbit-hole.
On his blog-cum-website, Sandcastle Empire, he claims that:
The most common criticism I have had is that I did not address the Japanese government’s supposedly out-of-control debt. Actually the original article did address this as well as several other myths not dealt with in the final edit but my comments had to be cut for space reasons (there are so many myths out there you would need to write a book to deal with them — come to think of it I have!).
He then goes on the parrot the usual blather about how the Japanese government can borrow at 1% and how the 200% ratio is “phony”–which it is in a way, as we’d be better looking at the net debt-to-GDP ratio, still a towering 130% or so of GDP–and how it’s all a matter of double-counting due to inter-agency borrowing. At least that last point is one you don’t hear every day (although I have heard it before). I’d be very surprised if he has a good grasp of the actual numbers, though…
Thank you, thank you, thank you. I couldn’t even finish reading the Fingleton article, so gobsmacked was I by his brazen data cherry picking. I knew instinctively (and through my own experiences) that it was 99.9% bullshit, but didn’t have the energy to do the research necessary for a point by point rebuttal. This is brilliant stuff – please don’t ever stop being so awesomely spikey.
Thank you, I’ll try and hone my spikiness just for you!
Who is here because Mark Zuckerberg liked it?
Well, well, Mark Zuckerberg. You never know who’s going to stop by for tea, do you?
cool report
Bravo.
Fingleton reminds me of John Prescott, which I doubt either would regard as a compliment. Prescott’s most noteworthy achievement (other than persuading his secretary to have sex with him) during a long political career has been to turn one lane of the M4 between Heathrow and central London into a bus lane. This he soon judged to have been a success on the basis that it had decreased average journey times into town. It doesn’t require a degree in statistics to grasp that no-one in the two remaining gridlocked lanes was amused by the sight of investment bankers in the back of otherwise empty taxis cruising past them at 50 mph. Unfortunately, I doubt whether more than 5% of The New York Times’s readership understand the difference between an average, mean and median, let alone the difference between analysis and several columns of horse shit, which is presumably the only reason that esteemed organ can get away with publishing the latter.
I think the technical term for Fingleton’s condition is ‘confirmation bias’, a disease we all suffer to some extent. Cherry-picking data isn’t necessarily a crime – it’s what everyone who has ever advocated any strongly held view has done. What is fascinating is the transparency of the self-deception he is practicing. He needn’t necessarily be either stupid or a stooge in some larger conspiracy. Just an ordinary – OK, very ordinary – human being.
My question for Spike is why he thinks Japan remains relatively affluent despite the demographic, political and economic crises that Mr F dismisses.
My question for Spike is why he thinks Japan remains relatively affluent despite the demographic, political and economic crises that Mr F dismisses.
If I may attempt an answer, I think Japan Inc essentially won the game in 1985, back when the yen was at Y240. The Japanese economy was functioning fine at that level of domestic denial, and since then having the yen more than triple in buying power has been a tailwind WRT the development of Japan Inc as a neocolonial power in the American mode.
For all its economic faults, Japan has a very efficient health sector, with a per-capita cost about 1/4th that of the US. Its military budget (~$50B) is a rounding-error on USA’s annual defense loss.
Thanks to its efficient mass transit systems in the major cities, most Japanese don’t need to invest in anything more expensive than a charinko to get around town quickly.
Starting back in 1985 Japan was the general template of Asian cultural development that ROK, Taiwan, HK, and even Vietnam quasi-consciously emulated. And the story since the 1990s has been China also partnering with Japan Inc, to their mutual benefit.
Well, people in the domestic mfg sector haven’t benefitted from Japan’s increasing globalization, but taken as a whole Japan enjoyed a current account surplus that theoretically enriched everyone eventually, or would if the loot was distributed more evenly.
The fact of the matter is that Japan is in fact an immensely wealthy nation. Just looking over the Tokyo cityscape on a clear day and seeing the thousands upon thousands of big-ass modern buildings is a mind-altering experience for me, for while some people just see buildings I see the crystalization of Capital. This shot from the Tokyo Tower illustrates the point well enough — the smallest building you can see in that is no doubt worth $20 million or so. Just multiplying that urban valuation out to its full extent shuts down my brain.
If a country can house, feed, educate, and hospital itself, it is wealthy. By this measure, how can Japan not be considered fantabulously wealthy?
Now, as the above picture also demonstrated, this wealth is distributed rather centripetally in Japan, and that’s a major challenge for them this century as their population draws down and the periphery continues to hollow out. But overall I’d rather have Japan’s problems than the US’s or China’s problems. Better to be too small than too big.
If a country can house, feed, educate, and hospital itself, it is wealthy. By this measure, how can Japan not be considered fantabulously wealthy?
But all (developed) countries can do this to a greater or lesser extent. Give me some more precise metrics by which to measure success or failure.
But all (developed) countries can [house, feed, educate, and hospital themselves] to a greater or lesser extent. Give me some more precise metrics by which to measure success or failure.
“to a greater or lesser extent” indeed — universal access to these social goods for the population is my standard of success. (I define social goods as ‘that which is necessary to become and remain a productive member of society’).
Wealth is simply that what makes us well, that provides the utility we seek in everyday life. My idea of a virtuous economy is one with a balanced, dare-I-say symmetric flow of wealth among everyone.
I admit to be something of a physiocrat, and think that so much of any modern economy is captured by rent-seekers that do not produce wealth but are attached parasitically on the actual (wage-earning) wealth-creators.
Housing in Japan got nuts when the baby boom started establishing households, and there’s still plenty of rent-seeking going on here, alas, but, like the nordic eurosocialists, the Japanese government does attempt to actively intervene in the free market’s rapacity in this area, to mixed results alas.
Japan’s food situation is more troubling, and as Thomas Jefferson said, “Whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right”; TEPCO lightly dusting an entire prefecture with cesium AND much of Tohoku’s fishing establishment getting literally wiped out last year did not help matters in this department, either.
But Japan has the lowest-cost health care sector in the world: http://www.kff.org/insurance/snapshot/OECD042111.cfm
now, the value you’re getting for that low expenditure is questionable, but at least rent-seeking in the health sector is not strangling the wider economy to the degree it is in the US.
In my manner of naive economic analysis, I prefer to “follow the money” — how & where money flows in an economy — in, within, out; between producers & consumers, and also the critical recirculation provided by government.
Japan’s current account surplus was for a long time in the $150B/yr range. On a per-capita basis, that’s 15万 away from akaji. AFAICT there’s nothing wrong with that — that’s a nation living on the whole within its means.
To answer the question,
http://www.cbc.ca/news/canada/story/2011/12/30/happiness-index-canada.html
is one measure, but I would extend that to analyze why and what % people are “unhappy”. 85% happy people living high on the backs of 15% brutally enslaved is not a great economy, either.
Unfortunately, I doubt whether more than 5% of The New York Times’s readership understand the difference between an average, mean and median, let alone the difference between analysis and several columns of horse shit, which is presumably the only reason that esteemed organ can get away with publishing the latter.
Which may mean that we are truly f**cked, because if New York Times readers don’t know the difference between an average, a mean, and a median, then we can be sure that the readers of the New York Post don’t.
I think the technical term for Fingleton’s condition is ‘confirmation bias’, a disease we all suffer to some extent.
I meant to look up the marvellous Wikilist of cognitive biases to defraud my readers into appearing smarter than I am, but ran out of time. Mr. F might just be a very ordinary human being, but I’m increasingly of the opinion that he’s quite a nasty little thug.
My question for Spike is why he thinks Japan remains relatively affluent despite the demographic, political and economic crises that Mr F dismisses.
The demographic crisis hasn’t really begun to bite, the political crisis is a bit of a side-show–well-oiled countries can run on for a long time untroubled in the face of political paralysis–and as for the economic crisis, well, Japan was a very rich country in 1990 and mere stagnation isn’t enough to make it a markedly less rich one in 2012. I thought a lot about this last weekend: we often use the expression “stagnant economy” and because it’s at heart a metaphor, we often by associaton think of stagnant, lifeless, ponds where only algae thrive. I think this is at work in the dissimulation that Mr. F practices–”Look”, he seems to say, “You call the economy stagnant but there were all these signs of activity, such as skyscrapers being built, how can you possibly reconcile these manifest pulses of life, of activity, with the stagnation you describe?” But there will still be offices built, cars bought, jobs to be had (for some) even in décroissance, the state Japan is about to be dragged willy-nilly, like it or not.
we often use the expression “stagnant economy” and because it’s at heart a metaphor, we often by associaton think of stagnant, lifeless, ponds where only algae thrive.
