Japanisation: the economics of extended stagnation
Posted on Thursday 25 August, 2011
Filed Under Economics
NEOLOGISM of the week award goes to the Financial Times for coining the term ‘Japanisation’ as a shorthand description for current economic trends in Europe and North America.
You can read just what various commentators intend by the word here, but if you want it in plain English, the underlying idea is that the rest of us are set to undergo an the extended period of stagnation like that which has beset the world’s third-largest economy since the early 1990s.
The most interesting part of the article was the parallels drawn by Andrew Milligan, head of global strategy at Standard Life Investments in Edinburgh, who ‘point[ed] to eight characteristics he feels contributed to Japan’s inexorable decline: stock market and property crashes; zombie banks; deflation; zero interest rates; political stalemate; poor demographics; and a high debt-to-GDP ratio.’
No other country is an exact match for this profile, as the article rightly insists. Yet the other way of looking at this is that many countries do display the majority of these traits. So there is a prima facie case that we would do well to look and learn from across the Sea of Japan, as George Osborne might put it.
Throughout the post-war long boom, Japan saw sustained growth comparable to that seen by China since Deng Xiaoping’s turn to capitalism. From 1950 to 1973, GDP rose at an average rate of 7.4% per annum. Even after the oil shock of the mid-1970s, it still came in at a respectable 4% a year.
All that was to change in the early 1990s, after the property bubble of the previous decade burst. From 1992 to 2002, average annual growth fell to less than 1%. While obviously not on a par with the Great Depression, total output is now over 30% smaller than it would be if the performance of the previous period had been maintained.
Policy makers have tried everything in the Keynesian playbook. Nominal interest rates were cut to zero, taxes were cut, billions of yen was spent on infrastructure and money in even greater quantity was pumped into the economy.
As a consequence, the ratio of government debt to GDP from 13% in 1991 to 90% in 2006. It now stands in excess of 225%, or more of less three times the 76% seen in the UK right now.
Yet despite doing everything that leftwing economists recommend that countries like Britain should do now, nothing worked. Moreover, since 1995, Japan has even had to contend with deflation, a phenomenon not previously experienced anywhere else in the OECD.
The mainstream explanation is that Japan became the victim of a so-called ‘liquidity trap’, a situation in which the rate of interest is so low that nobody in their right mind wants to hold interest-bearing assets.
That being the case, expansion of the money supply can have no impact on aggregate demand, and does not stimulate investment. With British interest rates at just 0.5%, that is a point the Bank of England would do well to ponder.
Stagnation is a very different proposition to economic collapse, of course. Even after two decades of relatively poor performance, Japan’s GDP per head is only fractionally behind that of the UK after Gordon Brown’s famous 63 consecutive quarters of economic growth.
Unemployment – on official figures, which like everywhere else understate the case – has fluctuated between between 4%-6%. That is high in comparison to what was seen in the past, but minimal when seen in the light of the 20%-plus rate currently experienced in Spain.
Lefties should note that the extended period of ‘neither boom nor recession’ did not lead to any radicalisation at the political level. Although the ruling Democratic Party of Japan can at a stretch be described as centre left, the stress would strongly be on the first of those two adjectives. In any event, prime minister Naoto Kan has just quit. Meanwhile, once powerful trade unions remained quiescent.
If Japan does point the way ahead, the scenario is not that of an apocalyptic final collapse of capitalism that still implicitly underlies the analysis of some commentators that no doubt consider themselves sagacious Marxists. It will instead just feel like endless hard times.
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‘That is the way the world ends,
Not with a bang, but a whimper.’.
T S Eliot.
The Wasteland.
that’s the conventional wisdom, however:
http://seekingalpha.com/article/288071-the-myth-of-japan-s-lost-decade
I feel the need to reach for the Krugman:
http://web.mit.edu/krugman/www/jpage.html
I’d rather live in Japan that Britain though. Stagnation or no stagnation.
SueR. Just pretend to be a Geisha and kneel down. Put Japanese Boy on the turntable and reminisce.
Richard Koo published a book several years ago called the Holy Grail of Macroeconomics – Lessons from Japan’s Great Recession which I found very convincing when I read it.
Argued that the 1929-1939 Great Depression was like Japan’s current everlasting one a balance sheet recession (this solution to the what caused the GR is the holy grail of his title) – companies simply borrowed far too much in the boom years and when when a recession hit dedicated themselves to longterm deleveraging rather than to short term profit maximisation.
This means that neither neoclassical austerity measures or Keynesian demand management solutions to the crisis can actually work as intended – companies will just not invest and expand output until they have got their asset/debt ratio back to a reasonable level again and this will logically take much longer than a normal 1-2 year recession to achieve.
But Koo does argue that Keynesianism does much less harm – it may not deliver the recovery promised but public expenditure keeps the depression from deepening further and provides the new infrastructure that the private sector will eventually benefit from when they finally see fit to expand output again.
Japans experiments with austerity in the 1990s and 2000s however prove as disastrous as those of most western governments were after 1929.
