A lot of people are noticing the parallels between what happened in Japan when and since their bubble burst, and what Britain, and if our Prime Minister gets his way the entire world, is now doing to itself. About a month ago, I did a podcast, with Antoine Clarke and Michael Jennings, in which Michael J in particular gave Japan a big mention, as an illustration of what not to do.
This headline, which I snapped yesterday, reminded me of that conversation:
A zero percent interest rate has been a feature of Japanese life in recent years, as has almost total economic stagnation. In an October 29th article in the Independent, Hamish McRae noted this parallel. I got back to that piece thanks an ASI email, which flagged up this blog posting by Tom Clougherty. Said Clougherty:
The result is that average Japanese living standards have barely risen for 20 years, while inequality has risen sharply. And this is despite them adopting the policies our government are now touting: low interest rates, increased government borrowing, and higher public spending to “prime the pump”. If it didn’t work for Japan, are we really to believe it will work for us?
Indeed. McRae actually went on to say that we are not in as bad a pickle as Japan. Which is some comfort, but not very much.
I fail to see how Japan can be in worse shape. They do have an immense government debt and an aging population. They have a somewhat unresponsive bureaucracy and political class. And they worry about China’s new power.
But here is what they didn’t have the last time I looked, which was a few years ago:
illegal immigrants, racial divisions even remotely like those in the US, religious divisions, an unfavorable balance of trade, a huge defense burden, massive unfunded public pension funds, arguments about national health care, hollowed out industry, huge infrastructure problems. a thousand corporations begging for bailouts, several million homeowners in default and begging too, a negative savings rate for the population, high unemployment, schools where little or nothing is learned, the WOT, 200 million huge cars needing fuel, a population with no concept of living more simply and the imaginary right to have others provide everything they need.
The also don’t have our hapless government that no longer solves problems. A government that no one still expects to face problems. A government most realize cannot solve problems.
A kleptocracy in all 57 states (by Obama’s count), the District Of Columbia, and various territories.
A government that can no longer govern will decide to rule. That is next.
Britain is nothing like Japan! The japanese are polite…
“And this is despite them adopting the policies our government are now touting”
Because.
Okay, McRae does pretty much say that in the article, but it needs to be emphasised over and over again. If we get a depression, it will not be the bubble that causes it. It will not be the crash that causes it. It is what is being done now that will cause it. And the politicians (and the BBC watching middle class in general) just seem to have no idea at all.
Keynes is becoming the new Marx: a writer very influential but hardly read. An uneducated democracy will inevitably take the decisions that we are about to.
In a serious TV discussion at the outset of the current unpleasantness a few months ago, I actually heard an academic economist mentioning Keynes as “one of the greatest economists of all time”. Ian B. has it right: we are doomed.
There is this article
http://www.dailymail.co.uk/news/article-1083998/The-great-Keynes-Labour-s-plans-spend-way-recession-argument-built-lies-says-historian.html
That nails the myth of Keynes saving us from the great Depression.
Perhaps Gurnin Gordon should read it.
The Japanese also have a savings problem, in that they hoard money unlike most Brits. So, giving money back to people who don’t have much debt outside of a mortgage and then watching them save it doesn’t really help much if the banks are world leaders in not doing much with money either.
They already had a good infrastructure. One of the things on Obama’s side (and the UK to a certain extent) is that there are significant improvements needed to a lot of core infrastructure required.
On that pseudo positive note I see Microsoft dropped below $20 a share yesterday…
There’s so much stupidity involved in the US’s economic crisis and it’s parallel 70 years ago. The accepted version, that greedy corporate fat-cats got too greedy (and somehow that alone caused the collapse when greed is an ever present atribute in human kind), government (Hoover) didn’t do anything while Rome burned, FDR swooped in with Keynesian economics and saved the day. And the lessson that should have be learned is that the government needs to step in right away and everything will be GREAT!
Well, the reality is that it was horrendous monetary policy of the rising Statist Leviathan that tipped us into the crisis of the 20’s, Hoover DID step in, and it was the wrong thing to do, FDR simply extended and deepened the pain, and that Keynesian economics only prolongs the misery as real investment will never again take place so long as the economy continues to be used by the government as a test tube. If an investor/entrepreneur doesn’t have any idea what the next sector to be Nationalized will be, they’ll keep their money (and talent – see John Galt) on the side lines. Instead of having perhaps a short period of irrational “hoarding” of money worked out by man’s inate industriousness, everything is stillborn government “works” making and producing in all sorts of wrong directions.
That’s the real lesson of the 20′ and 30’s, but they say the victors write the history books and ultimate Statist Socialists were the victors and while they were proven wrong, they still won (due to superstition ridden population) and casted reality the way they pleased.
And we are now doomed to repeat it with all the extra baggage enumerated by “K” in the first comment. I have little doubt that we are in for an era without historical precedent. The bread will be in very short supply and the circus just left town.
Hoading money by hiding gold bars under the floor boards (if people are choosing to use gold as money – silver if they are choosing to use that, and so on) is not an economic problem.
Nor is depositing money in a bank that refuses to lend it out (although such a bank would be unable to pay interest on such deposites – indeed it would have to charge the depositors for looking after the money).
The “go shopping” view of economics (from John Law to George Walker Bush) is wrong.
Although I am not going to sit down and type out why it is wrong in a comment.
As for Japan:
It amuses me (in a bitter sort of way) how unempirical “empirical” school people are.
Austrian School economists are denounced for basing their opinions on the laws of reason (as if this was a bad thing) rather than “empirically testing” them – yet when the “empirical evidence” does not go the way the collectivists want it to go, they ignore it.
The Japanese government has spent vast sums of “public works” and other such over recent years and this policy has not worked.
So what do the Nobel Prize winning “economists” suggest? Other than demanding World Government “global financial regulation”.
They suggest yet more government spending on public works and other such.
These “economists” are not really intested in “empirical evidence” any more than John Hales, John Law, John Keynes or John K. Galbraith was.
If Keynesianism means anything at all it is that government policy should be counter-cyclical i.e. that durig the good times the government should build up a surplus, raise interests rates and keep a tight hand on the money supply and in bad times do the opposite. But we already did the “recession busting” stuff during the good times and now we’re going to do it even more.
That kind of basic stupidity doesn’t deserve the name of Keynesianism, which, whatever it’s flaws as a theory, at least makes sense. Gordon Brown’s policy model is not a Cambridge economist, it’s those people on the adverts who say “I took out loads of loans and now I’ve got to pay them back. Go figure”.
As a 30 year resident of Tokyo, I am always amused by comparisons between Japan and the Western World. Japan is not a real democracy (constitutionally, the vote of some farmer or fisherman in the provinces should not be worth more than three time that of a city dweller – in practice, it is more like four to five times). Over thirty percent of our “congressmen” are third or fourth generation placeholders in one of four to six hereditary and feudal factions – not one of which gives a good damn about the ruled here. There is no legal system to speak of (no right of discovery, nor enforcement of court orders). As far as an executive branch is concerned – we get a rotating twig as each faction puts up the oldest member of the tribe, hoping the bastard will be satisfied enough with the honor of the post to have the good manners to die in office… But it is a nice safe place to live and ignore the world.