A lot of people a lot less clever than Mr. Fingleton also don’t understand that even after a prolong economic slump expecting a mature economy (Japan being “more mature” in some ways than others) to come roaring back with 4% or more sustained increase in GDP is unlikely. Catching up Pent up or tamped down consumer demand amounts to only so much “stuff” that the citizens of wealthier countries (like Japan and the U.S.) didn’t or couldn’t buy for a couple of years and this doesn’t amount of demand equal to the same sort of growth seen in “developing” countries where every household doesn’t already own two cars, two televisions or what have you.
To be sure, “trading up” occurs, but real and sustained growth in mature economies only happens when there is a new economic itch to be scratched. Beyond consumer electronics, there isn’t all that much for Americans to spend much money on (and the price of these continues to come down) since the majority of Americans (and Japanese) are pretty well provided for otherwise. I always think of it in the way Marx saw imperialism as the last expansionary gasp of capitalism (though he sort of missed the trick that these “lesser” nations he saw as being exploited by imperialism could become new, valuable markets themselves) – once you’ve covered shelter and food, there is only so much room for additional consumer consumption before people reach a glut/limits to personal consumption slowing, as counter-intuitive as this may seem.
In the previous thread I brought up the employment situation of women who want to enter the workforce. I think that is an important analysis point.
And it’s also why I’m not a doomer about Japan’s demographic challenge — I for one think some depopulation will do Japan a lot of good this century.
The transition is going to increasingly suck, but there are some savings to be had in a shrinking society.
As for building in Tokyo, I do find the growth that’s happened since I left in 2000 to be rather stunning. But I think Tokyo is a special case as it’s only ~1/3 of Japan.
In the previous thread I also questioned how the trade surplus had any meaningful effect on Japan’s quite massive fiscal imbalance. Japan has the opposite problem of China, a currency that is too strong and not too weak, so ISTM the JCB is not doing a diligent job of converting its dollar holdings into unsterilized JPY adds.
Speaking of currencies and Japan’s economy, I think a dominating fact is the JPY-CNY currency cross.
http://www.chinapost.com.tw/business/asia-china/2012/01/05/327976/Minimum-wage.htm
says a factory wage in Shenzhen is $240/mo, ¥18500, or ~¥100/hour. How can Japanese labor compete with that???
As for CPI deflation, I think the yen moving from ¥240 to ¥80 over the past 25 years has given a nice continuous downward pressure on the domestic price level.
Since for some stupid reason the only foreign language I’m reasonable fluent in is Japanese, I find I have a vested interest in understanding where Japan is going this century. Back in 1992 I made a blind leap from Los Angeles to Tokyo, and while I had a great time in Japan in the 1990s, I had absolutely zero understanding of the nation’s rather serious fiscal situation going in.
But now, having studied more of the world’s economy, I don’t know what to think about Japan’s prospect vis-a-vis the ROW. I think Canada and Oz should be doing OK this century given their smaller populations and much larger resource base, but I do sorta think the yen being at ¥76.9230769
does give the PTB some rather impressive leeway to effect macro change should they desire to.
At the most basic analysis, I like economies that can pay their way in the world. Japan seems OK on this score. The US, UK, and elsewhere, not so much.
The nuclear policy turn-around is going to prove to be a nut-punch to Japan’s economy I fear. Cheaper petrol is one major benefit to end aka. Losing that would suck.
Few japanese women ever rise to any position of authority, and even the Cabinet rarely has more than one token woman in there.
In Richard’s previous writings on Rumoi (see above), he said quite a few Japanese women marry non-Japanese(mostly white) men to stop participating in Japanese economy.
Despite of the presence of a few japanese Empresses (who were actually very powerless, except for one or two, and were forbidden to marry and forced to retire to a nunnery at a young age), women rarely held ANY power in Japan, a condition which continues to this day.
I wasn’t talking authority per se but the basic ability to support a household, even if that household is just oneself.
When I was working in the 1990s in Tokyo I was too clueless to understand that the Yakult drink lady making her way to our office every morning was really an indirect form of social welfare.
An economy without enough jobs is a pretty scary thing.
When I was working in the 1990s in Tokyo I was too clueless to understand that the Yakult drink lady making her way to our office every morning was really an indirect form of social welfare.
How old was she, out of curiosity? My neighborhood Yakult lady is stooped lower than the trolley she pushes so valiantly over the ruts on the bridge.
But is this an efficient form of social welfare? Was she, conceivably, earning less than the state could have afforded to pay her in welfare benefits if the state were willing to accept a bit more unemployment and a more dynamic economy as a result?
Ultimately, though, I think most of it comes down to the ideology of work and the shame of idleness, a shame that large parts of the West have shrugged off. Don’t forget, you don’t know your old Yakult lady’s personal circumstances, do you?
In Richard’s previous writings on Rumoi (see above), he said quite a few Japanese women marry non-Japanese(mostly white) men to stop participating in Japanese economy.
I said that?!? I had a look back at the Rumoi post, can’t see where I said that, regardless of whether it’s true or not. Could you direct me? And how, BTW, do you know my name?
Don’t forget, you don’t know your old Yakult lady’s personal circumstances, do you?
Looking back on it, my Japanese coworkers were trying to drop the hint to me that they were buying the stuff from her because they felt obligated to do so since we were making money and she was trying to.
She was in her 40s.
Ooh, young! But is this really so different from an Avon Lady? Apart perhaps from the unit price of the goods sold? (Which must cost peanuts to produce and have quite large mark-ups, given the size of the plastic bottles and the extraordinary ordinariness of their contents). I wonder how unviable they really are…
The nuclear policy turn-around is going to prove to be a nut-punch to Japan’s economy I fear. Cheaper petrol is one major benefit to end aka. Losing that would suck.
Just to take one point, otherwise we’d be here all night… Yesterday TEPCO announced 17% rate hikes for industrial users. For reasons that are for now a tad beyond my ken, consumers are going to be spared (presumably because they vote). That will further hurt the competitiveness of high-grade steel exports (that are forged in the Kanto region) to the rest of Asia, for starters. Not sure though how you associate the end of nuclear, if that’s what it is, with higher petrol prices…
Not sure though how you associate the end of nuclear, if that’s what it is, with higher petrol prices…
Losing nuclear as an option makes it harder to replace petrol power for battery power.
Moving to a weaker yen regime would be a double-whammyと思う, given how dependent Japan still is on oil import.
Losing nuclear as an option makes it harder to replace petrol power for battery power.
It may or may not do (I doubt it, personally), but why on earth would the loss of nuclear cause petrol prices in Japan to rise?
Moving to a weaker yen regime would be a double-whammyと思う, given how dependent Japan still is on oil import.
Not at the moment, I don’t think, not with the trade surplus/deficit in rough balance. What you lose on the swings of higher energy costs you
win on the roundabout of an export boom.
but why on earth would the loss of nuclear cause petrol prices in Japan to rise?
Japan is the #3 importer, at ~5mbpd, ~7% of current global production.
I’m something of a Peak Oil person (ie. energy supply will be increasingly constrained for the remainder of the century if not millennium), so if Japan is unable to shift the ~50% of its economy that runs on oil to alternatives, the significant extent of their share of global demand will drive prices higher.
If supply plateaus (or G-d forbid, falls), price will allocate who gets the oil.
What you lose on the swings of higher energy costs you
win on the roundabout of an export boom.
Yes, I agree that a weaker yen regime would be net-beneficial since it’s my guess that there is more profit embeddable in the finished goods Japan exports than the raw goods you import.
Complicating matters is that ¥100/hr labor rate that Japanese factories in China currently enjoy. But doubling that to ¥200/hr does not seem catastrophic compared to the windfall profits a ¥160/USD regime would bring Japanese mfg overall.
Japan is the #3 importer, at ~5mbpd, ~7% of current global production.
But oil is not used at all any longer for electricity generation in Japan–or if it is it is distinctly marginal, I don’t have time to dig up the data–correct me if I’m wrong. So the shift to battery-powered electric vehicles, which is anyway a decade or two away, will be dependent on LNG and coal supplies in the absence of nuclear, and I think we can trust our friends in Qatar and Australia on both these scores. You haven’t convinced me at all of the logic of the connection between the loss of nuclear and rising petrol prices.
