Will the U.S. follow Japan?

Date posted: September 8, 2010

Some years ago Japan had a real estate boom and then a bust from which, by many measures, they are yet to recover from. Economists refer to it as the lost decade in Japan. Will the same happen in the United States? North Carolina Cooperative Extension economist Mike Walden explores this question in today’s “Economic Perspective.”

“This is a big point of discussion. … Many people are really, really worried about this — that, yeah, we might have economic growth, but it is going to be sputtering, and we will be like Japan and … the lost decade.

“I think there are a couple of reasons to be hopeful that we won’t repeat what Japan has been through: One is in the private sector — labor productivity, which is really key to the economy, has been much stronger in the U.S. than Japan, thereby resulting in better wage gains here in our country than in Japan. And, of course, if you get better wage gains, you will get better consumer spending. So that is one hopeful sign.

“Another hopeful sign is simply demographics. Population is actually still increasing in the U.S. … whereas, in Japan, population is going down. If you have fewer people, less spending — and that can actually pull your economy down.

“And then lastly many economists think that public policy has been better formulated here in the U.S. — public policy designed to fight a recession. It’s been quicker; it’s been more precise. In many cases, Japan sort of deliberated; they waited in order to take action.

“So because of all this, we are hopeful — certainly not a guarantee, but we are hopeful that we won’t have a lost decade here in the U.S. as Japan went through.”

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