New York Times pities poor Japan, victim of too much investment in jobs and down to third largest economy in the world.

On the front page of this Sunday’s New York Times, Martin Fackler strings together a series of anecdotes of decline and relative depravation to prove the point of his headline, “Japan Goes From Dynamic to Disheartened.”  The time frame, of course, runs from the real estate bubble that dismantled Japan’s economy in the late ’80s and early ’90s to today—20 years of economic stagnation, or so Fackler and most other say. 

The litany of Japan’s trouble sounds familiar, because we’ve heard it before—a family selling a house for less than they owe the bank; a new frugality among the young (as if it were a bad thing!); the downsizing of new houses.

Fackler has some calming words for his readers, though.  Twenty years of stagnation probably won’t happen to the U.S. after the bursting of our real estate bubble.  Why?, you may ask:

“….largely because of the greater responsiveness of the American political system and Americans’ greater tolerance for capitalism’s creative destruction.  Japanese leaders at first denied the severity of their nation’s problems and then spent heavily on job-creating public works projects that only postponed painful but necessary structural changes, economists say.”

In other words, we won’t make Japan’s mistake of investing in new roads, mass transit systems, bridge repairs, school facilities and other public works.  By the way, from Rome under the Antonines, to Western Europe after the Black Plague, China in the Song Dynasty, New England before the Civil War and the United States in the 1930s-1960s, history tells us again and again that job-creating public works help all economies grow.

Fackler offers no proof, and does not even bother to cite the “economists” who say that public works will extend a recession into decades.  Fackler accepts the free market as the only way to solve problems and government intervention as bad as the basic premises of his article.  In fact, the very fact that he offers no other real contrast between Japan and the United States suggests that creating another opportunity to communicate free market ideology was the raison d’être, or prime motive, for writing the piece.

Let’s refute Fackler in three ways:

1. He never proves that investment in public works extended the recession, he just says it.  It’s likely that without public investment at whatever level Japan really made it, that the recession would have been much worse.  No matter how the right-wing pundits try to twist the figures, the recovery programs of the United States and Western European countries prevented the recession from turning worse.
2. When he contrasts Japan with the United States, he conveniently forgets about the last 11 years since our dot-come bubble burst in which incomes and investments have stagnated in the United States.
3. Is it really true that Japan has stagnated?  Everyone has been saying so for 20 years, but that’s the same “everyone” who says that because gross domestic product is up, we’re out of the recession even as unemployment dances around 10 percent.

We do know that China recently passed Japan to become the world’s second largest economy, but Japan is still way ahead of #4 India. 

Let’s look at other key measures of economic well-being, all from the Economist’s Pocket World in Figures 2011. I think we’ll see that Japan is still doing pretty good on the whole:

• Most economic purchasing power – 3rd in world
• Standard of living – 29 (U.S.A. is 20!)
• Human development, which measures overall well-being – 9 (U.S.A. is 13!)
• Trader of goods – 4
• Surplus in balance of payments – 3 (U.S.A. is biggest debtor nation!)

Okay, China is kicking Japan’s butt in the competitive part of economics, but China is also kicking our butt and everyone else’s too.

Let’s look at Japan’s real problem: The fact that it rates first in median age in the world, first in percentage of people over the age of 60 and first in the percentage of people over the age of 80.  That’s a lot of people who aren’t in the market for a new home. 

In other words, Japan is the oldest nation and the one which is aging the fastest. As I discussed in yesterday’s blog entry, economists and policy makers haven’t done much work on the question of how to create a thriving economy when the population is aging and either stagnating or shrinking.  Virtually all of economics assumes that the way to economic nirvana is growth, specifically in population and productivity. 

Perhaps Japan’s economic stagnation is not a problem, just the natural result of an aging society.  Perhaps Japan is as rich as it ever was but no richer, but that the distribution of its wealth among its residents has left pockets of distress, much as it has in the United States.