I’m something of a Peak Oil person
Yes, I suspected as much… There is therapy available for this ailment, you know…
If supply plateaus (or G-d forbid, falls), price will allocate who gets the oil.
And hence Japan will do comparatively well, in its current position.
You haven’t convinced me at all of the logic of the connection between the loss of nuclear and rising petrol prices.
Indeed, nuclear may not be that economic of a choice on khwr/megayen basis, compared to fossil fuel generation.
While I am something of a Peak Oiler, I still hope and partially expect the market will be able to produce $100/bbl oil equivalent out of just about anything carbonaceous, even from ナマコ should events devolve so.
Fingleton may be a victim of the Dunning-Kruger effect, in that he thinks he is a better journalist than he is.
Sad that the once-great NYT has sunk to such depths that it publishes such bilge. Somewhere recently there was an angry notice on a blog of a poll by one of the high poobahs of the NYT posing the question, should newspapers be arbiters of the truth? You can see it here:
http://publiceditor.blogs.nytimes.com/2012/01/12/should-the-times-be-a-truth-vigilante/?pagewanted=all
And how sad that for decent analysis of economic matters, one must turn to online blogs. Has Al-Jazeera approached you yet for reportage?
Ah yes, the Dunning-Kruger effect, I’d forgotten about that beauty.
The best lack all conviction, while the worst
Are full of passionate intensity.
I’d be fascinated to know more about the cross-cultural variations mentioned at the Wikipage and how the D-K effect plays out in Ireland…
Truth–it’s a tricky one, isn’t it? (ahem) I was constantly impressed when researching this piece, I must confess, with how in a narrow
sense, Fingleton is not lying (he lapsed perhaps over the trade surplus, but that is forgivable). In the broader sense, he is, by
ignoring anything and everything that’s inconvenient to his case, but you could, say, be a Republican presidential candidate and mount a perfectly
decent presidential bid without having to stoop to an outright falsehood but at the same time be grossly distorting the reality of the US
between late 2008 and now.
Nothing Fingleton wrote would have exercised an NYT “fact-checker” but I nevertheless think that noone could get away with this kind of garbage
about any other OECD country, so there is a certain double-standard at work. Why, I wonder, did the commissioning editor (if newspapers still
have people with such quaint titles) not either 1) sound out the wider world on Fingleton’s reputation before commissioning or 2) send the
finished article around once it was submitted? OK, I’m living in a fantasy world where it’s forever 1990, aren’t I?
No, no phone call from Al-Jazeera yet…
Nothing Fingleton wrote would have exercised an NYT “fact-checker” but I nevertheless think that noone could get away with this kind of garbage about any other OECD country, so there is a certain double-standard at work. Why, I wonder, did the commissioning editor (if newspapers still have people with such quaint titles) not either 1) sound out the wider world on Fingleton’s reputation before commissioning or 2) send the finished article around once it was submitted?
But it’s been this way with the NYT since, interestingly enough, the early 90s. First is was FOB David Sanger. He, apparently, knew next to nothing about Japan, doesn’t speak or read the language and proceeded to write either trite “Japan sure is different” articles or “analysis” that bordered on fantasy. He was followed by Nicholas Kristof who proceeded to do exactly the same thing for his tenure.
Japan was a frustrating fascination for Americans during the Bubble with reaction ranging from the positive, because it meant a rapid increase in sushi restaurants, to extremely negative because of all the perceived economic doom – Japanese auto companies beginning to bury the Big Three, trophy RE purchases (most of which soured badly) and the idea that Japanese investment was beginning to warp domestic government and business policy.
It’s not that it’s still 1990. Rather, we just have such a short attention span that once the press loses interest in something, it just disappears and in the case of Japan, we never “got it” to begin with. It’s sooo inscrutable, you know?
I remember Kristof, although not Sanger. Kristof caused quite a stir in Japan. Wonder whether you ever came across this real obscurity of a tome, Japan: Made in USA
Amazon.com: Japan Made In U.S.A. (9784812306154): Zipangu: Books
which is essentially an annihilation of Kristof. Didn’t do any lasting good, though: we still see endless outpourings of drivel from the Western media like this:
http://www.guardian.co.uk/commentisfree/2011/dec/27/japan-men-sexless-love
There are probably only three narratives acceptable to the mass media in the West about Japan: “it’s doomed”, “it’s about to take over the world” (popular, as you say, in 1990, but popular only with Fingleton these days), and “it’s full of kinky freaks, weirdos, and pederasts”. Pretty much everything falls into one of those three categories, anywhere below an elite media that includes the FT, the WSJ, and the Economist. Noam Chomsky–not someone for whom I have too much patience–once said that if you really want to know what’s going on in the world, read the business press, because business elites can’t afford to lie to themselves. He meant it conspiratorially, of course, but I think in a more open way he’s right.
Strangely though, the Gray Lady’s recent Japan coverage, especially post-quake, has been generally excellent, as they had, I thought, realized the error of their 90s ways and hired Japanese bilingual journalists for the most part. Even Martin Fackler, who I do believe I’ve had a go at before, seems to be turning in some decent stuff:
http://www.nytimes.com/2012/01/10/world/asia/okushiri-japan-rebuilt-after-a-quake-is-a-cautionary-tale.html?_r=1&ref=martinfackler
So the Fingletonian lapse came as something of a shock…
I’m going to have to read that (“Japan: Made in USA”). I’d like to see what Reid, who I always enjoyed and was one of the few American reporters once living in Japan who actually understood the language, and Norm Fields “In the Realm of the Dying Emperor” was great, particularly as I happened to be living there when he went.
A fine spiking and thank you Pachiguy for doing it with your usual style and wit.
A closer read of Fingleton’s bio indicates he was a graduate in economics from Trinity College in 1970. Much as I like Irish people Trinity College has churned out some appalling economists and businesspeople in the past decade or so. We have one merrily gutting Qantas in Australia as we speak.
I suggest Irish economists should have the good manners to remain silent for a very long time.
One of the many things that disturbs me about Fingleton is that his “ideas” about the supremacy of manufacturing appear to be finding a receptive audience in the Republican presidential race. It’s difficult to isolate his influence, which is probably in a band from zero to minute, from a greater populist contempt for finance and other service industries that was triggered, understandably, by the global financial crisis, and doubtful, even if a Republican (aka Romney) were to win, that they would have much fiscal room to implement an industrial policy, but even so, I think it would do no harm to the world to send Romney and Fingleton on an outing to Foxconn in Shenzen, make them both go through a week’s worth of work on an Apple assembly line and see if they come out of that singing the praises of manufacturing.
Hi, new here. I liked your analysis, but I have a few questions about your points.
You mentioned the fact that Japan is aging far faster than other western countries. Does this factor in the fact that the west has constantly replenished its population via immigration to a much greater extent than Japan?
I’m not sure that the fact that life expectancy grew slower than othe rcountries actually means anything. Just like the Dutch with height, no one knows if there is a plateau vis-a-vis life expectancy, so a slower growth rate could just mean that (unlike those countries), Japan has picked the low hanging fruit. I know I may be contradicting myself a little, but I should also point out an alternative. With the exception of Korea, none of the developed countries listed had a lifespan gain >6 (from the data you’ve shown). So Japan managing to keep up with the US and UK despite being in a lost decade is impressive.
Finally, Fingleton’s point on electricity as a sign of prosperity. Keep in mind most western nations have been obsessed with energy efficiency over these past decades. That has something to do with the lower numbers.
On the other hand, the US has been rapidly deindustrializing.
http://static.seekingalpha.com/uploads/2009/12/23/saupload_mfg1.jpg
As per that link, the US has lost over 1/3 of its manufacturing jobs. If Japan managed to avoid this fate, it would show up as higher electricity consumption per person. So that data could go either way. I don’t know enough about Japan’s manufacturing jobs per year to see how Japan has fared.
Finally, for manufacturing. You mention that Japan’s “last redoubt” is precision equipment. In a globalized world where more and more manufacturing is done in the 3rd world, is this not a good thing. When everyone is losing, the person losing least is winning. This might create a few chuckes, but this is a common view on Wall Street.
Thank you very much.
