Reply #13: Nope, that's the conventional wisdom, but having lived there in the 1970s [View All]

[Lydia Leftcoast]

and visited frequently in the 1980s and 1990s, here's my take on it.

Japan in the 1970s was thriving on a mixture of large international corporations and small mom-and-pop retail outlets and factories. There were protectionist barriers, but plenty of American products were available. Still, it irked the U.S. that they couldn't set up KMarts and other big box stores, because of a limit on the size of retail outlets.

Meanwhile, due to lax regulations, speculators began driving up the price of Japanese real estate. Some of them were in league with the yakuza and used the yakuza to drive homeowners and rental tenants out of buildings so that the buildings could be torn down and the land resold at inflated prices. The country went on a building boom.

The banks knew deep down that the land and buildings were overvalued, but they kept two sets of books and bribed the government regulators to look the other way.

In addition, Japanese started coming here to study economics and earn MBAs. The Milton Friedman school was the prevailing orthodoxy, and of course, in that philosophy, limitations on economic activity are bad. Trade restrictions are bad. Government spending is bad. Furthermore, the MBAs came back with a single-minded devotion to the idea of the "lean and mean" company (i.e. fire everyone you can).

The real estate bubble, which was so extreme that some people were taking out two-generation mortgages to afford a simple suburban house (a DUMB move, in my opinion), collapsed at about the same time that the MBA types came of age, and the banks were left with a bunch of foreclosed, worthless assets. Several large banks either failed or were forced to merge.

But the MBA types were blinded by what they had learned in the U.S. and started laying people off en masse and cutting back on hiring young workers. Meanwhile, the small businesses, which otherwise might have absorbed some of the laid-off workers, were being squeezed by either high interest rates on loans or unwillingness on the part of the banks to lend at any price. This went on while the interest rates on savings accounts stood at zero.

As another poster above noted, the "stimulus" has been a stop and start affair. Just as it begins to work, the conservatives in government start yammering about the deficit, and they do dumb things like first instituting and then raising the consumption tax. In addition, Japanese corporations have started outsourcing employment to cheaper countries, further dampening employment opportunities.

Unable to compete with the big box stores (now legal), the old mom and pop businesses that provided livelihoods for generations of Japanese families, are being replaced by chains that pay minimum wage. For example, Tokyo used to be full of quirky, individually owned coffee shops that brewed an individual cup or pot from the beans of your choice, served it on fine china, and played the owner's choice of classical or jazz on the sound system. It's hard to find those anymore. They've been replaced by Starbucks and its imitators. Restaurants, drugstores, bookstores, and clothing stores are meeting the same fate.

But the attempts to stimulate the economy through infrastructure have left Japan with some spanking new infrastructure that makes us look downright shabby. Fly from Kansai Airport (the one that serves Osaka and Kyoto) to LAX, and you'll see what I mean.