The Greatest Stagnation

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.

 


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87 Responses to “The Greatest Stagnation”

  1. Gravatar of foosion foosion
    17. August 2015 at 05:05

    Given the choice, I’d guess most people would rather be employed with slow growth than unemployed with higher growth, which makes Japan seem not so bad. I’m just suggesting that employment is more important to most than GDP; I’m not suggesting there’s no relation between the two.

    Are you suggesting that if all of Jeb Bush’s economic policies were enacted we’d be seeing 4% growth?

  2. Gravatar of AbsoluteZero AbsoluteZero
    17. August 2015 at 05:41

    Scott,
    Possible stupid question regarding “zero lower bound” on unemployment.
    What if a lot of people take second jobs even when they already have full-time jobs? This is unlikely, especially in a developed economy, but is there an established way to deal with this, even just in models? When a significant portion of the population take only part-time employment, we need to take that into account. How do we deal with the opposite situation of significantly more-than-full-time employment?

  3. Gravatar of benjamin cole benjamin cole
    17. August 2015 at 06:11

    Actually, Singapore’s last quarter was marked by both recession and deflation.

    Don’t lose hope on Japan; the Nikkei 225 is up more than a third YoY. And remember, Japan was in deflation so long that it began to make sense to save in cash, and then to transact in cash to dodge taxes (another reason deflationary utopias will never work). The average Japanese resident has more than 6,000 US dollars equivalent in yen-cash, not in banks, but under mattresses or in suitcases. Japan has somewhat moved to a cash economy which cannot be measured—maybe. Hard to argue against that observation.

    Central banks everywhere are suffocating economies through inflation targeting.

    We can have economic growth—just go back to growth-oriented central banking.

  4. Gravatar of Ray Lopez Ray Lopez
    17. August 2015 at 06:42

    Whoa, I missed something. Jeb Bush has some sort of program that Sumner likes and is touting? What would that be?

  5. Gravatar of AbsoluteZero AbsoluteZero
    17. August 2015 at 07:19

    benjamin,
    “… it began to make sense to save in cash, and then to transact in cash to dodge taxes.”

    Actually Japan has always been a highly cash oriented society. This is not something that came up only in the last two decades. No doubt many use cash to also avoid taxes, but mainly it’s that way because it’s always been that way (well, at least since the end of the War). Many people, especially those with more blue collar type jobs, get paid entirely in cash. On pay day you’re handed an envelop with bills inside. This has always been common and is still common today. Also, it’s always been common to save by keeping actual paper money. You see this a lot. People would just have a stack of bills in a drawer. And it’s not trivial amounts either. Often people would do this to save for the down payment of a car or even a house. More than that, and they would probably use either the Post Office (which is also a bank, offering savings, insurance, etc.), or a bank.

  6. Gravatar of collin collin
    17. August 2015 at 07:45

    Now that Japan has hit the labor AS downward spiral, isn’t there a real demographic concern here? If you don’t believe me, than how is it the unemployment rate under Obama has consistently been below the Reagan administration? The web is full of stories of coming skilled labor shortages and businesses and states are trying not pay more wages. While a lot of this might be filled in with 16 -24 workers to control the unemployment rate, I see this a bumpy transition. (Of course business could train employees.)

    Also judging by Trump’s popularity from his Huge border fences, high immigration is not feasible politically. (Yes I know Trump’s immigration policy is full of problems and incorrect data…Also remember there are a lot of conservatives (Buchanan & Coultor) that blame California going very blue on our demographics.)

  7. Gravatar of Mike Sax Mike Sax
    17. August 2015 at 08:04

    So if we’re seeing global growth slow in country after country does this give aid and comfort to Piketty who says that fast growth is a relic of one 300 year period that started 1700 and is going to be winding down soon?

    Not that I want Piketty to be right-I’d rather believe he’s wrong and that we have lots more growth in our future-just for arguments sake.

  8. Gravatar of ssumner ssumner
    17. August 2015 at 08:21

    Foosion, Not really, at least not for any extended period. Maybe a year or two if he got everything he wanted, which he wouldn’t. It’s a moot point.