You mentioned the fact that Japan is aging far faster than other western countries. Does this factor in the fact that the west has constantly replenished its population via immigration to a much greater extent than Japan?
To a minor degree, but it’s primarily a consequence of sub-replacement fertility since the early 1970s, very close to sub-replacement levels since the early 1950s, and a very short post-war baby boom.
So Japan managing to keep up with the US and UK despite being in a lost decade is impressive.
I do see your point, but as I mentioned from the outset with the (extreme) Cuba example, realtively minor differences in GDP growth rates in developed countries shouldn’t have a great bearing–or at least are unlikely to be the dominant factor–in life expectancy gains.
Finally, Fingleton’s point on electricity as a sign of prosperity. Keep in mind most western nations have been obsessed with energy efficiency over these past decades. That has something to do with the lower numbers.
Absolutely this is a factor at work, a very hard to quantify variable.
As per that link, the US has lost over 1/3 of its manufacturing jobs. If Japan managed to avoid this fate, it would show up as higher electricity consumption per person.
You might think so, but it’s much more complex than that. The service sector uses huge amounts of electricity, too–consider the average Florida shopping mall. All I am arguing against ia facile comparison between (rates of change in) electricity consumption and “economic vitality”.
Finally, for manufacturing. You mention that Japan’s “last redoubt” is precision equipment. In a globalized world where more and more manufacturing is done in the 3rd world, is this not a good thing.
There are areas of manufacturing sufficiently sophisticated for them to still produce well-paying jobs and general prosperity. Boeing can still manage it, Rolls-Royce can, and in Japan companies like Fanuc, the world’s biggest manufacturer of industrial robots can. Not forever, maybe, but for now.
Well done sir! I have been doing my own bit of Spiking in response to friends posting Eammon’s article on their FB sites. But you’ve done a truly thorough job in demolishing him. As I wrote to a friend of mine, Eammon has all the true believer spirit that Chalmers Johnson and Karel van Wolfern had, but with none of the substance. And those two were wrong too.
Thanks again, Ron (a founding member of the Dead Fukuzawa Society; thanks for citing it. Those were the days!)
They were the days! Why isn’t there anything around now as feisty as the DFS was in its day? There isn’t, is there? Is there? Personally, I think CJ was right in his time and that KvW did a bloody good and eye-popping job in the circumstances, but I’m open to debate (and it was so long ago that I read either the mental sap may not have been at peak springtime levels). But anyway, thank you for your contribution to the establishment of the DFS, I have many fond memories of the place. Who was the nutcase that used to rant on about WWII weaponry, do you recall?
Superb, thanks for taking the time to get this up. No clue why so many “Japan Watchers” continue to wear rising-sun goggles. Or why they think any criticisms from foreign-residents counts as “Japan Bashing”. I love Japan dearly as my home now and would never produce such nonsense as that NYT article.
Another explanation for Fingleton’s writings: The man is neither stupid nor pigheaded; rather, he is intentionally writing contrarian nonsense which he correctly gauges will be taken at face value by a general audience, and for which he has determined there is sufficient demand.
I know my Fingleton, I fear, and that is too rational, too calculating for him–he is genuinely in the grip of a delusion.
Great analysis, its a pity it won’t be published in the NYT – I’ve seen Fingleton’s article referenced a lot (including by thebrowser.com, which should have known better). I’m afraid that it has set a meme loose.
I’d only disagree on one point – Heathrow Airport is a hellhole, I’d take Narita any day!
Shocking that the browser.com picked it up, indeed. Evidence, perhaps, that bamboozlement by bullshit is as prevalent as it ever was–and who, really, should be much suprised by that.
Narita–such a lovely place. Unless, of course, you fall into the black hole of immgration control:
http://www.economist.com/blogs/banyan/2012/01/japans-immigration-control
http://globalite.posterous.com/inside-the-gaijin-tank-dungeon-at-narita-airp-91122
Narita is a perfectly fine airport; they just built it in the wrong prefecture.
Oh, thank you! I thought the world had gone even more insane to have to read ‘Ol “Blindside: How Japan is still on track to overtake the US by 2000.” For years, I read everything I could about Japan, no matter how off-beat, but that book was so bad, so absurd and full of nonsense, that I could not finish it. Now he has been published in the NYT (!!!), and it has been tweeted all over the world with many apparently swallowing his nonsense without thinking at all. (Michelin restaurant ratings as some sort of indicator of economic strength! How could anyone possibly come up with that with a straight face?)
Now if only he could convince the Japanese many of whom are so deluded to think Japan has a real problem. Of course, they may already know Japan has no real problem, but are all part of Fingleton’s secret conspiracy to hide Japan’s real strength and vitality. Darned good actors.
Such good actors, indeed, that they’re leaving office blocks in my moderately upscale central Tokyo neighhbourhood empty, valuable plots of land unbuilt on, and shops closed between tenants for months and months at a time just to fool me, the gullible foreigner, into thinking that the might be a worrying dearth of demand for real estate. It’s a Potemkin Village in reverse, with me playing the role of Catherine the Great. As you say, darned good actors.
Wow, great piece! I wrote a response to Fingleton as well raising many of the same points as you, but I think this one was even more comprehensive. Anyway, he responded to me on his website, and if you care to see the back and forth go here:
http://togetrichisglorious.blogspot.com/2012/01/truth-about-japan.html
http://togetrichisglorious.blogspot.com/2012/01/fingleton-responds.html
Again, great work.
Fascinating, and well done for such a comprehensive critique from outside of Japan–I think it helps to live here to gauge the daily realities on the ground. I guess you’re beginning to learn what a dishonest impostor the Fingleturd is.
Fingleton and James Fallows both burst upon the scene (and by “the scene” I mean my somewhat addled consciousness) in a 1991-ish Atlantic Monthly issue featuring lengthy essays by Fingleton and Fallows on Japan and China, respectively. It was the usual guff about the virtues of central planning, and even though Japan had already turned the corner by then (Richard Katz has demonstrated how Japan exited its Era of High Economic Growth in 1973, actually), the essays made for compelling reading. So I bought Fingleton’s book “Blindside: Why Japan Is Still on Track to Overtake the U.S. By the Year 2000.” Try not to laugh. Still, when I was complaining to my wife about what a threadbare has-been Japan seems to have become, she said, then why is everyone buying the yen? Things are mostly bad here, I guess, but not _that_ bad, perhaps. Fingleton is still a crank, though.
If we were able to comprehend the mysteries of forex movements, I like to say, we would be sitting on a beach in the Bahamas instead of getting up at 6am to ride the coffins of commuter trains. But one reason that “everyone is buying the yen” is that interest-rate differentials between Japan and the rest of the world have shrunk to next to nothing, which has put a halt to the carry trade. Japanese mercantilism is the dog that finally turned on its owner and bit him to the bone. Please beware, though: *everything* Fingleton writes is wrong, while Fallows is more a case of an over-extended intelligence trying to be too smart about too many things at once, an over-ambitious fox if you like.
This article provided much needed comical relief in the broker community.
For a few minutes I felt like the late 80s were back (you wish!) and keiretsu bankrolled chrysanthemum club “intellectuals” told me how other countries should learn from Japan.
Then I came back to reality, aghast as to how the NYT could publish such a stereotyped, poorly researched article.
You brokers! You don’t understand how all those well-paid jobs in the capacitor industry (see Sandcastle Empire, I’m not making this up) are stealing away the industrial might of the West!
gyatsola, agree about Heathrow. A shocking example of human failure in almost every area. Makes my awful hometown JFK look good in comparison. Narita a barren desert but at least it’s clean.
Narita–lovely place. Unless, of course, you fall into the black hole of immgration control:
http://www.economist.com/blogs/banyan/2012/01/japans-immigration-control
http://globalite.posterous.com/inside-the-gaijin-tank-dungeon-at-narita-airp-91122
Given your past skewering of the Economist, you surely must be posting these links in irony! Note that those perceptive commenters at the Economist called this loser out from the get-go. As a result, Mr. Johnson was “revising” his blog daily to suit his story as this “event” was transpiring.
Why the Economist chose to pick up on this piece of internet fiction is beyond me.
On an unrelated note, I find that I need to keep google maps open as a reference non-stop as I read your posts!
