“The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan’s economy.
“As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.”
The above quotes are from a New York Times article:
When Consumers Cut Back: An Object Lesson From Japan
http://www.nytimes.com/2009/02/22/business/worldbusiness/22japan.html?emIn the US, job losses and fear of future job loss are fueling fear and creating a vicious downward spiral resulting in a strong aversion to spend on the part of US consumers, the engine of the US economy.
My parents were children of the depression and they carried the lessons of their painful experiences throughout their lives. The fear that it might happen again made them extremely frugal and cautious with money lest they be unprepared when hard times returned. Those kinds of hard times didn’t return in their lifetimes. But now hard times are visiting subsequent generations who are ill prepared to deal with them.
While frugality, budgeting, saving, cautious investing and suspicion of the consumer culture are personal virtues on an individual level and would make for a sounder economy in normal times (and be better for the planet), the frugal approach is not what is called for for the US economy as a whole in our current situation.
The American consumer is tapped out and paralyzed with fear for their futures. The longer the recession/depression is allowed to go on, the more entrenched this fear will become and the more difficult it will be to convince people that times are getting better, and the more difficult it will be to restart the engine of consumerism. The Japanese have held personal spending in check for almost 20 years. The children of the US depression have been frugal for 50 years or more.
Since the American consumer has been sidelined, most economists agree that government spending and financial intervention in the credit and banking system is necessary to get the economy moving again.
So far neither the stimulus nor the bank bailout have been big enough or bold enough to slow the freefall of the US economy. The recession has already lasted longer than a year, and the recognition of the crisis that began in September has lasted four months, an eternity for the short attention span of the American public. The last four months have been a barrage of stunningly bad news for anyone who has been paying attention. Moreover, the prognosis for the future is filled with dire predictions of more job losses, cut backs and failures in the retail, manufacturing, service, financial and every other sector of the economy. It’s no wonder people are terrified.
The problem is that the American consumer won’t be convinced that things will get better until effective measures are in place and they are producing convincing evidence that they are working. The longer the problem is left unaddressed, the more difficult it will be to convince them. Without the American consumer there will be no recovery.
Many pundits are saying things will turn around by the end of this year or by next year. These are the same people who were assuring us not long ago that housing values and stocks would keep going up forever. Most economists are saying it could last two to five years. There are a few economists who are saying it could be 10 years or even 25 years before things get better. Given what has been done to address the problem to date, the smart money is on much later rather than sooner.
Given the magnitude of the problem, why is the Obama administration acting so cautiously?
Maybe it’s the hesitancy of being new in office; Maybe it’s an attempt to act in a bipartisan manner by incorporating measures they think Republicans will support; Maybe they are afraid that confronting the American people and the world with the true enormity of the problem would create panic; Maybe they’re trying to plot a middle course through the range of remedies advocated by various economic and financial experts; Maybe they don’t really grasp how serious the problems are and how dangerous it is to try to fix them by covering up what amount to severe internal injuries and festering wounds with band-aid solutions.
Whatever the reason for caution, it isn’t working and it’s not enough. People are still scared and with good reason.
Dithering and half-way measures won’t get us where we need to go. We need big, bold actions and we need them now. Unless a lot more is done and done soon, the course of the economy and the plans of the administration articulated so far will result in a crisis that will last far longer than Americans will be able to tolerate. If not enough is done, we are in for years of misery and ultimately the diminution of the United States as a nation.
Turning Japanese, at least in terms of their economic experience in the 1990s, is not something we want to do.
We have a choice between “Yes We Can” and “Fear Itself”. At the moment, fear is winning.
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