    Absolutezero, That’s why hours worked is probably the best cyclical indicator.

    Mike, Piketty has much bigger problems with his model.

  9. Gravatar of AbsoluteZero AbsoluteZero
    17. August 2015 at 08:29

    Scott,
    I see. Makes sense. Thank you!

  10. Gravatar of Tom Brown Tom Brown
    17. August 2015 at 08:37

    “But baring a miracle where Jeb Bush is elected and actually enacts his program..”

    … haven’t you heard? Huckabee is promising 6%. And Krugman is promising the same plus a pony!!

  11. Gravatar of E. Harding E. Harding
    17. August 2015 at 10:16

    http://ftalphaville.ft.com/2014/09/04/1957241/real-gdp-per-capita-growth-over-the-past-10-years-not-what-youd-think/

    I don’t see anything special about Japan.

  12. Gravatar of The greatest stagnation, the economy that is Japan The greatest stagnation, the economy that is Japan
    17. August 2015 at 10:18

    […] That is from Scott Sumner, there is more at the link. […]

  13. Gravatar of ssumner ssumner
    17. August 2015 at 10:57

    E. Harding, Not sure what you comment has to do with my post. Was I discussing per capita RGDP?

  14. Gravatar of dtoh dtoh
    17. August 2015 at 11:04

    @scott
    As I have said before Japan’s primary problem is a confiscatory tax regime.

  15. Gravatar of Random Commentary Random Commentary
    17. August 2015 at 11:06

    You should be discussing per-capita RGDP because that is what matters: if the population growth rates of different countries vary wildly, RGDP on its own is a poor metric of the economy’s performance.

    To put it another way, if the population in Japan is shrinking at 1% per year, and the economy is the same size year after year, that is very similar to a situation where the economy of the US is growing at 3% per year while the population is growing at 2% per year. The numbers are not exact but hopefully you get the idea.

  16. Gravatar of E. Harding E. Harding
    17. August 2015 at 11:15

    @ssumner
    -I’m not quite sure what you were discussing. This is employment in Japan:
    http://research.stlouisfed.org/fred2/series/LFEMTTTTJPM647S
    It peaked in June 1997 and is now lower by more than two million persons. Since then, the Japanese economy has performed much like any First World economy, especially in regards to productivity:
    http://research.stlouisfed.org/fred2/graph/?g=1DWG
    I just don’t see any evidence that your claim

    But compared to Japan, the US and Europe are enjoying Chinese style growth

    is true, except in regards to simple employment growth.

  17. Gravatar of E. Harding E. Harding
    17. August 2015 at 11:22

    Another graph, comparing RGDP per worker in Japan with that in the U.S.:
    http://research.stlouisfed.org/fred2/graph/?g=1DWR

  18. Gravatar of E. Harding E. Harding
    17. August 2015 at 11:23

    Note, they’re not absolute amounts of RGDP per worker, they are meant to be indexed to the same value since about 2010.

  19. Gravatar of ssumner ssumner
    17. August 2015 at 11:33

    Everyone, Please comment on the post, not the subject you thought the post should focus on. If Japan’s population fell from 125 million today to 1 tomorrow morning, would it not matter if per capita GDP was unchanged?

    Random, You said:

    “You should be discussing per-capita RGDP because that is what matters:”

    It would matter if I was discussing living standards, but I’m not. I’m discussing total output.

    E. Harding, You said:

    “is true, except in regards to simple employment growth.”

    I was discussing RGDP growth. They way to know that is read the post, which discusses RGDP growth.

  20. Gravatar of E. Harding E. Harding
    17. August 2015 at 12:30

    OK. Then (assuming no drastic change in immigration policy), it appears Japan’s RGDP trend is that of the U.S., minus the difference in trend employment growth. Which is pretty significant:
    http://research.stlouisfed.org/fred2/graph/?g=1DYg
    Japan’s trend employment growth is negative (though so far, only mildly so). The U.S.’s, due to immigration and demographic momentum, is still positive.

