Martin Wolf is in “particularly fine form” in his reassessment of Japan’s lost decade, as Naked Capitalism’s Yves Smith notes on Wednesday, adding – quite rightly – that on the whole, “the implications are not good”.
Wolf starts by focusing on an issue ignored by most economists. Downturns are not created equal. What Richard Koo calls balance sheet recessions, that is, ones which feature excessive leverage, are much nastier beasts. This would seem to be an obvious point, yet is overlooked in many analyses.
The counter-intuitive prognosis that Japan triumphed by avoiding a depression in the 1990s is a line of thinking that “would have been dismissed as heretical or deranged a year ago,” says Smith, noting that the party line among economists was that Japan had been too cautious, and had not administered monetary or fiscal stimulus in big enough doses soon enough.
It’s also great, she adds, to see Wolf dismiss the private-public partnership tripe so succinctly, “but is anyone in the US paying attention? I see too may people who should know better endorsing the idea”.
Indeed, ever since Japan’s bubble-bursting performance on the early 1990s, pundits of every persuasion have been penning tracts on “lessons from Japan” – lessons about bursting bubbles, lessons about managing a debt-laden banking system, lessons about fiscal deficits, lessons about zero interest rate policies, etc. etc.
So, to borrow from the Asian Eye table in FT Alphaville’s Long Room, we reproduce here a couple of the most recent “lessons from Japan”.
First up, the New York Times last week ran a piece looking at what Japan’s “decade of stagnation” could teach America right now, featuring a classic quote from Hirofumi Gomi, formerly a top official at Japan’s Financial Services Agency during the crisis: “I thought America had studied Japan’s failures…Why is it making the same mistakes?”
Maybe not enough US policymakers are reading their “lessons from” textbooks and articles. Actually, even though Japan’s crisis of the 1990s and early 2000s had aspects in common with the current US crisis – including an imploding real-estate bubble that left banks holding trillions of yen in virtually worthless loans – comparisons can be very misleading if they’re used to craft crucial policy responses.
But Tokyo-based analyst Peter Tasker, who has authored a series of notes on Japan’s problems – and what other countries could learn from them – recently came up with “Five more lessons”, a note that yields insights into everything from the pressure on employment, the problems of an ageing society, the rise of the carry trade and the decline of tax revenues.
The key lessons, in his view, are:
1. Profit quality falls.
2. People work harder and longer
3. The tax take declines.
4. The Fed model breaks down
5. The death of capital gain, the birth of the carry trade
Read more detail here.
Related links:
Martin Wolf: Japan’s lessons for a world of balance-sheet deflation – FT
Rethinking the lessons of Japan’s debt unwind – NakedCapitalism
In Japan Inc’s classroom – Long Room