Anything you want from me! Spiritually I look on to the matter, my sister country Japan, many things I have to tell about, must not calculate 2+2=4, It is not that It is 5 or other than 4, no comparison, we should Gain or Lose, Both are good for health. America’s fate hides behind the solution of Palestinian issue, North South Korea Issue and many other issues. God’s blessing and willingness is looking at official of Washington administration. What for the Big Brother Post.
“Anything you want from me!”
OK, Why is Japan your “sister country”?
I appreciate the author’s well researched rebuttal to Fingleton’s NYT article and I think both parties have presented compelling evidence in support of their arguments. Unfortunately, this makes it extremely difficult for me to reach an accurate conclusion on how Japan is faring relative to the Anglo-Saxon economies.
While this blog has provided an illuminating view of Japan, its description of a decaying society is laughable compared to what I see happening here in the American midwest. Not only are we suffering economic displacements, but these displacements have lead to rapid social and cultural deterioration as well. Drug related crime and theft have skyrocketed, and our local municipality is pretty much bankrupt. Yet there is hope, maybe we can get another Japanese auto company to open a factory here to provide employment and raise tax revenues. Perhaps we can get a highspeed rail network built here as well. I hear the UK government contracted a japanese company to bring highspeed rail to Britain. It appears that the nation that invented the railroad no longer has the technical expertise nor industrial capacity to build a modern rail network on their own. Maybe those “doomed” orientals can do the same thing here plus provide financing for the project. It’ll just be a drop in the bucket compared to the other 800 billion dollars we owe them.
I’m not worried, the Japanese are doomed so we probably won’t have to pay them back anyway.
It’ll just be a drop in the bucket compared to the other 800 billion dollars we owe them.
Japan’s holdings of treasuries surpassed $1T late last year:
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
Allocating this holding to Japan’s 7 million baby boomers, that’s $140,000 per boomer. Not bad! Though whether the US will be able to move itself to actually pay a dime of this back is an open question at this point.
Or alternatively, allocating it equally across Japan’s 128mn people, a less impressive $7,812… While if we divide Japan’s gross government debt of approximately one quadrillion yen by 128mn, we get Y7,812,500 or about $85,000 per person. All depends on how you slice the numbers, doesn’t it? And beware of the bewitching power of large numbers: $1trn sounds like a lot, but in a $15trn dollar economy like the US, it’s less than a month’s worth of GDP. None of this is intended to gainsay the severity of the US debt problem, just to add some perspective.
While if we divide Japan’s gross government debt of approximately one quadrillion yen by 128mn, we get Y7,812,500 or about $85,000 per person.
Wow, the Japanese on average are so stupendously wealthy, what with their per-capita ownership of $8000 in US debt on top of their per-capita ownership of $85,000 in JGBs. : )
My point about Japanese boomers and US treasuries is that the Japanese do need to save to pension off their boomers, and external savings are all that matters in this regard.
Obviously things are more horrendously complicated and intertwined than all these naive analyses.
One interesting factoid I like wheeling out is that the Norwegians have quietly amassed around $100,000 per-capita in global equity and debt ownership in their oil “pension” fund:
http://www.nbim.no/en/Investments/Market-Value/
though they did take a nasty $10,000 per-capita hit in the MRQ. Beware Greeks and all that I guess.
“While this blog has provided an illuminating view of Japan, its description of a decaying society is laughable compared to what I see happening here in the American midwest”
Read this blog and then watch “Requiem for Detroit” about the demise of that city. The scale of the demise there will make pachiguy’s photos of empty buildings look rather weak. You can drive around any developed country lamenting the dilapidated buildings and lack of young people but the fact remains that Japan is very wealthy.
Unfortunately, this makes it extremely difficult for me to reach an accurate conclusion on how Japan is faring relative to the Anglo-Saxon economies.
Well, here’s a very crude measure that’s nevertheless revealing: GDP per person employed at constant 1990 purchasing power parity dollars, which among developed countries at least should smooth out changes in exchange rates, inflation, and the size of the workforce. The numbers come from the World Bank, here:
http://data.worldbank.org/indicator/SL.GDP.PCAP.EM.KD?page=3
From 1991 to 2008, GDP by this measure rose 21.0% in Japan, 23.5% in Germany, 21.5% in France, 12.6% in Italy, 45.2% in the UK, 35.8% in the US, and 84.0% in South Korea, leaving Japan at GDP of $45,587 in 2008, trailing all but Germany at $42,588 (because of East Germany) and South Korea (at $40,261) and compared with the UK at $51,697 and the US at $65,480.
While this blog has provided an illuminating view of Japan, its description of a decaying society is laughable compared to what I see happening here in the American midwest.
Societies exhibit their underbellies in different ways. Japan has a relative poverty rate (household income below 50% of the median) of around 16.0%, worse than all but two OECD members (the US and Turkey), but I can’t find you panhandlers, trailer parks, or even many people living on park benches. This poverty is not on show, because poverty is shameful in a way that it isn’t any longer in the West, it’s single mothers in crumbling housing projects out in the suburbs trying to bring up kids on intermittent alimony payments, widowed pensioners without savings ekeing out an existence on the standard state pension of Y60,000 or so a month (about $800–which was about $500 at the 2005 exchange rate). It’s a Sunday shoe shop made of cardboard boxes on a sidewalk on a danchi housing complex in the heart of Tokyo, run by a couple who must be in their 70s, where prices start at Y1,000 ($12, but $8 not so long ago).
Drug related crime and theft have skyrocketed, and our local municipality is pretty much bankrupt.
Had Fingleton deigned to mention crime, drugs, or even general orderliness, I would have conceded the advantage to Japan immediately. All I chose to do was to rebut his points, one by one.
Perhaps we can get a highspeed rail network built here as well.
It’s very unlikely that you need one, anywhere in the Midwest.
I hear the UK government contracted a japanese company to bring highspeed rail to Britain. It appears that the nation that invented the railroad no longer has the technical expertise nor industrial capacity to build a modern rail network on their own.
Ah, the saga of Agility Trains… Your comment fascinated me enough to spend some stolen hours this afternoon looking into the subject. There are only three rolling stock builders left in the West of any size: Alstom in France, Siemens in Germany, and Bombardier in Canada (although most of their production is overseas, mainly in Europe). That is as it should be, I think. Nations specialize in what they are good at, this is the theory of Ricardian advantage; it’s been around since 1817 as a cornerstone of economics and is really only contested by the mercantilist East Asian approach. What you have in Japan in the rolling stock industry, by contrast, are five majors–two more than in the whole of the West!–and two super-majors, Kawasaki Heavy and Hitachi. But the Japanese railway industry, for all its technical expertise, is hamstrung by too many companies doing the same thing and reinventing the wheel not twice, but time after time. Here’s a brief digest of the five:
Kinki Sharyo (7122) – sales set to fall 43% YoY this year to Y30bn, half the level as March 00
Nippon Sharyo (7102) – sales to fall 11% to Y84bn, about same as March 00
Tokyu Car – Sales of Y60bn in FY3/10, loss of Y3.4bn, Y35.5bn in FY3/11, loss of Y6.8bn
Kawasaki Heavy (7011) – Sales of Y131.1bn in FY3/12, OP of Y8.2bn (sales up 2x since March 00?)
Recent overseas orders include ones for the Washington Metropolitan Area Transit Authority and NYC Transit
Hitachi (6502): Railway systems business FY3/11 sales of Y133.1bn
The smaller three are cosseted by an entirely protected domestic market; only Kawasaki registered in the Top 10 in global sales in 2009. Bombardier alone almost certainly outsold the entire Japanese rolling stock industry in that year. So much for the global prowess of Japanese trains and the errors of the West. This is the failure of Japan in a nutshell: failure to wean oneself off the domestic market, failure to shed high-cost structures, failure to internationalise.
So Hitachi’s victory in the UK’s Intercity Express Program, apparently the biggest rolling stock order ever placed, is an exception to the prevailing trends, and a very controversial one, given the closed Japanese market.
But again I will say, no, I am not sad that there is no domestically owned rolling stock manufacturer in the UK and only one (Bombardier) plant left. Mistakes were made along the way, to be sure, but to go back to where we started out, the GDP numbers tell a different overarching story.
I disagree that “comparative advantage” has anything to do with mfg, other than e.g a given locality’s cheap hydroelectric supply making arc furnaces more economic to run¹.
