John Feehery: Speaking Engagements

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The False Comparison

Posted on February 19, 2009

The False Comparison


 


         When I was in college, a friend of mine kept warning me about how the Japanese were going to take over the world.


 


         He was so convinced of Japanese superiority that he took lessons in the language and moved to Tokyo. 


 


         That was in 1987, and he wasn’t alone.  Just about everybody thought that we couldn’t compete with the Japanese model.


 


         I wasn’t convinced.  I thought Japan was a closed society, that they didn’t allow for competition, that they didn’t have any real immigration to keep their country fresh, and that, frankly, they didn’t have enough people to mount much of a long-term threat.


 


         Since that time, Japan has endured a real estate bubble and a lost decade of economic stagnation that has ended all talk of their eventual world domination.


 


         I have visited Japan a couple of times during the so-called lost decade, and they didn’t seem particularly lost to me.  The people seemed pretty happy, a very high percentage of them wore very expensive clothes and the women all seemed to tote around very expensive bags. 


 


         As one website dedicated to Japanese culture and history put it:  “Overall, this has led to the phenomenon known as the "lost decade"; economic expansion came to a total halt in Japan during the 1990s. The impact on everyday life has been rather muted, however. Unemployment runs reasonably high, but not at crisis levels (the official figure is a little under 5%, but this is a considerable underestimate - the real level is probably around twice that). This has combined with the traditional Japanese emphasis on frugality and saving (saving money is a cultural habit in Japan) to produce a quite limited impact on the average Japanese family, which continues much as it did in the period of the miracle.”


 


         Or as the New York Times put it: 


 


“What came next for Japan was depressing but far from a depression. There were no miso soup lines and the relatively low official unemployment rate often seemed to belie that there was a problem at all. But Japan seemed out of miracles. The economy would grow a little, then stop, then contract a little. Countless bridges to nowhere were built, but all the spending on infrastructure failed to lift the nation out of its doldrums.”


 


         Doldrums, yes.  Depression, no.


 


         I have always had my own theory about what happened with the Japanese economic miracle.  I believe it was stolen by the Chinese.  Indeed if you look at when Japan’s economy stalled out, it corresponds almost exactly with China’s incredible economic expansion.


 


         China supplanted Japan as the number one exporter of products to the United States.  Nobody mentions the connection, but to me it is unmistakable.


 


         Of course, when you hear so-called experts, you hear about how we have to do more than what the Japanese did to deal with the current economic crisis.  The comparisons are endless.  We need to spend more.  We need to build more.  We need lend more.  We need to do everything we can or we will end up like the Japanese. 


 


         Well, besides the fact that we are both dealing with the after-effects of a huge real-estate bubble, I don’t buy the comparisons.


 


         Japan is a saving society.   We are a spending society.


 


         Japan is a consensus-driven, conservative and closed society.  We are entrepreneurial, risk-taking and open.


 


         Japan spends little on its national defense.  We spend more than anybody else in the world.


 


           That hasn’t stopped the panicked calls from some liberal economists to spend more before we all turn Japanese.   Paul Krugman, in particular, has desperately called for a government spending spree the like the world has never seen.  In his analysis, those who call for a modicum of fiscal responsibility are misguided fools who should either be ignored or shot on sight (depending on his mood).


 


But that doesn’t make a whole lot of sense to me.  Krugman and company believe we should debase our currency even more so that we can pull ourselves out of a credit crisis.  But how can putting our nation at even more financial risk through the threat of inflation help strengthen our long-term economic future?  


 


How can going into even deeper debt prepare us for the significant financial problems caused by the mass retirement of the baby boomer generation?


 


And how can putting our nation more in debt to the Chinese make us more secure?


 


Methinks that the new Democratic majority and their liberal allies are trying to take advantage of this situation to grow the size and scope the federal government, which fits in nicely with their political philosophy. 


 


But their political philosophy contrasts with prudent economic policy.  We can’t afford to waste more money as a nation on the brink of financial bankruptcy.  American families should buckle down and be more careful in their purchases.  They shouldn’t be encouraged to spend money they don’t have on things they don’t need.  


 


And we certainly don’t need price-fixing schemes that will artificially inflate housing prices and unnecessarily prolong the economic correction that is surely needed in a market that was over-priced and over-heated. 


 


We should ditch the comparisons to Japan.  We are not Japan and what we are going through is completely different from the lost decade endured by the Japanese people. 


 


We should inject some common sense and some financial prudence into this debate before we spend ourselves into some real long-term trouble.