  21. Gravatar of Adam Adam
    17. August 2015 at 13:03

    The relationship between population growth and economic growth is interesting to think about. Could growing population generate pressures that drive productivity growth?

    If so, can you import whatever that is via immigration? Or might immigration be even better than native population growth, via diversity or simply attracting those sufficiently motivated?

  22. Gravatar of TallDave TallDave
    17. August 2015 at 13:32

    Uh oh. http://www.marketwatch.com/story/empire-state-index-tumbles-to-recession-era-levels-2015-08-17

  23. Gravatar of E. Harding E. Harding
    17. August 2015 at 14:31

    There is one country with a longer stagnation than Japan: Italy.
    http://research.stlouisfed.org/fred2/graph/?g=1E1h
    http://research.stlouisfed.org/fred2/graph/?g=1E1i

  24. Gravatar of E. Harding E. Harding
    17. August 2015 at 14:32

    *one major country

  25. Gravatar of E. Harding E. Harding
    17. August 2015 at 14:34

    *or, combined:
    http://research.stlouisfed.org/fred2/graph/?g=1E1n
    2010=.1
    BTW, I comment so much because I’m always afraid my comments will be eaten. This happened a lot once.

  26. Gravatar of ssumner ssumner
    17. August 2015 at 14:36

    E. Harding, What is the unemployment rate in Italy? Japan?

  27. Gravatar of E. Harding E. Harding
    17. August 2015 at 15:09

    In Italy, it’s ~12%, in Japan, it’s ~3.7%. But unemployment in Italy has been consistently higher than in Japan for at least four decades, so I don’t think that has much of an effect on the multi-decade big picture:
    http://research.stlouisfed.org/fred2/graph/?g=1E1S

  28. Gravatar of PB PB
    17. August 2015 at 15:20

    If the implication here is that Japan has an economic problem, then the growth fetish assumption needs examining. Japan has a per-capita PPP GDP similar to the UK, extremely low unemployment and reasonable social stability. If that isn’t a hallmark of a well performing society then the measurement of such things needs to be changed.

  29. Gravatar of ssumner ssumner
    17. August 2015 at 15:35

    E. Harding, This post focused on the past few years, when the unemployment situation in Italy and Japan have radically diverged.

    PB. All countries have problems, including japan and the UK. But this post was not trying to suggest that Japan had problems, just that its RGDP is not going anywhere.

    Everyone. Those who insist there is nothing to see here, just move along, should welcome this blog. I’m the only blogger that pushed back against the media claim last year that Japan had a “recession.” How can negative GDP growth be a recession, when the trend is negative? It’s the other bloggers you should be criticizing.

    Galapagos tortoises live to be over 100. They do just fine. They just aren’t very fast.

  30. Gravatar of E. Harding E. Harding
    17. August 2015 at 16:04

    E. Harding, This post focused on the past few years, when the unemployment situation in Italy and Japan have radically diverged.

    Okay, let’s adjust RGDP for unemployment:
    http://research.stlouisfed.org/fred2/graph/?g=1E2q
    Italy still looks awful in comparison. Although in Italy’s case, tight money might be making things look worse.

  31. Gravatar of E. Harding E. Harding
    17. August 2015 at 16:49

    Also, true fact: adjusted for unemployment, Germany’s recovery is only slightly better than that of Japan:
    http://research.stlouisfed.org/fred2/graph/?g=1E2Y

  32. Gravatar of Ray Lopez Ray Lopez
    17. August 2015 at 16:53

    Sumner: “Everyone, Please comment on the post, not the subject you thought the post should focus on. If Japan’s population fell from 125 million today to 1 tomorrow morning, would it not matter if per capita GDP was unchanged?”

    Of course it would matter, as there are network effects to having a large population. Monaco’s 36k population has a GDP/capita of 133k, but it’s irrelevant.

    I’m still waiting to hear about Jeb Bush’s plan that Sumner touts (it was in the post so on-topic).

