Ken Rogoff, who recently wrote a book on financial crises and recoveries (This Time is Different: Eight Centuries of Financial Folly
Nobody wants to end up like Japan,
And yet, visitors to Tokyo today see prosperity everywhere. The shops and office buildings are bustling with activity. Restaurants are packed with people, dressed in better clothing that one typically sees in New York or Paris. After all, even after nearly two decades of “recession,” per-capita income in Japan is more than $40,000 (at market exchange rates). Japan is still the third-largest economy in the world after the United States and China. Its unemployment rate remained low during most of its “lost decade,” and, although it has shot up more recently, it is still only 5%.
So what gives? First, things look a lot grimmer when one gets two hours outside of Tokyo to places like Hokkaido. These poorer outlying regions are hugely dependent on public-works projects for employment. As the government’s fiscal position has steadily weakened, the jobs have become far scarcer. True, there are beautifully paved roads all around, but they go nowhere. Old people have retreated to villages, many growing their own food, their children having long abandoned them for the cities.
It seems like Japan is a story within a story. Many have maintained their lifestyle despite increased job insecurity and lower salaries. While others are just scraping by. Japan was never allowed to get back to business because its zombie banks were never liquidated. Instead, much like the US today, Japan’s banks kept capital on hand and prayed that asset values would recover. Unfortunately, almost 20 years into Japan’s on-and-off recession the situation seems to be getting worse.