As for GDP, as I was trying to get to in my voluminous above, what really matters is what services and goods are actually available to the public. The US spends $2.5T on health care vs. Japan’s $350B — that’s $2T missing from Japan’s GDP but do the Japanese actually suffer (to that extent) from this spending gap? Since 1990, the US’s per-capita defense expenditure has risen from $2000/yr to $3000/yr². This is good for our GDP but unless we start getting payoffs for this colossal investment of the national weal it’s going to bury us (Japan’s per-capita defense expense is $400/yr).
This graph shows how the US has been living in an immense debt-fueled bubble since the mid 1980s (minus the resting-period of the early 1990s). Of course, Japan has been sailing in similar straits, but the US’s problem is that we are borrowing from our trading partners to continue the game.
I’m no macro expert so I won’t expend more paragraphs expounding upon this but suffice it to say that I think the US’s economy has become completely unhinged, that our GDP is being supported by the monetary equivalent of chewing gum and baling wire, and that the US electorate is going to have to go through significant mindset changes before the programs the 80-million strong baby boom has been promised can be funded.
As for trains, I’m on the fence. The US needs some way of closing the $30B/month trade deficit with oil producers, and we need new infrastructure to soften the shock of losing the cheap-gasoline regime we’ve been enjoying since the mid-1980s.
But AFAICT the top-down rail approach being pursued now is idiotic — I’d rather see the investment in 100,000 natural gas buses, sufficient to serve the transportation needs of ~50M urbanites, at a capital cost of $30B or so.
¹http://mygeologypage.ucdavis.edu/cowen/~gel115/115CH14aluminum.html
²http://research.stlouisfed.org/fred2/graph/?g=4rY
I disagree that “comparative advantage” has anything to do with mfg, other than e.g a given locality’s cheap hydroelectric supply making arc furnaces more economic to run.
You’re taking a mercantilist/economic nationalist position that is contrary to one of the pillars of Western economic thought for the last two centuries, so you better have some seriously good ammunition in your arsenal!
As for GDP, as I was trying to get to in my voluminous above, what really matters is what services and goods are actually available to the public. The US spends $2.5T on health care vs. Japan’s $350B — that’s $2T missing from Japan’s GDP but do the Japanese actually suffer (to that extent) from this spending gap?
But think about all those millionaire doctors, dentists, and surgeons the US healthcare system so generously creates! Joking aside, while there is of course certainly massive need for and room for reform of the system (and very little prospect of it happening), I’m not sure I would want to substract $2trn from US GDP because of the inefficiencies.
Since 1990, the US’s per-capita defense expenditure has risen from $2000/yr to $3000/yr. This is good for our GDP but unless we start getting payoffs for this colossal investment of the national weal it’s going to bury us (Japan’s per-capita defense expense is $400/yr).
But defense expenditure has fallen as a percentage of GDP, if not by as much as Republican congressmen with big military installations in their districts might have you believe, and will fall further if Obama’s Defense Strategic Review plans are carried out. Defense spending has a notoriously low GDP multiplier of about 0.8, but that may or may not be much different to other forms of government spending (the jury seems to still be out) and hence low overall government spending levels in both the US and Japan should work to the benefit of both nations’ economies. You would think Japan would be even more fawningly grateful than they are for their 60-year free defense ride, though…
The LNG bus idea sounds like a grand scheme.
You’re taking a mercantilist/economic nationalist position that is contrary to one of the pillars of Western economic thought for the last two centuries, so you better have some seriously good ammunition in your arsenal!
How’s this?
As for defense-to-GDP ratios, I don’t like the GDP number and prefer to look at ratios to wages:
http://research.stlouisfed.org/fred2/graph/?g=4ti
which shows we all have to work 6 weeks a year to pay for defense.
And I used to think the Egyptian corvée labor had it tough.
How’s this http://www.huffingtonpost.com/ralph-gomory/manufacturing-and-the-lim_b_227870.html ?
Too many non-sequiturs and leaps of logic to count on my mere ten digits.
But Troy, fascinating as this has been, I’m going to have to close down the conversation soon, not because I feel intimidated or vindicated (although I will stand behind the US economy over Japan’s any day), but simply because I need to move on from what was an off-hand piece composed in a hurry to demolish a longstanding (although only very occasionally contemplated) enemy and focus on the next piece, which will have absolutely nothing to do with relative economic might in the modern world and everything to do with pack-horse trains in rural Japan in the 18th century. I suspect it won’t draw the same audience…
. You would think Japan would be even more fawningly grateful than they are for their 60-year free defense ride
This always annoys me.
Russia took what it wanted from Japan in 1945 already.
Japan’s present defense establishment is sufficient to defend itself from N Korea, and due to previous history Japan will need to talk softly and carry a smaller stick vis-a-vis ROK, PRC, and ROC for quite some time still.
Circling around, the next regional threat is the US — are we defending Japan from ourselves?
Aside from the US, the Global Policeman, defense spending is surely generally precautionary and impossible to weigh in a strict cost/benefit balance? You could, after all, mount a good case that says, for instance, the UK needn’t have spent a penny on defense between 1990 and now, because it faced and faces no existential threat (and arguably faced none from 1945 to the present). But I don’t think your argument would have gone down well with the UK electorate.
Russia took what it wanted from Japan in 1945 already.
Ah, but did “it” (whatever a monolithic entity now called Russia might be)?
“In a little known footnote to World War II, Stalin planned to occupy a swathe of northern Hokkaido, from Kushiro in the east to Rumoi in the west, as well as to demand a Soviet zone of occupation in Tokyo akin to East Berlin.”
http://spikejapan.wordpress.com/spike-hokkaido-2/nemuro-the-frog-chorus-sings-%e2%80%9cgive-%e2%80%99em-back-please%e2%80%9d/
As is all-too evident, socio-economics has become something of a hobby horse for me!
But more socio and less eco is fine with me!
As of now, there’s maybe an 80% chance I will be heading back to stay for good — I don’t think my Japanese has decayed much in my 12 years away, and Japan is still #1 in my heart — so I’ll certainly keep reading what you find is going on in Japan.
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Add another to those clamoring to hear the follow-up. Fingleton’s piece is perhaps the single stupidest thing I have ever read about Japan, but my experience is limited. What would you consider the most wrongheaded piece of writing about Japan that you have come across?
Actually, I’ll go for that Fingleton piece!
So to summarize the Japanese Government has been maxing out its credit cards for over twenty years and most Japanese have enjoyed a very pleasant lifestyle as a consequence. However, unless you are Paul Krugman and believe governments don’t have to repays its debts, at some point the bill will come due and that will not be pleasant. As Charlie Sheen would say “Winning”.
http://bluecravat.blogspot.com/2012/01/myth-of-japans-failure-or-as-charlie.html
yet another person who does not understand that the Japanese owe the money to themselves and thus both their internal debt and their internal savings are equally fictional.
The Japanese, however, do happen to enjoy a net ownership of foreign assets at 60% of GDP, e.g. their trillion-dollar holding of US Treasury debt (if present trends continue Japan will be as #1 in this measure again, since the Chinese have liquidated $30B over the TTM while the Japanese have added $250B).
Yet another person who does not understand that the Japanese owe the money to themselves and thus both their internal debt and their internal savings are equally fictional.
Whoa, hold on there! What, ultimately, is the difference between you, Troy, owing $10,000 to Uncle Sam and owing it to John Bull? Please explain. Let’s take a (once) happy family, the family of Japan, as a metaphor. Let’s say you borrow $100,000 from dad, his lifetime savings, and squander it on whatever form of high living takes your fancy. So then you turn round to dad and say, “it’s OK dad, because we’re a family, and we owe it to ourselves”. Do you think dad is going to be OK with that? Or that the family is going to be no worse off, collectively, unless you have a phenomenal repayment capacity? There are no “themselves” in the real picture, once we free ourselves from the blinkers of nationalism and nationality, there are only creditors and debtors, and you really need to think across and beyond international boundaries to get this straight. At this point, I can only recommend This Time is Different: Eight Centuries of Financial Folly, by Profs Reinhart and Rogoff. They make no real distinction between debt owed internally and debt owed externally, except to say the former generally comes due at moments of greater economic pain and is subject to fewer haircuts, because it’s easier to stiff foreigners than your own people. Neither lesson bodes well for Japan.
