Wednesday, February 25, 2009

The Japan lesson

You hear a lot more talk about Japan these days. More specifically there is a re-examination occurring of Japan's economic performance in the 1990s.

In the early 1990s Japan's economy collapsed in the wake of an asset bubble during which time both its stock and housing markets saw massive increases. Indeed, at one point real estate was so out of whack that the Imperial Palace in Tokyo was said to be worth as much as the entire state of California. Even if nothing more than a myth that still captures the state of things pretty well. Its stock market, meanwhile, has declined from about 39,000 in 1990 to under 8,000 today.

Japan's government wanted to fix the problem but, like most governments, wasn't interested in solutions that involved sacrifice or difficulty. Instead Japan adopted a policy of spending lots of money on infrastructure and adopting a loose monetary policy where interest rates were literally zero to encourage borrowing and investment. "Zombie banks" were kept afloat with government funds.

You will notice some similarities between this approach and the one we are adopting today. It is therefore imperative for liberals such as Paul Krugman to defend Japan's approach, because if we expose its obvious errors it raises big questions about current policies that President Obama is promoting. That's rather hard to do since Japan has the most debt of any first world country, a country with anemic economic growth since about 1990 and a electorate that is thoroughly despondent over its leadership. (Junichiro Koizumi, who ran on a reform platform was the only leader to serve more than a couple years in the past two decades while the current Prime Minister has an approval rating of 15 percent)

Just how desperate the left is to defend Japan's record became starkly apparent to me this morning when I read this letter to the editor in today's New York Times from a senior fellow at the Tellus Institute:
Re “When Consumers Cut Back: An Object Lesson From Japan” (front page, Feb. 22):

The so-called Lost Decade in Japan raises an interesting question: What exactly was lost? Recycling bath water to do laundry. Plummeting sales of whiskey. Dramatic reduction in car sales.

Contrary to the prevailing dark assessment of Japan in the 1990s, these changes sound like a country shifting its consumption habits for the better, living within its means and reducing its environmental footprint.

Dependence on ever-expanding consumerism to fuel an economic recovery is not only undependable; it is also unsustainable.

Perhaps the current recession is a time for American consumers to rethink what well-being really means. The words of one Japanese college student are telling: “I just want a humble life.”

Allen L. White
Boston, Feb. 23, 2009
These people are recycling bath water and this is an example to uphold?

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