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Thoughts on Japan's Lost Decade(s)

by Roger Bourke White Jr., copyright Jan 2010

In 1989 Japan's Nikkei stock index hit a peak on December 29th with a valuation of 38,395. In 1990 the stock market crashed and Japan's economy along with it.

Having a boom and bust cycle was nothing new to Japan in 1990, but this bust went off-the-charts differently. There was no quick recovery. There wasn't even a slow recovery! By January 2010 the Nikkei stock index still wasn't even close to that 1989 value, it was sitting at around 10,700. And that was the good news: Real estate values had crashed even more deeply.

But this crash didn't become the basis for a decade of unrest and violence in Japan. It was not like the Great Depression in America and Europe, and Japan, in the 1930's. It has been endured quiet quietly. This era starting in 1990 became characterized as Japan's Lost Decade. It was a good name for it... during the 2000's. But now? Twenty years later? It's still going on? And still being endured quietly?

So the question that comes to my mind is: What's really going on here?

A related question is: Is the 2007/8 crash going to turn into the beginning of America's Lost Decade? There is good reason to think it might.

Maybe that Lost Decade wasn't so lost?

As I have stated in my Nov 2007 essay, Thoughts on Recession, recessions are a time of dream changing. This is a time when the previously profitable boom industries have run out of steam -- investing in them changes from providing increasing returns to providing diminishing returns -- and it's time for the community to change from one set of boom indistries to the next. A boom industry, by my definition, is one that has positive feedback: invest more in it, and more becomes available to invest in the industry and many other things.

So business dreams change in a recession. But the dreams changed in a recession are more than those of switching from one set of boom industries to the next. The dreams that change are also the dreams of aspirations -- what people, and communities, aspire to.

In the Lost Decade, Japan searched for its next boom industry set, and didn't find it.

I think that during this period Japanese people also searched for new aspirations, and those they did find. Instead of the hard-driving, conformist, job-is-everything attitude of the previous post-WWII generations of Japan, this new generation found other ways of finding personal satisfaction and self-worth. Here is an article about one example of that in The Times Online 2 Nov 09: Girly men of Japan just want to have fun, and another in the 18 Apr 10 Mainichi Daily News Japan's herbivores are blurring boundaries -- and upsetting stereotypes by David McNeill.

One high-profile difference turned out to be that these new aspirations did not require fast and sustained economic growth to create feelings of satisfaction and well-being. The people of Japan became happy with quieter and gentler aspirations.

This may be why the Lost Decade has gone on, and on, and on. The people of Japan have not lost, they've found, a different lifestyle, a different set of dreams, that is also satisfying.

Why America may be losing it too

As I read the news about America, as I read what media and politicians talk about, I'm concerned.

There is a lot of talk about becoming greener,
there is a lot of talk about health care,
there is a lot of talk about security,
there is a lot of talk about who is to blame for the mess we are in,
there is a lot of talk about making sure we don't get into this mess again.

I don't see is much talk about how we are going to get growing again!

I haven't heard anyone talking about what we need to invest in to get booming again. I've heard a lot about investing to rescue, but not about investing to boom. If we want to be booming again, this isn't good. In fact, it's real bad.

What this may mean is that the American community's dream is changing. And, like the Japanese, we may be deciding is that growing economically isn't as important as doing other things.


Feb 2010:

Finally, here is an example of what we should be seeing more of: An editorial in the WSJ, 8 Feb 10, Toward a Different Fiscal Future which talks about how dealing with the deficit will affect economic growth.

A 18 Feb 10 WSJ editorial by Liam Denning The Sorry State of Finances about the America's Lost Decade worry.)

March 2010:

A 4 Mar 10 WSJ editorial by Daniel Henninger Bring Back the Robber Barons talking about how we need entrepreneurs who will build booming new markets, not game government subsidies.

An 8 Mar 10 WSJ article about a shakeout now going on in venture captial firms Venture-Capital Firms Caught in a Shakeout by Pui-Wing Tam. This is a symptom of business growth not being top priority in America's dream for the 2010's.

A 9 Mar 10 WSJ article about how little we are investing in startup businesses and productivity these days: Lessons of a Dow Decade by Andy Kessler.

(At last, I'm seeing more articles concerned with building businesses and productivity. This is a good start.)

Apr 2010:

A 24 feb 2010 report by the Pew Research Center: Millennials: Confident. Connected. Open to Change. One of the changes noted is it is the only age group in the nation that doesn't cite work ethic as one of its principal claims to distinctiveness. This is an example of dream changing, and of one that can lead to a lost generation.

An 8 Apr 10 WSJ article Joblessness: The Kids Are Not Alright by Daniel Henninger about another possible recession dream change -- the prospect of now living with long-term high unemployment among America's youth.

Why America may not be losing it

Part of the reason behind the change in the Japanese dream is demographics. The Japanese have "grayed" faster than any other nation, and older people don't dream about the same things as younger people.

If this is the root of most of the Lost Decade dream change in Japan, then America may be saved by its immigrants. Immigrants are keeping America young, and they may also be keeping the American dream ambitious.

If so, this is yet another good reason for America to keep its arms open to those who come from lands across the oceans. More than native-born Americans, they aspire for the traditional American dreams, including a booming economy.

Update:: This 15 Dec 12 Economist article, Double bind A falling birth rate and much slower immigration presage long-term trouble ahead, reports that the US may not be as immune to Japanese-style graying as I was hoping. From the article, "But the savage recession of 2007-09 and its aftermath have not just deepened America’s fiscal hole; they have weakened those demographic advantages. America’s fertility rate has been falling since 2007, as has net immigration."

We may be closer to a lost decade than I thought.

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