  33. Gravatar of Major.Freedom Major.Freedom
    17. August 2015 at 16:58

    Great stagnations because of too much governmental activity.

    Too much governmental activity in large part because they have legalized counterfeiting for themselves.

  34. Gravatar of E. Harding E. Harding
    17. August 2015 at 17:00

    BTW, though there is a ZLB on the unemployment rate, no country has yet reached the 100% upper bound on the labor force participation rate!

  35. Gravatar of Ray Lopez Ray Lopez
    17. August 2015 at 17:05

    @Harding – thanks for that link, nice graphics. I think the chart is a bit misleading: it’s showing that Japan slowed down radically since the early 1990s, growing as slow as Italy, while Germany continued growing fast until the Great Recession, and now, as you say, recovered and is advancing about the same as Japan. A tiny change in compound growth rates makes a big difference.

    BTW Japan is the harbinger for the failure of both fiscal stimulus as well as monetarism. Eventually their 120%+ net govt debt/GDP will cause them to implode. Of course ‘true believers’ like Sumnerites will continue to think that NGDPLT-type monetarism would have ‘saved the day’ but that’s religion. Similarly, you have communists today who think ‘if only Russia, China, Vietnam etc had done Marxism right it would have worked’. Marxism does not work (inter alia) since Marx did not believe in the time value of money in the form of capital, only ascribing to the Ricardian labor theory of value. Similarly, monetarism does not work because money is largely neutral and even superneutral. Fiscal stimulus does not work since the multiplier is often close to zero.

  36. Gravatar of E. Harding E. Harding
    17. August 2015 at 17:15

    @Ray Lopez
    So what works? And are NGDP and RGDP independent? Also, Germany only seems to have grown fast in 2005 and 2006.

  37. Gravatar of E. Harding E. Harding
    17. August 2015 at 17:15

    *adjusted for unemployment.

  38. Gravatar of benjamin cole benjamin cole
    17. August 2015 at 17:32

    Absolute Zero: maybe so, but the amount of cash in circulation per capita has doubled in Japan since 1992 last I checked, while the economy has shrunk in nominal terms.

    In the low inflation US and European economies cash in circulation is also exploding.

    I think it is clear that very low inflation or deflation in a modern developed (high tax) economy will result also in a large growing, off-the-books cash economy.

    That is how the incentives shake out, regardless of cultural affinities.

  39. Gravatar of Benjamin Cole Benjamin Cole
    17. August 2015 at 18:04

    Add on: An interesting question is whether a modern state can survive deflation long-term.

    Obviously, the off-the-book cash economy will grow, relatively, and thus increasing the tax burden on the above-ground economy. That will induce a cycle, as more people and business migrate to cash.

    A some point, the state edifice must collapse, or there must be a radical shrinking of state outlays.

    In the future, will Americans tolerate a national security complex that (alone) results in a tax rate of 20% on reported income?

    Jogn Cochrane (now of Hoover) has pondered aloud the idea of a state-enforced cashless economy, every transaction recorded by tax authorities. Along with your e-mails and phone calls.

    Maybe we could just go back to 3% inflation….

  40. Gravatar of AbsoluteZero AbsoluteZero
    17. August 2015 at 18:13

    benjamin,
    No disagreement. All I’m saying is, this didn’t start with the lost decades. It was like that when I was there in the early 1990s, and my friends confirm it was that way when they were growing up in the 70s and 60s. One thing that’s very telling is, even in movies and TV shows, including anime, that’re supposed to show life a decade or two in the future, they still show people paying with cash in stores. But, as you say, incentives are incentives. If anything, the existing habits probably made this cash expansion easier and quicker.

    Also, just because you have a perfectly good reason for something, doesn’t mean that that’s the only reason. This is OT enough so I won’t go into it. Suffice to say cultural differences are often far more significant that people imagine.

