The latest piece of conventional wisdom that has been coming down the pike is that Japan must drop her export-oriented economic ways and increase domestic consumption in order to have any hopes of avoiding a national catastrophe in the face of the global financial/economic crisis. Now there’s a certain arithmetical truth to this line of thinking and I have a lot of respect for the people who had been warning us all the while of the risks inherent in what turned out to be a five-year export-reliant recovery. But I want some value-added from the Johnny-Come-Latelies, the people who are discovering post facto the follies of Japan’s export-dependent economic strategy (assuming there is someone/are people who answers/answer to the name of Japan to whom a “strategy” can be ascribed), a plausible proposal to raise Japan’s marginal collective propensity to consume. And if their answer is “a better safety net”, they have to explain why the United States, with arguably the worst social safety net in the OECD, had managed to live beyond its means for decades before the house of cards came crashing down. They also have to explain why a high external savings rate is wrong for country that is likely to go into a long period of structural external deficits in the not-too-distant historical future. There’s immigration, but do they think we haven’t heard about that already? My aunt is not going to grow wheels any time soon.
No, I didn’t see this coming either, though I had wondered out loud seven years ago how long the U.S. economy could hold itself up by building yet more homes. (Ask the people who were there at JETRO NY if you don’t believe me.) But, like Greenspan, I’d lost my sense of unease over the “irrational exuberance” when everything kept going up—that is, until the current crisis gave me a painful reminder. Incidentally, two other countries have had just as rough a fourth quarter in 2008 as Japan—Brazil and South Korea. The latter is even emulating Japan’s high suicide rates. Go figure.
Next up on Conventional Wisdom Watch: Japan’s Two-Tier Economy, tomorrow, hopefully, after I get over a hangover.