It is time to say goodbye to the confident reassurances from American policymakers that Japan could not "happen here." It is also time to regret the smug assertions that Japan's "lost decade" of growth was due to a combination of uniquely Japanese failings -- from insufficient policy activism to weak corporate governance and poor political leadership.
American policymakers, together with their European counterparts, are realizing something that Japan has been experiencing for a while: It is very difficult to manage well an economy hobbled by structural impediments and balance sheet excesses. Absent a major change in the effectiveness of the policy approach, this realization will likely lead to broadening societal concerns about the possible "Japanization" of America and, with that, worries that under such circumstances the country would not be able to navigate such a phenomenon as well as Japan has.
The US continues to find it difficult to generate meaningful economic growth and to create enough jobs. Despite multiple fiscal and monetary stimulus programs -- indeed, record breaking ones -- the economy has failed to recover decisively from the sharp contraction that followed the global financial crisis.
With insufficient growth, un- and under-employment remain distressingly high while the average duration of joblessness hits one unfortunate record after another. To make a bad situation even worse, it is the most vulnerable segments of the labor force -- the young and the less educated -- who are being hit the hardest. In the process, society experiences a further deterioration in already excessive inequalities in income and wealth.
Low growth means that America is unable to "safely de-lever" from the financial excesses of the last decade. As a result, the economy faces a risk of tipping into another recession.
A recession at this time would be terrifying -- from an economic, social, political and institutional perspective. In addition to the country's unemployment crisis, almost a quarter of homeowners owe more in mortgage debt than the value of their houses. With policy interest rates floored at 0% for quite a while now and the fiscal deficit hovering at almost 9% of GDP there is limited policy flexibility.
What America is discovering is something that Japan has painfully known for awhile: Post-bubble economies are both complex and perplexing.
It is not easy to bring back to sobriety an economy that overdosed on leverage, debt and credit-entitlement. It is doubly difficult when it faces structural impediments to economic growth; when the political system undermines all attempts at reform; and when the global economy is weakening and being subjected to renewed financial fragilities.
I suspect that quite a bit will be written in the months ahead about the possible Japanization of the American economy. That is the easy prediction. More difficult -- and controversial -- is the prediction that the emphasis of such work could well evolve over time to also assessing the similarities and differences between America and Japan when it comes to coping with many years of low growth without tipping into greater economic degradation and heightened social tensions.
The US lacks two important characteristics that have enabled Japanese society to cope relatively well with a difficult situation. First, it does not have the level of social cohesion that prevails in Japan. As such, it does not have the same extent of societal safety nets that can be beneficial during a time of sluggish growth. Second, America has neither the net creditor status of Japan nor the ability to generate surpluses on its balance of payments. As such, it has less of a cushion, thereby increasing its medium-term vulnerability to capital from abroad.
With these attributes, the US would find it much harder to deal with many years of slow growth, sluggish job creation and further income and wealth inequalities. The economic costs would be higher, the financial frailties greater, and the social consequences much more material.
This is yet another reason why the elected representatives of the American people, and their appointed policy makers, must do more today to internalize in their thinking the growing risk of economic "Japanization." They must also realize that the country has fewer financial and societal cushions to deal with this risk should it materialize.
The sooner that happens, the greater the chance America can use its still-considerable strengths to overcome its policy paralysis and embark on much needed -- and much discussed -- measures to remove structural and debt impediments to job creation and to higher and more inclusive, economic growth.
Against this background, it is encouraging to see the Administration recently propose a number of steps that, assuming congressional cooperation, would serve as a foundation for further progress. This is especially true for the jobs proposal, and also for the reforms to housing. But much more needs to be done to urgently improve the key enablers of sustained expansion: namely, the functioning of the housing and labor market, the process of credit intermediation, productivity-enhancing infrastructure, and balancing immediate fiscal stimulus with medium-term reform of both the revenue and spending side.
There was a time when America looked down on Japan for the latter's inability to deal with its economic problems. No more. Like Japan, America is now realizing how difficult a post bubble economy can be. The fear is that it will also find out that that it lacks some of Japan's attributes needed to cope with long years of economic stagnation.