If I read him correctly Nouriel Roubini now seems to be taking a similar line on solutions although starting out from a different set of premises to Koo.
Hang on – I seem to have wandered into the wrong comment box….
Sue,
You are misquoting (should be ‘this’ and not ‘that’) The Hollow Men and not The Wasteland.
Better luck next time.
Is there no end to your talents, Mr Roger? Respect as the youngsters say. You are quite right about ‘This’ rather than ‘That’: I can’t imagine how I made that mistake. I just re-read the poem, first time in thirty or thirty-five years, must say, Eliot is such an elegant writer. According to the American crib notes appended to the poem, ‘The Hollow Men’ is considered an appendage of ‘The Wasteland’. I didn’t realise either that it refers to ‘Heart of Darkness’ by Conrad, and in the film ‘Apoclypse Now’, the Kurtz character recites ‘The Hollow Men’. You’re never too old to learn.
I would prefer not to live in Japan. The general political conservatism I can deal with (I live in Hong Kong, quite conservative politically, although changing), but the homogeneity and strain of racial supremacism in Japan (which still exists) are not really my cup of tea.
storm in a tea-cup old chap
Keynes advised burying bottles of money and employing people to dig it up when asked how to get money in circulation during the liquidity trap that was a symptom of the great depression (when investors preferred cash even at incredibly low interest rates).
“If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again . . . there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.”
Every race (although ‘race’ doesn’t exist, but we will use the term as sociological shorthand)thinks it is the best: the Bantus in Africa did/do not regard humans practicing other culturs as human, the I-Kiribati in the West Pacific did/do not regard non-I-Kiribati speakers as fully human, Chinese call Caucasians ‘white devils’, so I’m not bothered by racial superiority. Outside of socialism, it’s only to be expected. It all comes down to what you expect socity to provide.
The Government seems to have harkened to Mr Jelly (quoting Keynes). it said on the Ceefax today that they are trying to get rich people (philanthropists) to set up projects in poor areas. Maybe someone will come up with teh Treasure Hunt idea. Actually, that could be bloody brilliant. Bury lots of money in a disused quarry somewhere, and charge people £5 a time to dig it up, so you make money at the same time. You could be like the National Lottery, and give a percentage of the profits to charity and keep the rest. I think I might do that ….
Sue,
Sorry to be such a know it all – but Eliot and Yeats are the only poets who I can still quote large chunks of from memory.
I can see how you confused them – there are both reactionary and allusive meditations on the decline of civilisation and THM has its ‘this is the dead land’ section as well.
But stylistically they are worlds apart – for a start THM weighs in a mere 96 lines and can be read without footnotes to explain every obscure literary allusion and untranslated chunk of French, German or Sanskrit.
Anyway as even the news from Libya can’t shake my growing conviction that we’re now way beyond any reasonable hope of redemption I’ll take your Hollow Men and raise you with a Second Coming:
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: a waste of desert sand;
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Wind shadows of the indignant desert birds.
The darkness drops again but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?
And to out-pedant myself the above is (of course!) from the first edition and omits the addition of ‘somewhere in sands of the desert’ after ‘troubles my sight’ and the substitution of ‘reel’ for ‘wind’ that you might remember from later editions.
Such are the dangers of copy and paste.
A man on a mobility scooter with 3 owls on the handlebars – nobody ever believes me
http://www.bbc.co.uk/news/uk-england-tees-14555495
is still being paid by the northumbria pigs and is ALSO suing them
http://www.guardian.co.uk/uk/2011/aug/25/policeman-blinded-moat-arrested
1) PC werld gone mad
2) Elf and Safety nazism
3)brokEnn BritaiiN
Mr Roger: I never did mention Yeats. But I’ll see you with Edward Lear:
There was an old man with a beard,
Who sat on a horse when he reare;
But they said, “Never mind!
You will fall off behind,
You propitious Old Man with a beard!”
Have you got your Pauper Bonds yet? Great Investment offer from the Government. Invest in ‘Problem Families’. Returns of 3-12% if they stick to the straight and narrow, Fuck all if they don’t. Hurry, hurry, hurry!!! This investment offer won’t last. Pauper Bonds.
BTW – is it creepy of me to suggest that Benjamin Mackie is an idiot?
No. Thought not.
benjamin mackie – an irritating insect bite and a shit that resists the flush. all told – a cuernT
‘reared’
SueR:
What are you, Sewer, some kind of poet?
Great Investment, Lobby. Steady streams of new paupers coming onto the market continually. Forget ‘huggahoody’, go for ‘social impact bonds’.
SueR. The Tories when getting into power cancelled the NS&1 Index-Linked Savings Certificates. Your idea could catch on.
Not my idea, Jimmy, the Tories. A pilot scheme has been running at Peterborough Prison, and they are wheeling it out for Westminster and Birmingham Councils. Further details on the BBC website. Buy, buy, buy, Pauper Bonds.
