The announcement was made yesterday – August 15 – by Japan’s Finance Ministry: In the last quarter of the year the Japanese economy grew at an annualised rate of 0.2%. “One wonders if the economy will remain at a standstill for the rest of the year”, the Financial Times asks.
But then Japan’s economy has been becalmed for 30 years. Even though the government has poured billions of dollars into the economy it has had only a small effect in boosting demand.
One wonders when the government will give up and what happens then – another decade of minimal growth? If that is what happens how much does it matter? To the Japanese themselves it seems not that much. By and large they are contented with their lot.
The rest of the word may be worried as a powerful country is importing less and less. It does not contribute to world economic growth as it did before when its fast growing economy progressed at Chinese rates from a much higher base.
Some American and European economists are worrying that the Japanese “disease” will spread before long among all the leading economies. Indeed it could be argued that with Europe in the doldrums – apart from Sweden and Poland – and the US economy not steaming ahead as it once did, this may be already happening.
The former US Treasury Secretary Larry Summers has said that the world faces looming “secular stagnation” – a persistent period of low growth, low inflation and low interest rates.
But is this such a bad thing if the cost of living also falls?
We must look at the other side of equation which too few economists do. For them growth in national income has always been everything. Perhaps it is not and Japan is merely showing the way – the way to improve the quality of life.
If wages don’t move upwards the price of goods and services might fall. Even the lower cost goods imported from China into the US have been getting cheaper – by more than 2% in the last three years. This is what seems to be happening right now across many parts of the globe.
Blame technology. It is driving down the cost of everything, from hamburgers to washing machines. Low cost airlines have so lowered the price of a ticket that the ride can be cheaper than the taxi used from the airport to get home.
Phone calls get cheaper and cheaper and are heading for zero if one uses Skype, another marvel connecting people all over the world.
Uber has dramatically reduced the price of a taxi ride. Fracking has helped reduce the cost of oil and therefore petrol for cars, the price of which is also falling.
The cost of higher education may seem to have been going up but one can stay at home or in local library and study by means of an on-line university whose courses can cost as little as nothing.
Technology has enabled users to do many things that don’t contribute to national income: Browsing and learning on Wikipedia and Youtube and using Google to access information that before might take days to discover.
Then there are the inventions such as the growing adoption of solar and wind energy where savings in oil or gas actually reduce national income.
Economists fear deflation. But as Japan shows a country can have prosperity despite it.
It may have negative interest rates which deter saving and an undervalued currency but it is also one of the richest and most stable countries in the world.
In the authoritative UN Human Development Index which measures well-being Japan is near the top after the Scandinavian countries and Switzerland and well above the US, the UK and Germany. Japan’s life expectancy is among the highest in the world and crime rates among the lowest.
The Japanese people are used to a benign welfare state with medical care and education that is highly subsidised. (Nevertheless, the health system suffers from complexity and inefficiency together with the high price of drugs which works against poorer people.)
Middle class wages stopped rising more than 30 years ago. But since the cost of living continues to decline with a wide range of goods in the shops and a growing service sector the majority of people don’t notice the national income statistics.
That doesn’t mean there aren’t poor or unemployed. Millions have been unable to meet their basic needs without help from the government and voluntary organisations. Health care for them has to be generously subsidised. But even the poor can buy an ever cheaper mobile phone, cheaper clothes and furniture.
Why do we need to go forward in the old way when we can march forward in the Japanese way, destroying the environment less and easing the pressures of day to day life?
Copyright: Jonathan Power