What, ultimately, is the difference between you, Troy, owing $10,000 to Uncle Sam and owing it to John Bull? Please explain.
I just think money leaving a local economy via trade deficits or investment outflows further entrenches the rentier globalist system.
One of the major sub-themes one can identify in your blog’s topics is that all economies are local.
Keeping the command of a nation’s wealth “in the family” is generally superior to losing it to foreigners.
This was a big sub theme in the 1980s when it looked like Japan was taking over the US, and we’re now revisiting it now that China has taken over that role.
according to Kyle Bass, the japanese government is operationg a ponzi scheme. As long the incoming cash exceeds outgoing, the scheme can go on forever. With the demographics of an aging population and near zero immigration policy, the cashflow situation is reaching a critical level, and its irreversable. Its a train wreck. Regardless of how wealthy Japanese appear currently, or how strong the yen appears to be, the value of the currency is only as strong as the confidence it commands. There is nothing to stop borrowing rates from shooting up once confidence is shaken, at which time Japan could be the next Italy or Greece, but much, much bigger, and definitely too big to fail.
According to Kyle Bass, the japanese government is operating a ponzi scheme. As long the incoming cash exceeds outgoing, the scheme can go on forever.
Ah, my friend Kyle “we hate us some dollar and we hate us some yen even more” Bass. I wonder how his bet against Japanese government debt is panning out these days (actually, I know the answer to that question–not well).
“Ponzi scheme” is a phrase that gets bandied about a little too much for my liking, but you can read my take on Mr. Bass and the Japanese debt situation here:
http://spikejapan.wordpress.com/2011/07/17/japan-how-bad-is-the-fiscal-mess/
It’s not a pretty picture, but there is a way out of the debt maze. Whether it will be taken in time is another question.
I don’t have anything new to add to this particular article, but since I recently discovered this site through a link to it…
Fantastic takedown, and the rest of your archives are even better if that’s possible – I’m sure you don’t need to be told how rare it is to find good English-language journalism about Japan from anyone who actually speaks the language.
Please keep it up! I’ve now spent the better part of an afternoon reading through your archives. They’re at turns edifying, fascinating and depressing; really great stuff.
Glad you’ve been enjoying the archives and thank you for the kind words.
Some really interesting analysis going on with these replies. Regarding increasing Asian ownership of American debt, is it an asset or liability? After all, we may eventually be forced to default and they’ll have to take a haircut.
Is the strength of the yen good or bad for Japan? On one hand it hurts the competitiveness of Japanese exporters, yet the increased purchasing power allows already cash rich Japanese industries to easily make overseas acquisitions. After the bubble burst, could it be possible that massive amounts of debt were transferred to the public sector so that the the private sector could deleverage and re-capitalize, thus eventually leading to another round of foreign expansion? On a personal level, I would rather be in possession of a currency that is increasing in purchasing power.
Of course, relative to Japan, the numbers tell us that America has had significantly higher GDP growth over the last two decades. No doubt, the centers of financial, political, and technocratic power have become fabulously wealthy. But where I live, in “flyover” country, things appear to be in rapid decline. There seems to be two different Americas nowadays, one where the winners live and one where the losers live. ..and an ever growing resentment brewing. Did we blindly pursue short term GDP growth at the expense of societal well being? Now that our own bubble has burst, and in the midst of a prolonged global financial crisis, will we reap the bitter fruit of a social catastrophe?
From where I stand, I reckon Japan ain’t doing so bad.
Regarding increasing Asian ownership of American debt, is it an asset or liability? After all, we may eventually be forced to default and they’ll have to take a haircut.
If the US were to default on its sovereign debt obligations at any point in the coming decade (or two–go on, I’ll stick my neck out), it would be a case of “won’t pay” (due to political and electoral paralysis), not “can’t pay”–and I would say the same thing (just about) for Japan for the next decade. The advantage, although you may not be able to see it that way, to having a third of US debt held overseas (yes, it’s only a third, it’s not like the whole country is in hock to Asia!), is that the US will in all probability face the discipline of the international capital markets much sooner than Japan, where the possibility of a sudden and massively disruptive rise in bond yields is IMHO much greater as gross domestic personal and corporate savings are eventually entirely swallowed by government indebtedness and the foreign, marginal buyer of the (very unattractive) sovereign debt has to be found. And, BTW, if the US is “forced” into a default, the haircuts that the Chinese and the Japanese are forced to take will be the least of the worries of an imploding global economy that will make the Great Depression look like a Sunday school outing…
Is the strength of the yen good or bad for Japan? On one hand it hurts the competitiveness of Japanese exporters, yet the increased purchasing power allows already cash rich Japanese industries to easily make overseas acquisitions.
Acquisitions that do not often go all that well–the only really barnstorming success story of “in-out” corporate M&A in the last couple of decades, AFAIK, was Japan Tobacco’s 1999 acquisition of R.J. Reynolds’ international operations. But noone I have encountered has ever convinced me that yen strength is a sustained net positive for the economy as a whole, especially for a very modest net goods exporter like Japan. BTW, here’s a quiz: guess who comes last among the following countries by net exports per capita (the clue is in the order): Germany, France, Italy, the UK, Japan.
After the bubble burst, could it be possible that massive amounts of debt were transferred to the public sector so that the the private sector could deleverage and re-capitalize, thus eventually leading to another round of foreign expansion?
In as much as the corporates piled up the bad debts, the banks forgave them, and the banks had to be injected with capital by the state, yes. But in the context of overall government indebtedness, these were not huge sums. A trillion here, a trillion there, and we’re still not talking real money… You might be interested in my analysis of Japan’s fiscal black hole here: http://spikejapan.wordpress.com/2011/07/17/japan-how-bad-is-the-fiscal-mess/
No doubt, the centers of financial, political, and technocratic power have become fabulously wealthy. But where I live, in “flyover” country, things appear to be in rapid decline.
That’s American capitalism, none redder in tooth and claw. So move to a more European redistributive state, with much greater intergenerational social mobility, for all the nonsensical guff poured out by the Tea Partyistas about the ‘Merican Dream. Good luck trying to convince your countrypeople of the wisdom of that, though.
Now that our own bubble has burst
The great difference to me between the two bubbles was that it took Japan a dozen years, 1991-2003, to face up to the fact that a lot of its corporates and hence its banks had conspired to sweep catastrophic losses under the carpet. To the considerable credit of the US, which in all respects is a far freer and more open society–and this is really what it is all about–a similar process of diagnosis and rehabilitation took less than two years.
From where I stand, I reckon Japan ain’t doing so bad.
No, it’s not. But have a look at Table 1 here:
http://www.oecd.org/dataoecd/40/12/49170449.pdf
and you’ll see (assuming we can trust the OECD stats) that household incomes 1) rose more slowly in Japan than any other OECD country from the mid-80s to the late 2000s, 2) that the lowest decile in Japan were the only country to see their incomes decline apart from Israel, and 3) the top decile saw their incomes grow more slowly than anywhere apart from Turkey. Now we could get into a long debate about whether narrowing relative inequality (although that didn’t happen in Japan, either) makes people happier, on the whole, than growing wealth and simultaneously growing inequality, but I personally would rather be in the bottom decile in a country in which my absolute income was rising, even if those at the top were getting richer.
Whereabouts in the Midwest are you, BTW?
Blimey. I don’t know where you find the patience. It really was a shame to find such a stream of shite in a serious newspaper, wasn’t it?
Anger breeds patience…
Thanks for the detailed response Pachiguy. There’s no need to get angry, really, I found the information you presented compelling. Also, I think your blog about Japan is one of the more intelligent on the subject. However, I get the feeling that, for some reason, you have a cultural bias against the country and this sometimes causes you to paint an overly negative portrait of how things are over there. I’ve visited the place myself a few times ( not just Tokyo), and as Fingleton points out, there does seems to be a discrepancy between the the “doomed Japan” narrative of the western financial press and what I’ve seen with my own eyes. Though I admit that my experience of the country is no where near as in depth as yours or Fingleton’s.
“And, BTW, if the US is “forced” into a default, the haircuts that the
Chinese and the Japanese are forced to take will be the least of the worries of an imploding global economy that will make the Great Depression look like a Sunday school outing”
So you acknowledge that this is not outside the realm of possibility? IMHO, in view of our ever increasing global trade imbalances, this is not just a possibility, but a probability, This, or the U.S. will be forced to monetize its debt leading to rampant hyperinflation at home and the destruction of the dollar as the world’s reserve currency. Under such apocalyptic scenarios, I would imagine that Japan’s infamous social discipline and cohesion may pay dividends. No pun intended.