  41. Gravatar of genauer genauer
    18. August 2015 at 00:03

    The problem is the American centric view, ignoring population growth differences and PPP (food is now on average 50 – 80% more expensive in the US than in Germany) :

    For the relevant GDP per capita in PPP the long term growth is the same for US, Japan, and EuroArea, and Germany stands out.

    http://de.slideshare.net/genauer/gd-pper-capita-in-ppp-us-versus-euroarea-germany

    Germany achieved this without running gigantic deficits, and is on course to have government debt down to the target 60% GDP in 2018

  42. Gravatar of Postkey Postkey
    18. August 2015 at 03:57

    “The modern world has never before seen a great stagnation quite like Japan.”

    For an ‘explanation’ see

    ‘Princes of the Yen’. R.A. Werner.

  43. Gravatar of benjamin cole benjamin cole
    18. August 2015 at 05:21

    Genauer—
    Great charts. My rapidly getting out of date understanding of the German economy is that there are powerful banks, connected to the state that fund industries with an emphasis on getting the funding repaid, with state collusion if necessary.

    Of course, German regulations are legendary– in my grad school days, Germany was referred to as an “administered state.”

    How much is this is still true? And are food cost really 80% lower in Germany? How is that possible?

  44. Gravatar of collin collin
    18. August 2015 at 05:43

    In my lifetime I find transformation of Japan Inc. to Japan Greatest Stagnation the most awesome story in my lifetime. How did the functional productive economy ever in the 1980s suddenly turn so much in the next generation? It is hard to believe such changes to Central Banking or government spending caused such a generational shift in Japan Socio-Economic system. And the economy appears to have broken every Macroeconomic theory I read about in the early 1990s. (Also not a bad example of countering Trump-Buchananism of extremely tight immigration will solve everything.)

    At the heart of the Japan Greatest Stagnation I do see the developed world contradiction. The richer we are the less we can afford having children:

    1) How does the developed world enforce family formation without purantical religion?
    2) Does a functional economy continue gaining low wage workers?
    3) As we do move to less work society how does low wage workers survive?
    4) What if there is Great Stagnation in RGDP but still lots of innovation that is greatly cutting cost?
    5) Does every developed nation sooner or later become their version of Japan? (For instance Ukraine and Greece both had huge problems but did their low birth demographics contribute to their debt failures and make it worse?)

  45. Gravatar of Jerry Brown Jerry Brown
    18. August 2015 at 06:02

    “Like a Galapagos tortoise that has just sprinted 20 meters and needs a long rest”. What a great analogy. You are an exceptionally talented writer, always making what can be a boring subject quite interesting. Thanks!

  46. Gravatar of Ray Lopez Ray Lopez
    18. August 2015 at 06:39

    @E. Harding — yes, I believe, and the evidence shows, RGDP is not correlated with NGDP. Or rather, they are correlated “after the fact” (ex post) by inflation NGDP = RGDP + inflation, but not “before the fact” (ex ante). But you cannot (say the data, and Sumner agrees, see the last post from this one) specify either high or low inflation to influence RGDP. However, Sumner seems to think due to supposed money illusion and sticky prices/wages that short term you can influence RGDP using NGDP, but Bernanke et al (2003) tells us monetarism is only 3.2% to 13.2% of the total in real variables, so it’s unlikely Sumner is right. Likely Sumner is staking some radical intellectual territory as his own, to satisfy his admittedly large ego, and suckering ignorant of economics individuals like Kenneth Duda to fund him. But hey, it’s all good, there’s many ways to make a living and at least he’s not doing crime.

    @collin – Japan declining is either an example of the perils of a closed economy, and/or the perils of ‘dumb growth’ of the Asian export model variety, which depends on expanding market share (be it steel or cars) outside your market, specifically, in the USA. Eventually you run out of expanding markets and your low productivity shows, as is happening now. We (the USA) needs ‘smart growth’ but sadly this kind of growth is hard to get (you need an educated society, and, IMO, a better patent system that rewards innovation, among other things). So likely the USA and EU will follow Japan’s road, as will eventually China (with a rapidly aging population). India might be the next Japan/China, as might Africa, if they get their act together which is not a given.

