The Japanese Economy

The NY Times is running a weirdly dark article on Japan by Martin Fackler, full of passages like

“Japan used to be so flashy and upbeat, but now everyone must live in a dark and subdued way,” said Masato, 49, who asked that his full name not be used because he still cannot repay the $110,000 that he owes on the mortgage he took out 17 years ago.

and

But perhaps the most noticeable impact here has been Japan’s crisis of confidence. Just two decades ago, this was a vibrant nation filled with energy and ambition, proud to the point of arrogance and eager to create a new economic order in Asia based on the yen. Today, those high-flying ambitions have been shelved, replaced by weariness and fear of the future, and an almost stifling air of resignation. Japan seems to have pulled into a shell, content to accept its slow fade from the global stage.

It is true that the Japanese economy has hardly grown since 1991 -- the US economy has roughly doubled since then -- but on the other hand the population is about the same size, too, which means that on average Japanese are just as rich as they were during the bubble years. They don't feel as rich because they don't expect things to get better in the future. During 140 years of rapid economic growth the Japanese got used to imagining wealthy futures for themselves and their country. What they are experiencing now is not a decline in their living standards, but a decline in their dreams. This seems to hurt many people quite a lot. To judge from interviews in this article and other places, many Japanese adults feel grim about their lives, and many young people have shunned business careers for lives spent playing games and loafing. Even more, it hurts the public mood, which everyone agrees is sour and dark in Japan. The modern world is all about economic growth, and without it the whole rationale for our system starts to collapse. One thing we know about economic growth is that it has been tied all along to population growth -- while an economy is growing the growth feeds on itself, but nobody is sure how the process gets started, and the push provided by demand from a growing population may be a big factor. As population growth grinds to a halt across the developed world, we are seeing that our economic model doesn't work especially well in stasis.

I have no particular insights into Japan, except to suggest that they might revive their housing market by opening new land to development, sacrificing some subsidized rice farmers in the process, and maybe rediscover Buddhism. I do, though, have two words of advice for Americans worried that the US will follow Japan into stagnation: immigration and education. Immigration is what will, for the foreseeable future, keep the US from following Japan. Especially important are the visas and green cards we grant to highly skilled people, and to university students. Inventive immigrants have always driven our economy, and we should extend that welcome to as many as want to come. Since WW II the other thing driving our economy has been our universities. Besides turning out a mass of educated people far greater than what any other nation has to draw on, they attract thousands of talented and moneyed foreigners to the US. We should make it easier for them to come, and easier for those who graduate to stay.

Or, we could start thinking about how to enjoy a world without growth.