“That’s American capitalism, none redder in tooth and claw. So move to a more European redistributive state, with much greater intergenerational social mobility, for all the nonsensical guff poured out by the Tea Partyistas about the American Dream.”
I’m a great admirer of the northern European social democratic model. And it IS very different from the Anglo-American neo-liberal model of capitalism. I think most would agree that Japan’s model more closely resembles the European than the Anglo-Saxon, though distinctly different from both. Unfortunately, with the European sovereign debt crisis, even the hallowed social democratic model may no longer be viable in the future.
“To the considerable credit of the US, which in all respects is a far freer and more open society–and this is really what it is all about–a similar process of diagnosis and rehabilitation took less than two years. ”
But was the diagnosis correct and did the rehabilitation work? For example, why do we have a “jobless recovery”? I have serious reservations about the 2008 crisis being resolved. Many contend that this was the beginning of a severe and protracted global systemic failure and that we have yet to reach the end of it. See, European sovereign debt crisis.
I agree that America is a much more open and freer nation, as these are our highest values. But I can imagine that the Japanese may put priority on a different set of values. Such as having exquisite manners or “being Japanese”. Precisely because I’m open and free, I’m not obliged to tell them that they are wrong. Something I wish my fellow Americans could learn to do with all foreign cultures.
So hey, things are tough all around globe nowadays. George Soros just predicted class warfare coming to America:
http://www.thedailybeast.com/newsweek/2012/01/22/george-soros-on-the-coming-u-s-class-war.print.html
But I’m not worried, because Japan is doomed.
I think most would agree that Japan’s model more closely resembles the European than the Anglo-Saxon, though distinctly different from both.
Japan can almost seem like it has combined the worst parts of both . . . the busybody nosiness of the N Europeans with a somewhat thin social safety net, plus on top of that a big mixture of rampant sexism and disrespect towards women and non-Japanese (not that the latter have particularly/collectively earned any due respect on balance).
But was the diagnosis correct and did the rehabilitation work? For example, why do we have a “jobless recovery”? I have serious reservations about the 2008 crisis being resolved.
Indeed you should. To understand the 2008 crisis one needs to understand the 2003-2007 period. I’ve made dozens if not hundreds of charts on the St Louis Fed’s online charting tool, and I think this chart has the most explanatory power:
http://research.stlouisfed.org/fred2/graph/?g=4ww
The blue line is total mortgage debt / wages (left scale), while the red line is annual mortgage debt take-on / wages (right scale).
Starting in 2000 one can see households collectively blow up their balance sheets by taking on too much mortgage debt. The could do this thanks to a) the “global saving glut” being created from the US’s expanding trade deficit b) being redirected back to US consumers via c) Wall Street securitizing loans that d) funded retail banking giving e) increasingly dodgy loans to borrowers chasing prices up & up thanks to f) the rather total deregulation of the housing sector in the previous decade.
But it’s important to understand that until this all blew up in 2007-2008 this was an immensely virtuous cycle for the US consumer and business environment — the economy was essentially enjoying $1T+/yr of free money injections directly into consumers’ checking accounts via home equity draws.
This latter point is illustrated by the red line moving to 0.17 — that meant households were borrowing 17% of their total incomes in new mortgage loans during the peak years of 2004-2007.
I believe this borrowing was so significant that our turbo-charged consumer demand even pulled Japan out of its doldrums.
Speaking of which, as I said above I think the Japanese financial situation is a very squirelly thing to pin down.
Japan was doing so great from the 1960s through 1980s, then proceeded to blow themselves up by bad investments into the teeth of a land bubble — corruption in Japan was simply colossal in the late 1980s, millions of operators were chasing asset values and not actual productive enterprise.
But be that as it may, it’s the US that owes Japan $1T and not the other way around.
I have zero idea how things are going to evolve this decade and next. I think anyone who says they do is trying to sell you something, too.
pachiguy, thank you for the splendid work you generously share.
Would appreciate your thoughts on an issue in my mind. I am an engineer, not an economist, and thus I speak without confidence on what seems to me plausible — printing YEN would NOT cause hyperinflation, the same way the US has been printing dollars and neither caused the dollar to depreciate nor inflation to rise. Imagine the scenario if the BOJ decided one morning to print, one time only, an amount of YEN equivalent to the Japanese government’s domestic debt (debt owed to Japanese companies and citizens). Then put the money in the bank and vow fiscal discipline, i.e. not increase spending. For the next number of years, use the newly printed cash instead of selling bonds to finance government spendings. Since citizens have the same amount of cash in their hands to spend, there should be no increased demand for goods and commodities. Therefore, I don’t see the prospect of hyperinflation. As for the exchange rate, would not the YEN appear to be a stronger currency when the government debt (domenstic) is reduced to zero? If the BOJ increased interest rate for YEN, would it not further strengthen?
When the USA started their printing presses, I hear it caused commodity inflation. However, isn’t it really just for gold and silver, viewed as a substitute currency? Gold and silver’s inflated amount in TOTAL is a drop in the bucket compared to quantitative easing. There was no inflation because the dollars printed just went to pay off housing loans gone bad on banks’ balance sheet.
Isn’t exchange rate just a result of supply and demand for trade of goods/equities, and less so interest and perceived risk (for savers)? “Total printed currency” don’t seem to be a deciding factor to determine exchange rate.
I went back and forth with this poor fellow the weekend this piece came out and he seemed utterly confused and eventually somewhat hysterical. He seems to enjoy casuistry though he’s not much good at it. The wonder is that the Times ran something so poorly thought through.
I went back and forth with this poor fellow the weekend this piece came out and he seemed utterly confused and eventually somewhat hysterical.
Yep, that’s my Finglefraud!
He seems to enjoy casuistry though he’s not much good at it.
A perfect put-down.
The wonder is that the Times ran something so poorly thought through.
As I said, shame on the Gray Lady. Now I have to go and read your book on Panasonic. Sadly the restructuring back then has proven not to be enough.
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For a much more cheerful look at the Japan of 30 years ago, i recommend these delightful subway posters:
http://www.retronaut.co/2011/09/tokyo-subway-manner-posters-1976-1982/
Retronaut is a classy site in general.
I swear I saw Japanese women marrying foreigners thing somewhere in the Rumoi article, or at least in the comments, but I am unable to find it.
===
Perhaps this is off-topic, but I get to go to Tokyo in the near future; however the plane lands at 5AM Sunday and Tsukiji is closed. I am a loss about what to do until 10 am when most stores begin to open. I have nobody I know in Japan; what’s a good place to spend 5 hours in Sunday Morning Tokyo?
hmm, if one had connections one could probably get some sweet views up in some buildings observation deck prior to the public opening (which seem to be 9 (Tokyo Tower), 9:30 (Shinjuku Tocho), or later (Shiodome Caretta & Roppongi Center).
Maybe the Park Hyatt bar would be open in the AM . . .
Sunrise will be 6 to 6:30 for the next month. . .
If you want to check out the Ghibli museum, they’re out in Kichijoji, which has a rather awesome public park, Inokashira-koen, that would be open in the morning. If you time things right that park has pretty good cherry blossom action IIRC. At any rate you could do worse than spend an hour in the morning there. Pretty spot.
The museum opens at 10, and it takes about 60 minutes to get from Shinagawa to the Kichijoji, so you wouldn’t have much time to kill.
The best route to Kichijoji (Inokashira-sen) starts at Shibuya so you could try to kill some time there, too. The Starbucks opens at 6:30, just about the earliest you can get there. . .
If you’re staying in Tokyo the Cerulean in Shibuya is a decent place, you should be able to drop off your stuff there before check-in, or they might even have the room early for you, it being off-season and all.
The first and 4th sundays of the month there’s a flea market at the Togo shrine in Harajuku, if you didn’t want to get all the way out to Kichijoji. They start pretty early, 9AM might not be too early for them.
That’s all I have . .
Thank you for the tip. I will probably go to Asakusa and spend time in 24-hours-operating Seiyu (the Japanese Wal-mart, owned by the Waltons) until about 8, and will probably walk around from then and go to one of the destinations you recommended…