Despite what some people seem to think, because it's so complex, economic issues tend to be very non-intuitive and difficult to predict. You could easily put together four Nobel prize winning economists and not only find that none of them agreed with each other on certain real world issues of extreme significance, but that none of them did a good job of predicting what would actually happen economically over the next few years.
So, you can be certain that there will be plenty of economists who would disagree with the latest column from one of my favorite economics writers, Robert Samuelson. However, I have privately wondered about the ramifications of the same phenomenon he discusses today and tend to think that his analysis has a lot of merit,
A Lost Decade Ahead?
...What happened to Japan in the 1990s?
It did not, as some commentators say, suffer a "depression." Not even a "great recession," as others put it. Japan experienced a listless, boring prosperity. Its economy expanded in all but two years (1998, 1999), although the average annual growth rate was a meager 1.5 percent. Unemployment rose to 5 percent in 2001 from 2.1 percent in 1990. Not good, but hardly a calamity. Japan remained a hugely wealthy society.
Its situation compelled attention mainly because it confounded conventional wisdom. From 1956 to 1973, Japan had grown 9 percent a year; in the 1980s, it was still growing at 4 percent. Japan was widely expected to overtake the United States as the richest, most advanced economy. It didn't. Worse, its semi-stagnation defied the notion that modern economics enabled government to ensure adequate growth.
...Japan has what Richard Katz, editor of the Oriental Economist, terms a "dual economy." On the one hand, export industries (autos, steel, electronics) are highly efficient. They face intense global competition. On the other, many domestic industries (food processing, construction, retailing) are inefficient and sheltered from local competition by regulations or custom.
This has suited most Japanese. Exports earned the foreign currency needed to buy food and fuel imports. Meanwhile, protected domestic industries provided the job security and social stability that most Japanese preferred to hyper-competition. While exports thrived, they -- and the supporting business investment -- were Japan's engine of economic growth.
The trouble is that this system broke down in the mid-1980s. The rising yen made Japanese exports costlier on world markets. New competitors -- South Korea, Taiwan -- emerged. Japan lost its engine of growth and hasn't found a new one. That's Japan's central economic problem.
...Since the early 1980s, American economic growth has depended on a steady rise in consumer spending supported by more debt and increasing asset prices (stocks, homes). Just as the mid-1980s signaled the end of Japan's export-led growth, the present U.S. slump signals the end of upbeat consumption-led growth. But its legacy is an overbuilt and overemployed consumption sector, from car dealers to malls. The question is whether our system is adaptive enough to create new sources of growth to fill the void left by retreating shoppers.
The amount of government spending we're engaging in as a society is absolutely unsustainable -- and we haven't even gotten to the point, which we're going to reach very soon, when the Ponzi scheme that is Medicare/Social Security is going to leave everyone with a job holding the bag for the "Baby Boom" generation.
Meanwhile, on the private side: look how much of our economic growth in the 90s was fueled by a phony baloney internet bubble. Then from there, we moved on to the housing bubble. All the while, Americans were spending money they didn't have for things that they really didn't need. That's why Americans have $8,299 per household in credit card debt.
Put another way, we've been spurring our current economic growth at the price of mortgaging our economic future -- but, what if the bill has finally come due and that gloomy future starts now? Then, as Samuels says, we're going to have to "create new sources of growth" to keep the economy moving. Is that doable? Absolutely -- but, an overweening government is the mortal enemy of capitalism and economic growth. The more government regulations, taxes, and interference we have, the less innovation, creativity, and new industry we're going to see.
That could be an extremely scary prospect because we are very economically dependent on consumption and unfortunately, eventually, that consumption is going to have to slow significantly as debts are repaid. Could that lead to the sort of "lost decade" of mediocre growth that Samuelson describes? Yes, it could and that would be a very worrisome prospect for our entire country.
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