Japan's Lost Decade: All Too Real

A blog about business and economics.
Jan. 9 2012 4:09 PM

Japan's Lost Decade: All Too Real

108425527
Mount Fuji rising up behind the skyscraper skyline as the sun sets over Tokyo.

Photo by KAZUHIRO NOGI/AFP/Getty Images

Back in 2005 when I was working at the American Prospect we published an interesting piece by Eamonn Fingleton arguing that the idea of Japan being stuck in a lost decade was a total myth. I thought it was an intriguing argument that blended two good points with a bad one, and I don't think that's changed between 2005 and when he made it on the New York Time op-ed page over the weekend.

Good point the first: You need to adjust comparisons of Japanese economic performance for the very different demographic structures of the countries, once you control for demographics Japan is doing better than it looks at first glance.

Advertisement

Good point the second: There's more to life than GDP growth. Japan is a nice place to live, Japanese people are very healthy, enjoy a high level of customer service, and Japan has relatively little in the way of violent crime and severe social distress.

Unconvincing point: The lost decade is a myth.

The numbers are just really clear on this. Forget GDP stats. Japan's employment-population ratio has fallen steadily since 1990:

1326143084745

What's more, Japan's hours worked per employed person has fallen steadily:

1326143119197

And Japan's youth unemployment rate has skyrocketed:

1326143140669

All of this is signs of a country that spent the years 1990-2005 experiencing a lot of excess capacity in its economy. Had their been sufficient demand, Japan had the capacity to produce more. For a brief period of time, Japan got out of the muck and these indicators went in the other direction but then came the global recession which pushed them back down again. What Fingleton's good points go to show is that it's possible for a society to cope better or worse with a prolonged AD shortfall and that Japan has proven to be pretty good at coping. But why settle for coping when fixing the problem is an option?

Perversely, Fingleton cites the strength of the yen as a point in favor of his revisionist account. On the contrary, the combination of a strong currency and a weak labor market is a classic sign of economic slack induced by tight money and insufficient AD. There's excessive demand for Japanese money and insufficient demand for Japanese goods and services. The Bank of Japan ought to be addressing this issue by providing the money the world wants so Japanese workers—especially in the youngest generation—can get meaningful hours on the job.

TODAY IN SLATE

Doublex

Crying Rape

False rape accusations exist, and they are a serious problem.

Scotland Learns That Breaking Up a Country Is Hard to Do

The Most Terrifying Thing About Ebola: It Preys on the Compassionate

The Music Industry Is Ignoring Some of the Best Black Women Singing R&B

How Will You Carry Around Your Huge New iPhone? Apple Pants!

Culturebox

Theo’s Joint and Vanessa’s Whiskey

No sitcom did the “Very Special Episode” as well as The Cosby Show.

Television

The Other Huxtable Effect

Thirty years ago, The Cosby Show gave us one of TV’s great feminists.

Cliff Huxtable Explains the World: Five Lessons From TV’s Greatest Dad

Why Television Needs a New Cosby Show Right Now

  News & Politics
The World
Sept. 19 2014 12:33 PM The Precarious Predicament of Russia’s Neighbors
  Business
Moneybox
Sept. 19 2014 12:09 PM How Accelerators Have Changed Startup Funding
  Life
The Eye
Sept. 19 2014 12:50 PM This Whimsical Driverless Car Imagines Transportation in 2059
  Double X
The XX Factor
Sept. 19 2014 11:33 AM Planned Parenthood Is About to Make It a Lot Easier to Get Birth Control
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
  Arts
Brow Beat
Sept. 19 2014 12:10 PM Watch the Trailer for Big Eyes, a Tim Burton Movie About People With Normal-Sized Eyes
  Technology
Future Tense
Sept. 19 2014 12:38 PM Forward, March! Nine leading climate scientists urge you to attend the People’s Climate March.
  Health & Science
Medical Examiner
Sept. 19 2014 12:13 PM The Most Terrifying Thing About Ebola  The disease threatens humanity by preying on humanity.
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.