[wisconsin_cur]

Telegraph: US Faces Lost Decade

$this->bbcode_second_pass_quote('', 'T')he US could be facing a "lost decade" like that suffered by Japan in the 1990s as the markets fail to respond to interest rate cuts and the US Federal Reserve runs out of options, the head of one of the leading private equity firms said today.

[Concerned]

$this->bbcode_second_pass_quote('wisconsin_cur', '[')url=http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/28/bcnusrates12.xml]Telegraph: US Faces Lost Decade[/url]

$this->bbcode_second_pass_quote('', 'T')he US could be facing a "lost decade" like that suffered by Japan in the 1990s as the markets fail to respond to interest rate cuts and the US Federal Reserve runs out of options, the head of one of the leading private equity firms said today.

[LoneSnark]

Well, sure, Japan never really returned to prosperity, but it didn't lose the 19 years. Japan's unemployment rate is high by Japanese standards, but low by European standards. In that time it has kept up investment in technology and still posesses one of the most advanced export sectors on the planet.

That said, I doubt the U.S. is capable of suffering as Japan has suffered. In Japan, banks have the right to ask nicely for their investors to sit quietly for the public good. In America, there is no such right: investors can liquidate their bank whenever they want.

So, the Anglo system is prone to boom and bust: as assets falter bombs go off in institutions, deflation is severe (by modern standards), unemployment shoots up, and then after a year the dust settles and greed reasserts itself, as the economy roars back to life.

In all seriousness, I'm not sure which system the average person should prefer; a long slow recession or spurts of boom and collapse?

[canis_lupus]

My younger brother (who is a sage and whom I call with all questions economic) feels that the best thing for us is a severe recession once a generation so we don't forget the lessons.

Up until they passed away, all my grandparents talked about the Great Depression all the time. They saved everything -- aluminum foil, salt and pepper packets from fast food joints, glass jars. When asked why, they simply said, "we might need it someday."

I wonder how much effect John and Mary Sixpack have on the booms as opposed to how they are affected by the busts...

Interesting question, Snark.

[Tyler_JC]

The Japanese Lost Decade is mostly a myth.

It was terrible for investors in Japan but for the average Japanese person, it wasn't the end of the world. They certainly didn't experience a decline in their standards of living that compared to the decline in stock market valuation.



Productivity growth in the 1990s was comparable to the rest of the developed world.



GDP growth was slow but not horrible, especially considering the slow growing (shrinking?) working population .



It was the Japanese stock markets and housing markets that collapsed over that period.



Interesting and tragic correlation (causation?) in this chart. The Japanese unemployment rate increased dramatically in the 1990s...but it's still lower than the unemployment rate of all of Europe and much of the United States.

[heroineworshipper]

Based on the straight number from bls.gov & the GDP, there was no growth since 2000. Only inflation. Also this period was when the bottom of the generation X birth rate entered its peak earning years. We expect better things from generation Y.

[cube]

Why is it that whenever anything bad happens people write "financial articles" proclaiming "the market has failed"?

There is no economic/political system that can create a perfect economic world where investors never lose money and consumer goods always cost a dime a dozen. We live in an inherently chaotic world where things go up and down in cycles.

The most asinine example I could remember was when the general public blamed the oil industry and the president for high gas prices after Hurricane Katrina a couple years back.

[MD]

Comparing our situation to Japan's in the 90's is wishful thinking. They had carry-trade, work-ethic and a strong alliance with a growing America.

You think China is going to rescue US now? -- Think again

Work-ethic in America? -- We haven't nearly enough horses-on-task to carry our pigs-on-trough these days. (bacon sammich, anyone?)

As for the carry trade: I'm not sure I fully understand how they managed to make that work, but they appeared to. -- All we have are new bubbles...

Lost decade?

Try lost century.

[mkwin]

$this->bbcode_second_pass_quote('', 'S')o, the Anglo system is prone to boom and bust: as assets falter bombs go off in institutions, deflation is severe (by modern standards), unemployment shoots up, and then after a year the dust settles and greed reasserts itself, as the economy roars back to life

[Concerned]

$this->bbcode_second_pass_quote('LoneSnark', '
')In all seriousness, I'm not sure which system the average person should prefer; a long slow recession or spurts of boom and collapse?

[Concerned]

$this->bbcode_second_pass_quote('mkwin', '')$this->bbcode_second_pass_quote('', 'S')o, the Anglo system is prone to boom and bust: as assets falter bombs go off in institutions, deflation is severe (by modern standards), unemployment shoots up, and then after a year the dust settles and greed reasserts itself, as the economy roars back to life

[mkwin]

$this->bbcode_second_pass_quote('', 'R')ussia went from a peasant society and under went FORCED industrialization. Starting with 4% of the capital of the US it built a modern (albeit totalitarian moving toward authoritarian) civilization. The boom in living standard was massive, rail laid, road paved, phones, electricity etc..

[mos6507]

$this->bbcode_second_pass_quote('Concerned', '
')A totally different system http://www.ied.info/ where the billions can participate and not just at the indentured servant factory/farm slave level.

[LoneSnark]

$this->bbcode_second_pass_quote('', 'A') totally different system http://www.ied.info/ where the billions can participate and not just at the indentured servant factory/farm slave level.

