Opinion

The Edgy Optimist

I think we’re turning Japanese, I really hope so

Zachary Karabell
Feb 22, 2013 17:22 UTC

Why the U.S. would be lucky to become Japan.

By Zachary Karabell

Over the past few years, it’s become ever more common to hear comparisons between the United States and Japan. They are not favorable. They come in the form of dark warnings that the current policies of the United States will lead to a fate similar to Japan’s over the past 20 years: stagnant growth with no end in site.

Let’s just say for the moment that the United States is becoming Japan – a nation of little to no economic growth, high public debt and a broken financial system. How bad is that? Is becoming Japan really a worst-case scenario?

The past 20 years for Japan have been called the lost decades. Government debt is in excess of 200 percent of GDP. The country has suffered from chronic deflation, a sluggish job market, an aging population, an insular culture and growth stalled at between 1 percent and 2 percent a year. Governments have come and gone. What’s most notable is that until recently, Japan has rarely been at the forefront of economic news the way it was in the 1980s and 1990s, even though it is the world’s third-largest economy and one of its wealthiest. If you factor in deflation, Japan hasn’t just seen tepid growth; it has seen none: Nominal economic output has barely budged since 1992.

Now we look at the United States and see…mounting government debt burdens, deflation, slow growth, a blech labor market and political sclerosis. And that does sound awfully Japan-like.

Except that it isn’t, because that isn’t the entire story of Japan. Yes, those numbers are factually correct, but they paint a dire picture that doesn’t square with today’s reality. First all, Japan is not just a country that for 20 years has had higher debt, no growth and less global impact. It is one whose citizens are in extremely good health, with the third-highest life expectancy in the world after tiny Macau and Monaco, which means for all intents and purposes it has the highest in the world. It Levels of violence are low. Democratic government is orderly and ordered, and a technocratic and efficient bureaucracy attends to issues such as public safety, infrastructure, education, housing and healthcare with a high level of competence and efficiency. The country is peaceful; its citizens are prosperous. And while defense forces are bulking up in anticipation of tension with China, it has dramatically ended a culture of war that dominated society until 1945.

Obama sees the limits of government

Zachary Karabell
Feb 15, 2013 18:15 UTC

President Barack Obama made the middle class the focus of his State of the Union address on Tuesday. He was lauded by some as fighting for jobs and opportunity, and even for launching a “war on inequality” equivalent to President Lyndon B. Johnson’s 1960s War on Poverty. He was assailed by others for showing his true colors as a man of big government and wealth redistribution.

Yet the initiatives Obama proposed are striking not for their sweep but for their limited scope. That reflects both pragmatism and realism: Not only is the age of big government really over, so is the age of government as the transformative force in American society. And that is all for the best.

Wait a minute, you might reasonably object: What about healthcare? What about the proposals for minimum -wage increases, for expanded preschool, for innovation centers, for $50 billion in spending on roads and infrastructure? Surely those are big government and aim, effectively or not, for transformation?

Another ill-advised rush towards Euro-pessimism

Zachary Karabell
Feb 8, 2013 18:22 UTC

After a pleasant lull over the past six months, panic over the fate of Europe has flared once again. Just weeks ago the elites of Davos exuded confidence that the crisis had passed; the events of the past weeks showed how ephemeral such certainty can be.

But the easy resumption of dark prognostications is just that: easy. The siren call of Euro-pessimism should be ignored. It was wrong in 2010, and it will be wrong now. Europe faces hard years with no clear path, but that is not the same as dissolution and chaos.

So what changed? The British government of David Cameron spoke with atypical candor about the possibility of Great Britain leaving the Union. Scandals rocked the Spanish government of Prime Minister Mariano Rajoy, and Rajoy himself was accused of accepting illegal payments. In Italy, one of the larger banks, Monte dei Paschi, revealed that it had lost close to $1 billion in hidden derivative transactions. More worrisome, looming parliamentary elections that have seen the incredible (for anyone outside of Italy) resurrection of former Prime Minister Silvio Berlusconi, who has managed to surge in the polls even while on trial for paying an underage woman for sex. The prospect of Berlusconi’s return coupled with a crippled Spanish government have raised the prospect that neither country will continue their long march to structural economic reform.

Amidst a banking dry spell, small businesses kickstart themselves

Zachary Karabell
Feb 4, 2013 18:45 UTC

As the U.S. jobs market continues its slow, not-very-impressive-but-nonetheless-forward march, one area of the economy still lags. Banks have only very recently begun to lend. Both individuals and small businesses have faced tight credit standards enforced by risk-averse banks; mortgages have been hard to obtain, and small business credit has been tighter yet. From 2008 to 2011, loans to small businesses fell 20 percent. The net effect has been to mute an already muted recovery.

These trends haven’t been confined to the United States. Lending has been even tighter in Europe, particularly in stressed markets such as Spain. While there are some signs of a thaw, the days of easy credit spurring new and small entrepreneurs to create new and innovative companies seem increasingly of the past.

Or so the data points from the banking and credit industry tell us. What they don’t tell us is that as traditional sources of credit and funding have withered, alternate sources have blossomed. We have been so focused on the negative shifts triggered by the financial crisis of 2008-09 that we may have neglected to notice some new and powerfully positive trends.

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