  47. Gravatar of Morgan Warstler Morgan Warstler
    18. August 2015 at 07:02

    Scott,

    I had to reread this many times:

    “Or maybe their GDP is growing, but it’s all that free stuff on the internet that doesn’t get counted. Who knows?”

    Are you actually considering the unthinkable?!?

  48. Gravatar of genauer genauer
    18. August 2015 at 07:12

    @ benjamin cole

    what powerful german banks ?

    Deutsche Bank getting whacked left and right
    Commerzbank being under government control

    the Sparkassen a.k.a as decentralized savings union?

    “administered” state ? WE have streamlined a lot of administration in the last 12 years

    My German tax declaration consists of 4 or 5 pages with something written on it. My US tax declarations were 50 – 70 pages, and always prepared by a tax attorney

    Expensive American food:

    I pay
    55 cent for a liter of milk
    79 cent for 250 g of Butter
    2 Euro for 500 g of ground meat
    79 cent for kilogram tomatoe

    And you in your place ?

  49. Gravatar of ssumner ssumner
    18. August 2015 at 09:08

    Genauer, Ignored population? Does anyone actually read posts anymore?

  50. Gravatar of charlies charlies
    18. August 2015 at 10:02

    Scott,

    Did you ever read Mancur Olson’s “Decline of Nations” book?

    His whole thesis appeared to be contradicted by the Thacher/Reagan 80s shift back to supply-side growth. However, one interpretation of the past decade or so for advanced economies is that Olson was right all along, and the 80s rhetoric was an anomalous blip.

  51. Gravatar of Morgan Warstler Morgan Warstler
    18. August 2015 at 10:27

    Come on in Scott, the water is great!

    Cochrane:

    “One hypothesis (I think this comes from Larry Summers, but I welcome the proper citation) is that today’s production function needs a lot less physical capital to produce the same productivity. A 1930s steel mill is a lot of accumulated savings. Facebook has nothing but a basketball court sized building full of 20-somethings coding while wearing headphones, and a really cool food court. The company is worth billions but it took comparatively little accumulated savings to start it up. If technology moves so that human, rather than physical capital is the heart of the K in F(K,L), there are lower interest rates on the transition path.”

    http://johnhcochrane.blogspot.com/2015/08/the-decline-in-long-term-interest-rates.html?spref=tw

    Are you both walking into the light at the same time?

  52. Gravatar of W. Peden W. Peden
    18. August 2015 at 10:37

    Charlies,

    In the US, I think it was a lot more rhetoric than reality. In the UK, we had more of a traumatic crisis in the 1970s and early 1980s, and therefore more willingness to change.

  53. Gravatar of Floccina Floccina
    18. August 2015 at 11:14

    Partly because the working age population is now falling at 1.4%/year.

    Wow!

  54. Gravatar of Floccina Floccina
    18. August 2015 at 11:24

    Why does this post make me think of Donald Trump and Planned Parenthood?
    But don’t worry, if trends do not change in 100 years the Anabaptist (Amish + Mennonites) and Hasidic Jews will make half of the USA population and the population will start to grow again.

  55. Gravatar of What Monetary Policy Can and Cannot Do: Japan Edition | Historinhas What Monetary Policy Can and Cannot Do: Japan Edition | Historinhas
    18. August 2015 at 11:28

    […] Scott Sumner discussing the Japanese economy as an example of the Great […]

  56. Gravatar of Floccina Floccina
    18. August 2015 at 11:29

    @Ray Lopes the Jeb Bush allusion is sarcasm. Bush promised if elected he would push growth up to 4%.

  57. Gravatar of Mark A. Sadowski Mark A. Sadowski
    18. August 2015 at 12:38

    Scott,
    Doesn’t this resemble what you predicted in 2011?

    https://thefaintofheart.wordpress.com/2015/08/18/what-monetary-policy-can-and-cannot-do-japan-edition/

  58. Gravatar of Matt McOsker Matt McOsker
    18. August 2015 at 13:23

    Morgan, don’t forget all the infrastructure Facebook relies on like cell towers, to data centers etc. There is a lot there that Facebook leaches onto, and is reliant upon.

