7thriv

The NY Times published the latest in a loooooooong series of news stories, published over the years in every imaginable media outlet, about the effect of the Great Deflation in Japan and the "lessons" Japan's experience has for the West. The lesson, per the Times? American are just going to have to get used to a stunted standard of living:

Like many members of Japan’s middle class, Masato Y. enjoyed a level of affluence two decades ago that was the envy of the world. Masato, a small-business owner, bought a $500,000 condominium, vacationed in Hawaii and drove a late-model Mercedes.

But his living standards slowly crumbled along with Japan’s overall economy. First, he was forced to reduce trips abroad and then eliminate them. Then he traded the Mercedes for a cheaper domestic model. Last year, he sold his condo — for a third of what he paid for it, and for less than what he still owed on the mortgage he took out 17 years ago.

“Japan used to be so flashy and upbeat, but now everyone must live in a dark and subdued way,” said Masato, 49, who asked that his full name not be used because he still cannot repay the $110,000 that he owes on the mortgage.

Few nations in recent history have seen such a striking reversal of economic fortune as Japan. The original Asian success story, Japan rode one of the great speculative stock and property bubbles of all time in the 1980s to become the first Asian country to challenge the long dominance of the West.

The article was written by someone named Martin Fackler who, I assume, traveled to Japan to write this piece. But, he clearly came with the story already written and simply sought out Japanese who could provide him with ready quotes and sob stories. But, that doesn't mean you should confuse his story with reality. Even at the height of Japan's boom times, the vast majority of Japanese lived relatively modest lives. That was the real Japanese miracle: that a country was able to extend a comfortable middle class lifestyle to virtually its entire population. But it was not a grand life. We're talking about small cars, crowded cities, and tiny houses and apartments. Someone like Masato owning a Mercedes and traveling to Hawaii was very much the exception. (I spent the summer of 1986 in Yokohama and Tokyo. I could count the number of Mercedes, or equivalent, that I saw on one hand). And, even after 20 years of deflation and non-growth, Japan's middle class remains largely intact.

What it true is that Japan has had no real economic growth, and has begun to slip behind China according to some measures. But, if you had to choose, I guarantee you would choose life as a Japanese salaryman over that of a Chinese factory drone. Not only that, Japan's economy continues to produce advanced technology that the Chinese can never hope to duplicate, only steal.

But what's really frustrating is Fackler's profession of confusion as to how Japan's deflation has continued unabated for so long. He hints at the reasons indirectly, but the truth is he doesn't want you to know:

But the bubbles popped in the late 1980s and early 1990s, and Japan fell into a slow but relentless decline that neither enormous budget deficits nor a flood of easy money has reversed. For nearly a generation now, the nation has been trapped in low growth and a corrosive downward spiral of prices, known as deflation, in the process shriveling from an economic Godzilla to little more than an afterthought in the global economy.

Now, as the United States and other Western nations struggle to recover from a debt and property bubble of their own, a growing number of economists are pointing to Japan as a dark vision of the future. Even as the Federal Reserve chairman, Ben S. Bernanke, prepares a fresh round of unconventional measures to stimulate the economy, there are growing fears that the United States and many European economies could face a prolonged period of slow growth or even, in the worst case, deflation, something not seen on a sustained basis outside Japan since the Great Depression.

Japan hasn't just had 20 years of deflation. The deflation began with the bursting of a housing bubble exacerbated by (1) a government which propped up its financial sector, rather than allow insolvent banks to fail and (2) engaged in an epic bout of stimulus spending that left Japan with towering debts. Sound familiar? And none of it has worked. At all. In fact, the only things that worked were the Koizumi Reforms, which sought to privatize government entities like Japan Post, among other things. Privatization of government services worked?? Don't want to say that out loud!

The fact is that we know exactly what "happened" in Japan. We know that bank bailouts, excessive stimulus, infrastructure spending, and 0% interest rates did absolutely nothing to pull Japan out of its funk. The Times knows it. Yet they have been at the head of the parade calling for .... bank bailouts, excessive stimulus, infrastructure spending, and 0% interest rates to pull the US out of its deflationary spiral. Those are the preferred policy responses of liberals, and liberals clearly would rather be liberal than correct.

UPDATE 1: the Free Will mother just emailed to remind me that I was in Japan in the summer of 1987, not 1986 as I wrote above. D'oh! Then again, to paraphrase Ronald Reagan, everybody who remembers what they were doing in the summer of 1987, raise their hands.

UPDATE 2: the Free Will mother also remembers that, back when we lived in Tokyo in the go-go Seventies it was known around our apartment building (in the Azabu section of Tokyo) that there were then 12 Rolls Royces in Japan. One was in our parking garage. We never saw any others around Tokyo, but people thought there was one in Hokkaido.

UPDATE 3: also the Free Will mother thinks the reference to Chinese factory drones is inapt since "drones have no task except availability to fertilize the queen." I don't know, would a reference to "Chinese honeybees" make any more sense?

UPDATE 4: the summer of '87. If you remember it, you probably weren't there.