The US has no time to waste to build on the important, albeit small progress that has been made in recent weeks. If it does not, there is a risk that the country's economic fate could end up being even worse than what Japan has experienced. Everything possible should be done to minimize this risk.
This post was originally published at Reuters. The views expressed are the author's own.
Seriously, I have yet to hear anyone that pushes that style of economics explain what to do with those whose net assets goes to zero, and especially those in that group who are past age 50 hence any rise in the economy tends to leave them utterly behind and economically destroyed. Of course, the good news is many of the Left Behind group will off themselves after 'living' for years in utter despair having been deemed useless by the youngers - and of course we need only remind ourselves that the US does indeed have those lovely, but completely ignored and useless age discrimination laws. Pretty hard to prove that you were labeled 'over qualified', which really means 'too old'.
Ever notice how the only people still having defined benefit retirement plans, not those cobbled together jokes known as 401K plans, are the CxOs. One would think that with the massively outsized salaries they get that if any group is best able to fund their own golden years it would be the people in the executive suite. But no, seems they are more needy in the end, what with keeping up multiple massive mansions and a few yachts it must be terribly stressful, hence they deserve and need all that they get. Never mind how their companies actually do while they are in command.
eager to revive the economy. Just about the only thing that they tried was to bash China for currency
manipulation and even that was not really enacted. Our main stream media also does not much care about how to revive the economy. They are happy with the persistent high unemployment that they can report day in and day out. And they are mesmerized by the Republican presidential candidates rather then interested in how to create jobs or why we have OWS, not to mention waking up the comatose Congress.
Just look at the mess that is the health insurance industry. If one dares to try to start a small company you will immediately discover how expensive it is to be a family of one looking for health insurance in a cooked up and crooked health insurance market. The cost of insurance for a family of four in the US is now usually greater on a monthly basis than the cost of the average mortgage. Hence one usually finds one spouse trying to get a small business going while the other one works at some crappy job that offers some minor form of health insurance. And even that is getting to be more difficult now as more and more employers decide to not even offer serious health insurance, or even joking health insurance.
They don't want to face reality and do what's needed - like appropriate government spending and letting the various banks and other financial institutions go bankrupt.
The next batch will have their own set of blinders - but with luck, they're prejudices, preconceptions, and economic wishful thinking won't get in the way of solving the current problem,
So out on a limb, may I say that you put your good mind to work in the following direction that is not political or simply saying that wall street need to switch to another mode. Let start from just two points for this discussion:
- ]energize manufacturing at the grass roots level for job creators to engage. After all we are the major consumer nation, lets find the structure to manufacture right here more and more. One thought is to create a capital market structure for corporations to manufacture goods and services here.
- Bringing back legacy manufacturing capability is both hard and short term. So the financial community can trigger low cost innovation models. Also consider the extremely successful models from the past: DARPA /arpanet that delivered us Internet, or NIH creating commercial Bio-technology, etc. etc. Today so many large corporations profiting immensely for themselves, they have not delivered back to the country. Lets not be afraid of more government. We can insist on the best and brightest for education, creative regulatory thinking exactly where it is of public interest.
We could only hope to be like Japan,......zen, cuisine, culture, Prii, tea ceremony....
Water is the logical source and it will not be restricted to one hemisphere.
As the unemployment grows, its growing political will will meet and challenge the descending establishment at some point.
What needs to be done is an extensive analysis of why we have decayed so much economically since around 1965-1970. We were at our highest middle class strength then and everyone was better off in that period, except for minorities that were just starting to get real freedom with Civil Rights finally, than we are now - except that 1% of us that super rich who are much much richer than the super rich in 1965-1970. We need a PBS/CNN/MSNBC analysis of the last 40 years of economic decay to point out what caused it and how to change that!
http://www.amazon.com/Winner-Take-All-Politics-Washington-Richer-Turned/dp/1416588698
We are in the same position now that we in 1931 when the Vienna Credit Anstalt bank went bankrupt---only difference, this time it's the Greece debt. The politicians could not agree with one another on what to do---so, many banks in Europe crashed and American Banks too, this was the start of the world wide great depression. Let's hope they do not repete the same mistake of the past this time.
Those who don't know history are destined to repeat it.
Edmund Burke