The True Story of Japan

[Beet]

"...Japan’s average life expectancy at birth grew by 3.1 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...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...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 unemployment rate is 4.2 percent, about half of that in the United States...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 seven in Los Angeles...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
...
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 1.0 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
...
“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.”
...
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....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."...

Conclusion?

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."

http://www.nytimes.com/2012/01/08/opinion/sunday/the-true-story-of-japans-economic-success.html?_r=1&hp

Obviously a lot of the article is junk but it does provide some balance to the prevailing wisdom.

[Beet]

An interesting article that overlooks major societal flaws in Japanese society.

Yes, that is one of the major omissions of the article.

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I'm not sure that lack of marriage by itself indicates a nation in decline. That strikes me as a bit too socially conservative. People can live happy lives, and societies can do well without ubiquitous marriage. The institution of marriage is gently declining across the developed world, largely by choice. To me, the idea that people are not forced into this institution by societal pressure is a positive thing.

The extremely low birth rate is problematic for obvious reasons, but here too, I would say it is not all bad if it is a matter of choice (unlike, say in China). One does not need children to be happy, and if people choose to have fewer children, I don't see why that is inherently bad. It does create problems with economic support later on, but that's a secondary effect. In the very long run however, low birth rates are not only an economic positive but an economic necessity, as the world's population must stabilize if people are to live well on earth on a sustainable manner. Already we have far too many people than could live on the average American lifestyle and not bleed the world dry of resources.

At worst, the low birth and marriage rates are secondary effects to cultural or economic factors (such as psychological disorders you mention), or economic insecurity that prevents household formation for some people who genuinely do want marriage and children but either cannot afford to. Perhaps they are prevented from doing so due to sexist expectations (such as, that a woman will give up her career if she has children) or are prevented from doing so due to psychological depression or withdrawal. These things are the root of the problems at hand here.

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Part of me says yes, but part of me also says that it's a choice and there's nothing inherently wrong with it, so long as these luxuries can be afforded. To me, the relatively high attachment to brand luxury goods in Japan, and also to some extent across East Asia, is a side effect of a relatively hierarchical and group-centered cultural norm (here is where I get accused of 'essentialism'). The brands, help identify both a person's place in the hierarchy and a person's place in a group of similar identifiers.  

[Beet]

I'm coming around to the Wonkish view on this... I don't have access to the inside and professional information he does, but just looking at some pure headline numbers. The Japanese debt is increasingly composed of government JGB as that is the sector of their economy that by far leverages up the most.

While the financial crisis of 2008 stopped the crazy mad leveraging in the US and Western Europe, JGB leveraging has just continued and even accelerated as Japan has run a larger government budget deficit to make up for the 2009 recession, and the Tsunami recession. During the 1990's and 2000's it appears that some of this was counter-balanced by deleveraging in the Japanese private and corporate sectors, as described by Richard Koo in his book 'The Holy Grail of Macroeconomics'. However, in recent years it has reached a point where private sector deleveraging can no longer make up for JGB leveraging because JGB have taken up the lion's share of the total debt market.

Further, now you have that the trade surplus has essentially disappeared, part of which due to global recession, part of due to the Fukushima disaster necessitating a ramp-up of energy imports (although I'm not sure what share this pulls in Japan's total import), and part of due to the strong yen.

So Japan must fall back on its existing net creditor position within the world. You saw this happening at the Fukushima disaster. The yen spiked as there was a sudden repatriation of foreign assets to cope with the disaster. In other words, they may still have one more wind in their sails, which may last who knows how long. But like the cat with nine lives, eventually it will run out.

Wonkish, I know we tend to strongly disagree on this, but what do you think of the possibility of monetary easing and Japan 'inflating' their way out of the situation? It seems that this could happen either to forestall a crisis, or to reflate after a crisis, in a Keynesian style. Hyperinflation is not a concern in my mind because generally, that is the result of a lack of real resources (supply is crushed, as in Zimbabwe and Weimar Germany, the most notorious and extreme historical examples), or in the more likely variant of hyperinflation, as in Latin America (demand and spending exceeds productive capacity) or any country in the wake of a currency crisis, the result of large and sudden foriegn withdrawals of hot money. It does not seem to me that Japan faces these particular problems, and a significantly weaker yen may be just what it needs to regain competitiveness.

The larger problem in Japan has nothing to do with any of this though, it is a general malaise in their society, a sort of fatalistic acceptance of permanent decline, which is quite sad. From that perspective, a total collapse or 'cleansing' of society, WWII-style, might be a good thing.

[Beet]

First, I'll say that I wouldn't count on their being that much money outside of Japan to repatriate. In a normal economy, sure. Japan isn't normal though. Do you have any idea how hard it is for Japanese money to get out of their country?...

Fascinating but unconvincing. First of all, if withdrawing money from the country is as hard as you say, then it would tend to protect their economy from capital flight, which would definitely help them in a crisis, not vice-versa.

Secondly, Japan had a positive net asset position of 250 trillion yen (about $3 trillion) at the end of 2010, and it is relatively stable.

Thirdly, the Tsunami showed that the Japanese are definitely willing to rapidly repatriate funds when needed in the case of an emergency. In case of a true crisis, they're not going to be thinking about how to get the money back out again, just how to get it home and safe, or put to use.

***

However, let me just say that you may be correct. Not for any reason you've argued, except that their net asset position is only a fraction of the size of the JGB bond market, so if there was a true crisis in the JGB bond market, net asset repatration would only be able to cover a fraction of it.

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I'll play taciturn to your verbose.

1. The quantity theory of money is valid in the long run, but not the short term, where monetary transmission is like pushing on a string in a bad economy.

2. Academic papers have concluded that the US Federal Reserve's quantitative easing program reduced real interest rates.

[Beet]

Uh oh....

Japanese Debt Concerns Rise

"...In recent weeks, the cost of insuring against default on Japanese government bonds—a measure of perceived credit risk—has increased sharply, nearing the historic peak at the height of the Greek debt crisis in October. The price for default insurance, through derivatives known as credit-default swaps, exceeds levels seen last March, immediately after natural disasters and a nuclear crisis..."

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I'm not currently seeing this reflected in the Markit data, which shows a decline in CDS spreads for all of the G7 over the past week and month. Here's what they are below.

UK 80
France 170
Japan 130
Germany 87
Italy 421
US 43 (lol S&P)

But the WSJ is looking at a different data set. It's a real concern. As I understand it, Prime Minister Noda is attempting an increase in the consumption tax. If this fails to pass, it could be the trigger of something serious.

[Beet]

The BOJ should head this off at the pass by tapering off 'private' bond sales and simply roll over the debt into the banks hands using fiat currency creation.  Problem solved, and maybe even putting a dent in the merciless deflation and currency appreciation as well.

Perhaps the point of the above post is to bet against the yen

The only risk I see there is if the euro truly collapses, it could send the yen temporarily soaring, but based on the fundamentals of Japan alone, I don't see any further upside for the currency.