Reason.tv: Turning Japanese—Is America creating its own "Lost Decade" of economic stagnation?

Nick Gillespie | June 23, 2009

It wasn't that long ago that everyone in America believed that Japan would soon overtake the United States as the dominant economic force on the planet. When the Japanese stock market rallied to historic heights in late 1989 and Japanese investors even bought Rockefeller Center in New York, it all seemed like a done deal.

But then...the Nikkei Index tanked, the nation's economy collapsed, the government responded with an ever-changing mix of tax hike and tax cuts, stimulus spending on infrastructure, massive bailouts of businesses, and more. None of it worked and Japan entered what's been called its "Lost Decade," a seemingly endless period of economic stagnation.

What are the lessons for the U.S. from Japan's experience? Reason Foundation policy analyst Anthony Randazzo is the co-author of the recent study "Avoiding an American Lost Decade: Lessons from Japan's bubble and recession" and a July 2009 cover story for Reason magazine, "Turning Japanese: Japan's post-bubble policies produced a 'lost decade.' So why is President Obama emulating them?"

As Randazzo explains, both the causes of and official responses to Japan's bubble and economic slump eerily anticipate exactly what the U.S. government is doing. Worse still, the Obama administration and Congress seem dead-set against the sorts of policies-across-the-board taxes on personal and business income, reductions in long-term and unsustainable government debt, and allowing damaged firms to go bankrupt-that would help revivify the American economy.

Is America on the verge of its own lost decade? Sadly, the government seems to be doing everything it can to make that happen.

Approximately 3.30 minutes long. Produced by Dan Hayes and Nick Gillespie; graphics by Meredith Bragg.

For embed code, audio podcast, iPod and HD versions, and more videos, go here.

Comments

Sean W. Malone|6.23.09 @ 12:11PM|#

One of the better Reason.TV spots to be sure... Well done.

Shannon Love|6.23.09 @ 1:16PM|#

I think the recapitulation of Japan's error gives proof positive that the stimulus plans do not originate from some empirically tested theory but instead originate from the short-term political needs of statist politicians. Statist return to the same solutions not because they work but because they increase the power of the statists.

Some Guy|6.23.09 @ 1:22PM|#

You think it'll only be a decade?

Fascitis Necrotizante|6.23.09 @ 1:31PM|#

As Bond asked when those girls were giving him a Japanese makeover in You Only Live Twice: "Why don't you just dye the parts that show?"

|6.23.09 @ 1:35PM|#

"You think it'll only be a decade?"

That's what I was thinking. Take the stock market.

It's tempting to want to look at a share of stock and try to assign an intrinsic value to it. You take the company's assets minus its debts to reach its net worth, divide that by the number of outstanding shares, and then say, 'Okay, each share of stock is worth this much.'

However, the truth is it's only worth whatever someone else will pay for it. If no one is buying shares of stock, you are screwed, and if no one buys shares of stock for ten years, or twenty, the value will stay down for that long.

I don't think we've seen anything yet. When the SSI/Medicare/Medicaid bubble bursts, those Boomers will be selling off their IRAs and 401Ks en masse, trying to keep that dream of a 2nd childhood/30-year retirement alive. And please remember just how huge that demographic is, compared to the rest of the population.

I might as well wait until then to buy even a single share of stock. There won't be a recovery for a long, long time.

|6.23.09 @ 1:46PM|#

In a similar vein, I had to laugh at a financial planner when he griped about people like Bernanke "putting a negative spin on things." He said he always liked Greenspan because Greenspan "kept things positive."

I'm going, *blink* *blink* and thinking, "Now here's a guy who sells stock for a living."

Chad|6.23.09 @ 3:38PM|#

Yes, we are going to experience our own Lost Decade, as the bubble unwinds and Americans start to deal with some of the debt we have piled upon ourselves and future generations. No realistic government policy will change this. The arguments that Japan did too much are too little are pointless, as there was nothing they could have done that would have changed the fundamental facts concerning their massive leverage and debt.

That being said, government spending should be counter-cyclical, for two reasons.

1: It smooths out the ups and downs of the economy.

2: Buying counter-cyclically means buying cheap. Just about anything the government buys right now is cheaper than it was several years ago, AND almost certainly converts the unemployed into taxpayers, rather than simply shuffling workers between private and public projects. The government is probably paying thirty cents on the dollar right now as compared to 2005/6.

Chad|6.23.09 @ 3:41PM|#

Shannon Love | June 23, 2009, 1:16pm | #
I think the recapitulation of Japan's error gives proof positive that the stimulus plans do not originate from some empirically tested theory but instead originate from the short-term political needs of statist politicians. Statist return to the same solutions not because they work but because they increase the power of the statists.

