Monday, December 26, 2011

No Takers

This is an interesting article that tries to set out the idea that the 'lost decades' in the Japanese economy are a lie.  The author writes:
I feel so strongly about all this that I have more than once over the years challenged the principal proponents of the "lost decades" story to a debate. I first tried in 1998; and then again in 2002. On each occasion there were no takers.
He appears to make a strong case, but a little scratching reveals that the reason no one will debate him is the same reason that no one will debate his former boss (Pres. Carter) about little green men.

He starts the debate with two questions, one about the size of the Japanese trade surplus and one about the value of the Yen versus the Dollar.  Unfortunately he measures the size of the trade surplus in dollars, somewhat over-inflating the value that he's trying to represent (to the extent that a trade surplus/deficit is a meaningful measure to begin with).  As for the value of the Yen versus the Dollar, he is able to snag a more shocking number by writing the article at a time when the Fed is aggressively debasing the Dollar (something which all Americans are aware).  However,  Wikipedia has the full story.  Although the dollar is certainly down from where it was in the early eighties, it's not completely out of it's trading "band" that it has followed for the last twenty years:



However let's face it, measuring one's economy against the U.S. is hardly tough work.  Several commentators have made the case that U.S. itself has had more than a lost decade since many economic measures are back to the late nineties.  The other chart that measures the Yen against a basket of currencies tells the tale even more explicitly:


Here we have the Yen trading in roughly the "band" that it has since the late eighties.  This means that oranges to oranges, the Yen has sunk versus real world purchasing power along with other fiat currencies.

The other evidence used by the author is that of his own personal experience.  This has the sound of a "no one I know voted for Nixon" kind of journalistic justification for one's views and really isn't evidence of any sort.  Better evidence would be what the Japanese economy would look like without their outsized government spending.  Just like the U.S., the Japanese government has spent more and more money to mask the true state of their economy.  The only reliable number I could find on the 'net was 7.4 percent, which would be a pretty big contraction if it was pulled (the article also mentions that the U.S. is at 10.3, which is something happy to consider as well).


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