[MrBill]

Thanks for the graphs, Tyler, very interesting. 'The Lost Decade' is a tagline just like 'Dutch Disease', The Washington Consensus' or 'das deutsche Wirtschaftswunder'. They tend to obscure as much as they illimuninate. Sometimes they can be downright misleading or evolve to mean something completely different.

Since the busting of their property bubble Japan has suffered through almost twenty years of low, slow, no growth, and three going on four official recessions. As you point out the Nikkei is about one-third of its prior level, and property prices declined by over 50% leaving residents with 50-year mortgages. In comparison what is happening in America at the moment is recession-lite. Wait till the real pain begins.

What little growth Japan has had has been mainly export-lead, and exports do not generate the same level of GDP growth as domestic consumption, so living standards in Japan have stagnated. You can argue whether they stagnated at a very high level compared to other nations or not, but they have not been going up. Meanwhile, government spending has left Japan with the highest debt per GDP of any developed country.



Low unemployment is a poor measure of productivity when used alone. If I hire everyone to sweep the streets using straw brooms they are not unemployed, but they are also not productive. Countries like Germany have both very high unemployment, but also very high levels of labor productivity per worker.

Japan's old employment for life policies meant many unproductive workers were simply kept on, but they stopped producing anything of value. Even if in nominal terms productivity goes up in aggregate that still means that those unproductive workers are mainly putting in face time versus creating anything of value. While firms that kept on older, less productive workers were also not able to absorb newer, younger workers entering the workforce either. So youth unemployment and critically under-employment means that generation never got a chance to grow and develop either.

Why Japan keeps failing

America is having its own Japan Moment. Basically, it has been accruing current account deficits for the past thirty some years. That is a net wealth transfer from the domestic US economy to the rest of the world year in and year out. It would easily take at least fifteen years and a lot of pain before that deficit could be brought down to more managable levels much less eliminated. But America is no Turkey with an average age of 15-years old where the government can count on those teenagers entering the workforce in the next 15-years and contributing to economic growth. Instead America faces the prospect of 75-million Baby Boomers leaving the workforce (full-time) and entering retirement. That will be a further drain on public resources to pay those pensions and healthcare benefits.



I do not doubt that America has a dynamic economy. It is not as structurally rigid as Japan's was/is. The third largest country in the world with a social democracy, market economy and 300 million consumers is bound to create wealth, and lots of it. But no matter how much wealth they created already they have not been living within their means either. That simply means that they need an equivalent amount of future growth just to pay for past consumption. That's just treading water not moving forward! ; - )

[Concerned]

$this->bbcode_second_pass_quote('mkwin', '')$this->bbcode_second_pass_quote('', 'R')ussia went from a peasant society and under went FORCED industrialization. Starting with 4% of the capital of the US it built a modern (albeit totalitarian moving toward authoritarian) civilization. The boom in living standard was massive, rail laid, road paved, phones, electricity etc..

[Concerned]

$this->bbcode_second_pass_quote('mos6507', '')$this->bbcode_second_pass_quote('Concerned', '
')A totally different system http://www.ied.info/ where the billions can participate and not just at the indentured servant factory/farm slave level.

[Concerned]

$this->bbcode_second_pass_quote('Tyler_JC', 'T')he Japanese Lost Decade is mostly a myth.

It was terrible for investors in Japan but for the average Japanese person, it wasn't the end of the world. They certainly didn't experience a decline in their standards of living that compared to the decline in stock market valuation.

[MrBill]

Concerned, I want to defend a social-democracy with a free, open and transparent market economy as being the best of all solutions in terms of wealth creation, raising living standards and giving people a free choice.

I do not want to defend the short-comings of such a system or in fact defend abuses of it. As we have seen in history every system has its faults and abuses can occur anywhere. Just coincidently more often in totalitarian regimes where there is less choice and less freedom.

My feeling is that centrally planned economies are simply not very creative. So they can nationalize an industry. They can carry on industrial espionage to steal the latest technology from their rivals. But they are just really crap at thinking up anything on their own. They can exploit today's technology, but they are not very good at inventing tomorrow's.

This is natural as in a market economy you have thousands and millions of minds addressing problems whereas in a centrally planned economy you may have very few thinkers in a position of authority that can implement their ideas. And for ideological reasons sensible solutions may be ignored.

That is not to say that this cannot also happen when for instance a government stubbornly refuses to build public transportation also out of ideological reasons. That does happen. It is called short-sightedness and it is a human trait. The difference I suppose being that usually those leaders are turfed eventually by a dissatisfied electorate, while in a communist country those leaders are usually insulated from the results of their decisions.

No system is perfect, but I would sooner make my own decisions rather than have someone make them for me in their best interest, not mine.

[LoneSnark]

MrBill, Tyler got it right, not you. You posted a graph of "nominal GDP" which is a bad measurement, as it is not inflation adjusted, or in this case deflation adjusted. This is why Productivity, which is what the average person really cares about, showed admirable growth in Japan compared to other nations. Yes, the system experienced deflation every year, but wages are falling slower than prices. Judging from Tyler's graph, prices fell 2.5% faster than wages, compared to America where wages grew 1.8% faster than prices. Draw your conclusion as to which scenario you prefer, but there is no doubt that the average person in 2000 was better off than in 1990.