There are lots of Great Stagnations, all over the world. I recently did a post on the situation in the US, and Tyler Cowen did one yesterday about Europe. But compared to Japan, the US and Europe are enjoying Chinese style growth. The modern world has never before seen a great stagnation quite like Japan. Not that we haven’t seen horrible GDP numbers before, but never quite in these circumstances. Let’s review:
1. In the 1st 4 quarters of Abenomics (i.e. 2013), RGDP grew by 2.4%, which we now know was a flat out boom. Inflation rose into positive territory and the unemployment rate fell from 4.3% to 3.7%.
2. From the 4th quarter of 2013 to the 2nd quarter of 2015 the Japanese economy grew by a grand total of 0.1%. And the unemployment rate continued to fall, from 3.7% to 3.4%. That’s right, over the past 6 quarters the Japanese economy has been growing at above trend. But that blistering pace can’t go on forever. The unemployment rate is down to 3.4%, and unless I’m mistaken there is a theoretical “zero lower bound” on unemployment that is even more certain than interest rates. The Japanese economy is like a Galapagos tortoise that has just sprinted 20 meters, and needs a long rest.
Why is the unemployment rate falling when the economy is not growing? Partly because the working age population is now falling at 1.4%/year. But it seems to be more than that. I don’t have the exact figures, but I believe Japanese total employment is up about 1% over the past 6 quarters, which suggests that productivity is trending downwards. Or maybe their GDP is growing, but it’s all that free stuff on the internet that doesn’t get counted. Who knows? All I can say is that the statistical methods for measuring growth, and the rules of thumb about normal growth and business cycles, do not apply to 21st century Japan. We are in are new world where growth no longer seems inevitable, almost effortless. Italy’s there as well. Portugal and Greece may well be there too. I wonder what Greece’s total growth will be from 2007 to 2027? Maybe 0.1%?
Yes, there are still developed places like Singapore and Australia that have decent trend growth (although both are slowing), and the US still has a bit of growth left. But baring a miracle where Jeb Bush is elected and actually enacts his program . . . no that’s too far-fetched to even talk about. Nevermind.