  59. Gravatar of Matt McOsker Matt McOsker
    18. August 2015 at 13:27

    Genauer, Germany does not need to run deficits because of the German trade surplus.

  60. Gravatar of genauer genauer
    18. August 2015 at 14:22

    Scott,

    my slideshares are designed to just provide the data to drive my point home in specific debates, nothing fancy, often just plotting the data.

    Slideshare gives me some statistics, how many people look at what plots, and they say that on some comments I make in some blogs (marginal & FT ), 200 people look at it, which means they read the comment and wanted to see the data in detail.

    And there are apparently people who look on links I provided the last time several months ago.

    For me my kind of comments with data links is efficient and worthwhile enough, given the number of responses

  61. Gravatar of E. Harding E. Harding
    18. August 2015 at 14:51

    As I pointed out on MR, Japan’s falling behind in productivity relative to the U.S. came in three phases: the bursting of the Japanese bubble (1991-1994), the ’97 crisis (1997-2000), and the Great Recession (2008Q1-2009Q1). It wasn’t a long, continuous stagnation.

  62. Gravatar of Steven Kopits Steven Kopits
    18. August 2015 at 15:06

    My take, with nice GDP graph.

    http://www.prienga.com/blog/

  63. Gravatar of Ray Lopez Ray Lopez
    18. August 2015 at 19:22

    Wow! As pointed out by Mark A. Sadowski’s link upstream, Sumner concedes NGDPLT is ‘one-time’! Sumner has surrendered! In short, if NGDPLT only works “one-time” ergo it is nearly worthless as a monetary framework. The nation needs a framework that works all the time, not just the first time then quits (NB: I personally believe in money neutrality, but this thought is for those of you that don’t).

    Sadowski quoting a Sumner blog post:
    https://thefaintofheart.wordpress.com/2015/08/18/what-monetary-policy-can-and-cannot-do-japan-edition/

    Where have I heard something like this before? Here’s Scott Sumner in 2011.

    Just to be clear, it is quite possible (likely in my view) that Japan could get another 2% of RGDP by switching to a 3% NGDP target. But it would be a one-time gain, as their labor market got less rigid. Unemployment might fall to 2% or 3%, but trend growth shouldn’t change.

    That sounds like an astute prediction to me.

  64. Gravatar of ChargerCarl ChargerCarl
    18. August 2015 at 19:28

    “food is now on average 50 – 80% more expensive in the US than in Germany”

    There is absolutely no way this is true.

  65. Gravatar of charlies charlies
    18. August 2015 at 19:53

    W. Peden,

    You may be right. And that reinforces the point. It basically requires an advanced economy to experience a traumatic does of stagnation, before it will collectively decide to shift back into growth mode. Otherwise the implacable Olson logic applies.

    In the US 1980’s defense, I think that is the only modern decade during which the pages in the Federal Register did not increase in volume, which is at least suggestive that interest group rent seeking pressures where held somewhat at bay.

  66. Gravatar of Ben J Ben J
    18. August 2015 at 20:00

    Ray, how do you hold completely contradictory views in your brain at once? Why do you write them down in a comment at the same time so it’s obvious how insanely confused you are?

    Do you believe money is neutral always, as you keep harping on, or do you believe that it’s “likely” that Japan could get another 2% real GDP from NGDP targeting?

    You realise those two statements are completely contradictory right? Are you really that confused?

  67. Gravatar of genauer genauer
    19. August 2015 at 02:46

    ChargerCarl

    Food should not be significantly more expensive in the US,

    but please tell me your US prices for the products I have cited above.

    I have also the personal comparison US / Germany for some 20 items for the years back 2003, and 2010

    House and rent inflation was also much lower in Germany, no bubbles but nominal decreases,

    improving the real purchasing power. People in Germany have no problem with some slight (1%) deflation

  68. Gravatar of W. Peden W. Peden
    19. August 2015 at 05:23

    Charlies,

    Yes. I have seen some interesting criticisms of Olson’s theories, e.g. in “Economic Growth in Europe Since 1945”, 1994, which is a collected volume that also contains a piece by Olson.

