Cross-posted from New Deal 2.0.
I'm turning Japanese
I think I'm turning Japanese
I really think so
The American obsession with the Japanese is nothing new. We marvel at their meteoric trains and mouth-watering cuisine. We once spoke of their economic prowess in hushed awe. But reading the New York Times last Sunday, I realized that our fixation was taking a new, dangerous turn. Japanophilia is morphing into Japanophobia -- a fear that the U.S. economic outlook will somehow mimic the Land of the Rising Sun if we don't heed the fiscal hawks. In truth, we are in danger of learning all the wrong lessons from the Japanese. A shame, because they have much of value to teach us.
Martin Fackler's "Japan Goes From Dynamic to Disheartened" presented a fear-inspiring narrative that does little more than perpetuate myths that benefit the rich. His story: the Japanese economy is in the shitter because of too much "wasteful spending" by the government. Fackler breezily suggests a consensus on this point among economists:
Japanese leaders at first denied the severity of their nation's problems and then spent heavily on job-creating public works projects that only postponed painful but necessary structural changes, economists say.
Oh, really? Creating jobs that put people back to work is about denial? Funny, but I know some economists who say otherwise. My Roosevelt Institute colleague Thomas Ferguson dismisses the false choice implied by the author. "You don't have to choose between working to keep full employment and making structural changes," Ferguson wrote to me in an email. "The issue is whether you just let unemployment go up, which drives people to desperation and widens the gulf between the rich and the rest of us, or whether you keep people employed while you make the structural changes you think are needed. The latter way is much easier to do and far more productive for society."
Fackler draws his analogy between the U.S. and Japan beginning with the Japanese bubbles that burst in the 80s and 90s. According to him, the country "fell into a slow but relentless decline" that could not be reversed, alas, even by "enormous budget deficits" or "a flood of easy money". Then comes the ominous warning:
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.
Memo to Fackler: If you look closely at the history of the Japanese economy, you'll see the exact opposite. Government spending didn't cause the Japanese economy to stagnate. It was the fitful confusion of stop-start fiscal spending that seesawed the economy between hopeful improvement on the one hand, and wrenching cut-backs and consumption taxes urged by austerity-preaching deficit hawks on the other. Bipolar fiscal policy during a time when the private sector is trying to deleverage and repair its balance sheets is a recipe for disaster. The "flood of easy money" Fackler references, also known by the wonky term "quantitative easing," was the wrong approach by the Japanese government, which should have maintained the focus on jump-starting a weak economy by putting people back to work. That's the smart, productive way to get things moving. Unfortunately, a failure of nerve and political will crippled Godzilla. And the dismal vision Fackler outlines will emerge in the U.S. if we buy into his false narrative. Ironically, reports like Fackler's are creating the very reality they purport to warn against.
My colleague Marshall Auerback provides some facts that Fackler-the-Feckless would do well to master. In a mini-history of the Japanese response to economic crisis, he observes:
In 1997, just as Japan was beginning to emerge from recession, the government introduced a 40% increase in the consumption tax, which promptly threw the country back into the throes of recession. Then you had the Asian financial crisis, which obliterated the export sector. Then you had the Koizumi Administration attempting "fiscal consolidation" throughout the early 2000s, which actually caused economic growth to slow and the budget deficit to rise. This, despite the fact that the Bank of Japan started to do "quantitative easing" in March 2001. It wasn't until September 2003, when the Koizumi government finally stopped the crazy fiscal austerity fetishism, when, lo and behold, the economy began to grow steadily again and the budget deficits began to go down. That's what was happening until the financial crisis of 2008. (Also see Auerback's "What Ever Happened to Japan?")
Contrary to Fackler's story, Japan's deficits show the dangers of what happens when you stop spending proactively and productively during a crisis: you get larger deficits as automatic stabilizers kick in and tax revenues decline. To avoid this fate, we have to deploy our fiscal resources to generate greater economic activity. Put plainly, we need to create jobs. It would be great if the private sector were creating all the jobs we need. But it isn't. And that's where government can step in.
But meanwhile, we have to combat the Facklers who whip up Japanophobia and freeze our political will. As Rebecca Wilder points out at the News N Economics blog, cherry picking anecdotes about down-and-out Japanese people crushed by deflation as Fackler does is not a substitute for responsible analysis. Contrary to what he implies, the Japanese standard of living has actually grown over the last two decades. And as for the country's unemployment numbers, they ought to make Americans blush: They're around 5%. The Japanese may be wary of the future after the bubble-fueled economic euphoria of past decades. But most of them have jobs. And as to what they enjoy in the public sphere, well, let's just say that if you take a train out of Tokyo and compare that to a train ride from New York City, you will quickly discover just how well our fiscal austerity is working for us. Go ahead. Use the toilet if you dare.
But the big question is this: Why does America continue to put up with high unemployment when we can directly create jobs, just as FDR did through the Works Progress Administration? Is it because big corporate interests want to keep wages down by keeping large numbers of Americans out of work? Is it because the rich become more powerful when ordinary people have less? These are the dark visions we should be worried about. History shows that when times are tough, the government can create jobs and find plenty of useful things for laid-off folks to do. Like repairing roads and rebuilding decrepit schools. Where there's a will, there's a way. Political will is what stands between millions Americans and a more prosperous future. That, and reporters who don't do their homework.