The new type of Japan-bashing is back in vogue these days. Not the kind that scores the Japanese for predatory economic practices that enable them to conquer foreign markets for nothing having to do with market forces, but the kind that ridicules Japan for failing spark remotely acceptable growth despite massive economic stimulus.
It’s easy to understand why, given how scant weeks after the Japan’s central bank announced another massive round not only of bond but of stock-buying to kick some life into the economy, the news broke that Japan’s economy had slipped back into its fourth recession since the financial crisis peaked in the fall of 2008.
Worse, Japan seems to have its economic policy hands tied. The proximate cause of the quadruple dip was the sales tax hike imposed by the government of Prime Minister Shinzo Abe, which hit household spending – never Japan’s economic strength – especially hard. But despite the economy’s weak growth recently, Abe raised taxes to try reining in the country’s bloated government debt. In fact, Japan’s public finances are so troubled that, despite the unexpected recessionary news, a second tax hike is still scheduled for next October (although now it’s widely expected to be postponed).
Yet before Americans in particular start chortling, they might remember that their own country’s record in translating borrowing into growth isn’t any better. Since early 2008, the U.S. economy has outgrown Japan’s, as this chart from today’s Financial Times shows, though not by a huge margin. Yet according to the Organization for Economic Cooperation and Development (OECD), from 2008 through 2014, America’s public debt ratio – its government debt as a share of GDP – will have grown by 46.28 percent. Japan’s will have grown by 35.89 percent.
Of course, Japan’s ratio has been much higher than America’s during this period – in 2014, it will stand at 229.6 percent, versus 106.2 percent for the United States. But America’s has been increasing faster. In fact, the U.S. debt ratio has also been increasing faster than the figure for the Euro area (38.08 percent during the 2008-14 period) and the entire OECD (the average for the mainly high-income countries comprising this group is 39.05 percent).
During the previous decade, the United States (and other countries) showed that it’s easy to grow by borrowing heavily and counting on a certain percentage of the resulting spending fueling production at home. But such debt-led growth ultimately led to an historic financial crisis and an equally historic recession. I’m still waiting for a convincing explanation why This Time It’s Different.