Learning to Save Like the Japanese
Despite their country’s “lost decades” of stagnation, the Japanese enjoy one of the highest standards of living in the world and their economy is still powerful. Yet American officials and many economists regard Japan’s model — with its hunkered-down consumers — as a worst-case course for the United States. Is there reason to fear that Americans will save too assiduously, as the Japanese did, or simply not spend money they don’t have, to the point where the economy never goes back to what we consider normal? While the U.S. economy may need consumers to buy more in the short term, why would it be harmful if Americans became careful, rather than care-free, spenders? How does the U.S. government walk this tightrope?
Did Japan really lose two decades? Growth in output per working age population since 1990 has been similar to Europe and the United States. Japan’s population has declined over this time period — so the total gross domestic product numbers look worse and G.D.P. per capita is also affected by the aging of the Japanese population. We should envy and attempt to learn from Japan’s ‘lost decades’.Japan had a big credit boom in the 1980s, with increasing land prices and also large investments in plants and equipment. Following the collapse in the stock market after 1989, other asset prices fell, including land — this was a “negative wealth effect” akin to what we have experienced in residential real estate.
Japanese corporations wanted to save in the 1990s to pay down their debts. Households continued to save a great deal. The government attempted to offset this by “saving less,” or running budget deficits. But we should not assume that increasing government spending or cutting taxes will always and everywhere stimulate the economy. Mostly Japanese fiscal stimulus just added to public debt levels. It probably would have helped to “recapitalize” the banks earlier. Banks with little capital (i.e. little shareholder equity) relative to potential losses are less inclined to lend or take reasonable risks. This may have been a constraint on the recovery — if it prevented firms from borrowing and investing. But many firms had too much debt already and wanted to pay it down. Still, Japan never experienced high unemployment. Perhaps we should envy and attempt to learn from their experience, rather than disparaging it.