SueR. I think I will go into gold. Tyndrum north of Loch Lomond has a company hoping to dig for gold in an old mine. All sorts of riff raff and criminals are expected. Just my scene. Maybe Mr jelly will turn up with a shovel. Aye.
Mr Jelly. That was uncalled for. I was only giving my thoughts on the subject of the post. There is no need to be that personal.
fuck off mackie. You utterly banal tosser.
A well written article.
Japan I am afraid does show the future with nil economic growth, particularly with peak oil starting to have an affect.
Also to accompany this a mainly apathetic depolitical population
What is the standard of living like for the average (ie workingclass) Japanese family? I was very impressed with the scenes of the towns devasted by the recent tsumani. It all looked very clean and modern. (The tsunami knocked it about a bit, and the nuclear pollution won’t help, but that is an extraordinary circumstance). I was also very impressed with the families living with great dignity in the homeless shelters. Everything very neat, orderly and clean. No doubt someone will say, that there is bureaucratic indifference etc, but I don’t knowd how much the state impinges into peoples lives except in extreme circumstances. Ie what’s the health service like there? I do knowd that non-Japanese cannot get Japanese nationality and that they are excluded by many laws, but how is life for workingclass Japanese people?
It should be added that Japan is just as caught up in the debt problem as the US and Europe, and austerity has been pushed through their also. So stagnation is the least of their problems.
It seems obvious to me that these advanced economies are creeking because they are unable to compete with the low wage low living standard economies of the developing world. The rich who control vast swathes of the world where they monopolise the raw materials and create islands to hide and protect their loot, have decided to put their capital into the shit holes of the world and are saying to the West, become a shit hole and we may invest in you too. Advanced capitalism really has reached its limit and is becoming fettered. I predict a riot.
This coming period will no doubt see the need for Marxists to refine their theory of the state as nations battle to weigh domestic stability with the competing needs of international capital. Already the HMRC has done a deal with the super rich in Switzerland – give us some crumbs off the table and we will keep your anonymity in tact. The USA want more, they want names of the tax dodgers. But if the republicans get in expect them to suck up to the super rich.
All in all its playing out pretty much as one would expect, we are now just waiting for the revolutionary class to get revolutionary. Start tapping your feet or whistling or whatever you do to pass the time.
Can you indicate in which ways you see the Marxist theory of the state being refined?
The Marxist theory of the state is effectively tied to nation states imo. Now the theory has of course been refined many times but we are approaching a period in which I believe the conflict (or non conflict) between states and the worlds wealthiest people will come to a head. This will provide further empirical evidence for Marxists (and non marxists) to refine the theory.
How that theory is refined depends on the outcomes. I don’t fully buy into the idea of state as tool of the ruling class. I am still undecided on the issue. So don’t look to me for answers!
an incoherent mess.
why am i not suprised
Interesting to read another article today in the Guardian about super rich people actually asking to be taxed at a higher rate because they can afford it. I’m not daft or naive enough to think that they are all sat there in unity ready to hand over their piles of wealth, but the fact the likes of Warren Buffet are now publicly stating that they know they have effectively won the real life game of Monopoly and that there is no need for them to physically gather any more and they are prepared to put big chunks of back to the state in taxation.
I blame a lot of our ills on the widespread worship of the rich by the British political classes – the all too familiar sight of the likes of Mandelson crawling to the millionaires and suchlike. The awful reality is that many politicians aspire to be rich and live the same lifestyle as the billionaires but are often not themselves particularly rich in that scheme of things. Even your average Tory cabinet minister (bar perhaps one or two) isn’t anywhere near wealthy when compared to the likes of Branson etc…
It is clear to me that our politicians are spineless and terrified over what the super rich might say or do if faced with any sort of direct order to assist governments financially. And I believe it is mainly because they aspire to be personal friends with the billionaires and now collectively believe that proposing anything that may be slightly offensive to the rich would be akin to committing the worst social faux pas imaginable.
It has to be said that London and the UK, for some reason, remains one of the prestigious global hotspots to live in for many of the super-billionaires next to the likes of California. Taxes may be lower in Bulgaria or in China or anywhere else – but who actually wants to choose to live in those places if they can afford to live anywhere? Why politicians seem so collectively terrified of making them pay a bit more to live luxuriously here in almost unrivalled security and peace as they obviously all do is a complete mystery to me.
The rich employ a whole army of people to reduce their tax burden. Even the ones living residing here are paying a fraction of the taxes they could be. They save tens of billions of pounds a year avoiding tax. The current negotiations with the Swiss show that nation states are more than willing to allow these wealthy individuals/companies to go on paying next to nothing. The broadsheets were all over this story last week, tax experts were ridiculing Osbourne’s capitulation.
Obama stood firm and asked the Swiss for names but the Republicans are waiting in the wings to help their wealthy friends out. Like they did when Clinton went after Microsoft.
In France Billionaires came out and said tax us, we should be paying more!
Only some serious and widespread domestic civil disobedience will force the hands of governments.