Shannon, the only way you could empirically test this would be to have a hundred Earths with a hundred massive asset bubbles, and randomly assign them to various policy options. We do not have that luxury. It is a simple fact that we have no idea what would have happened in Japan under any other policy plan other than the one adopted. It could have been worse, better, or about the same.

|6.23.09 @ 5:01PM|#

OK, Chad, since under your theory there is no way to prove or disprove the effectiveness of massive spending sprees during recessions, why doesn't that mean that we should refrain from such sprees because the proponents of such sprees cannot bear the burden of proving that they should be undertaken?

Chad|6.23.09 @ 5:31PM|#

R C Dean | June 23, 2009, 5:01pm | #
OK, Chad, since under your theory there is no way to prove or disprove the effectiveness of massive spending sprees during recessions, why doesn't that mean that we should refrain from such sprees because the proponents of such sprees cannot bear the burden of proving that they should be undertaken?

No, because it is equally true of any alternative set of policies, including the status quo.

FirstTimeCaller|6.23.09 @ 6:20PM|#

I am so glad that Chad is an expert in all ?

|6.23.09 @ 7:07PM|#

"Revivify." Interesting word usement.

|6.23.09 @ 7:16PM|#

Chad, you are a religious zealot and that's why you use that logic. "God can't be disproved, so there must be a god" Doesn't work in either case.

No, because it is equally true of any alternative set of policies, including the status quo.

There are three problems with that.

1) Even assuming there's no way to tell the results of fiscal shock vs no fiscal shock, there is one distinct difference: You DO have debt to deal with if you do. Therefore all else being equal, err on the side of not saddling your progeny with debt.

2) Every since Keynes started peddling his snake oil every time is has been tried (Hoover/FDR, Japan, Russia, Obama) it has made things much worse. Whereas reigning in government has worked. Granted this is empirical, but it's still fact. It could be coincidental that there was some other unknown factor that was going on that made it look like fiscal irresponsibility caused economies to get worse, and fiscal responsibility seemed to improve economies.. but eventually by now it seems like Keynes would have had one win. Instead Keynes is batting zero.

3) We really needn't guess. Mountford and Uhlig have in fact done a statistical economic analysis of the results of different strategies, and deficit funded fiscal spending shocks do perform poorly. Look it up.

|6.24.09 @ 9:39AM|#

Boy,I really learned a lot. What is the point of such shallow reporting?

Chad|6.24.09 @ 9:54AM|#

faithkills | June 23, 2009, 7:16pm | #
Chad, you are a religious zealot and that's why you use that logic. "God can't be disproved, so there must be a god" Doesn't work in either case.

Speaking of being killed by faith, how quickly do you die when you put absolute faith in a single attempt to model macroeconomic theory? Because that is what you have done with the M&U study. There are dozens of studies on this matter, with conclusions all over the place. The fact of the matter is that it is simply too complex for us to model with our present level of understanding. Also, I would suggest you actually read the studies, rather than assume via Faith in RightWingBlogs that it must say what you want it to say.

|6.24.09 @ 12:18PM|#

I read the study which you clearly did not, and I don't put faith in anything. I just observe history and reality. Which is Keynesian economic policy has never had a good result once. Which of course just makes sense, when you burden an economy with debt, inflation, or taxes, businesses scale back, lay off, and contract, because they know they will pay.

Yes there are lot's of studies. The ones supporting Keynesian policy are trying to explain why it doesn't work, but could if such and such were done differently. Why it didn't work in Japan. Why it shouldn't be blamed for the great depression. Why it shouldn't be blamed for the Russian collapse.

Insanity is repeating the same behavior and expecting different results. And after Obamalosi puts us into another economic disaster you will be here explaining how it wasn't the fault of the spending. All of their predictions have been wrong. Many economists predicted a continuing downturn with current policy.

If you find something in the U&M paper to quibble with please say what it is. Otherwise you are simply talking about things which you have no clue.

And you're calling Mankiw a right wing blog? Lol, he's a Harvard Economist Keynesian Koolaid drinker, not so strong with the 'right'. But he has lots of great economics info.

|6.26.09 @ 6:21AM|#

That article is so interesting!!! Thanks I learn a lot. But aside from that breaking information let me share some thing new issue to you. South Carolina's Governor Mark Sanford isn't winning himself any fans. Recently, Governor Mark Sanford was missing; neither his staff nor his family being aware of his location. His staff said he might have been hiking the Appalachian Trail, but it turned out that he was in Argentina - a continent away. The governor has been the subject of controversy, as he did all he could to resist the cash advance of the stimulus package allotment to South Carolina. His absence left some wondering if it meant the Lieutenant Governor was about to change job titles, but it's going to take more than a short term loan to rebuild the credibility of Governor Mark Sanford.

|7.1.09 @ 4:54PM|#

The most disconcerting part is that when Obama gave the 'bailout' press conference (one of his first), he claimed that Japan's strategy of bailouts and spending throughout the early 90s had been a success! He either doesn't know his facts, or he has a very different definition of 'success' than I do.