    I haven’t heard about that figure about the Federal Register in the 1980s. It would be very interesting to find out if it’s true. My main encounter with a detailed discussion of the US in that period is Milton Friedman’s “The Tyranny of the Status Quo”, which only talks about the first Reagan administration.

  69. Gravatar of Ray Lopez Ray Lopez
    19. August 2015 at 06:39

    @BenJ – reading comprehension is your Achilles’ Heel. The one-time NGDP boost for Japan is Sumner’s words (read them). Sumner thinks NGDP is a ‘one-off’ remedy. I believe in money neutrality. Sorry, I can’t dumb it down any more for you.

  70. Gravatar of benjamin cole benjamin cole
    19. August 2015 at 12:22

    OT but in the ballpark: the TIPS market in the United States is now predicting CPI inflation at 1.27% for the next five years. That means the prediction is that the PCE deflator will be under 1% for the next five years.

    And that means the Fed is undershooting its 2% PCE target by half.

    Hey, that is what the market says.

  71. Gravatar of Bababooey Bababooey
    19. August 2015 at 12:35

    genauer-

    No tax attorney completed your U.S. tax return, it was a CPA and software. You did not file a personal tax return that was 50-70 pages. Our tax system sucks*, no doubt, but no need to be a dummschwätzer.

    I could form a Delaware company from Los Angeles before finishing a dump**, never talking to a lawyer or notary public, never completing a 15 page AML dossier and all for about $150. Can you do that in Germany?***

    *Like good Americans, we innovate around self-inflicted wounds: cheap software inoculates against the metastasizing tax code, eliminating the need for professional CPA help, or at least demoting their role to data collection and input.

    **crude, but when talking to Germans it’s best to use their language

    **Too harsh, sorry, I’m grumpy. Germany isn’t a bad place for foreign investment in my experience, worse than UK, Netherlands and Spain (!) but better than Belgium, France.

  72. Gravatar of James Alexander James Alexander
    19. August 2015 at 13:58

    Genauer, you boast too much:
    http://www.nationmaster.com/country-info/stats/Cost-of-living/Prices-at-markets/Milk/1-litre

  73. Gravatar of Paul Bogle Paul Bogle
    19. August 2015 at 14:17

    I took a peak at the weekly specials on offer at the Rewe my mom frequents at PLZ 61209. I found offers for Roma Rispentomaten 2.78/kg and Hamburger vom Rind, küchenfertig zubereitet for 5.73/kg.

    Not knowing where exactlyer shops, it is difficult to compare like items. His prices strike me as unusually cheap for Germany.

    Ihre Marktangebote
    REWE, Am Mühlbach 7, 61209 Echzell

    https://www.rewe.de/angebote/

  74. Gravatar of ChargerCarl ChargerCarl
    19. August 2015 at 14:59

    I have no doubt that housing prices and rent inflation are lower in Germany, but that has nothing to do with monetary policy:

    http://idiosyncraticwhisk.blogspot.com/2015/08/housing-tax-policy-series-part-51.html

  75. Gravatar of Morgan Warstler Morgan Warstler
    19. August 2015 at 18:02

    Scott, I’m still waiting on answer to this:

    “Or maybe their GDP is growing, but it’s all that free stuff on the internet that doesn’t get counted. Who knows?”

    Are you actually considering the unthinkable?!?

  76. Gravatar of Ray Lopez Ray Lopez
    19. August 2015 at 20:15

    @Morgan Warstler – you are waiting for Godot. When Sumner is boxed into a corner, he changes the subject or goes into radio silence. I’m waiting to here about how he gets out of following:

    Here’s Scott Sumner in 2011. (***my emphasis added***)

    “Just to be clear, it is quite possible (likely in my view) that Japan could get another 2% of RGDP by switching to a 3% ***NGDP target***. But it would be a ***one-time gain***, as their labor market got less rigid. Unemployment might fall to 2% or 3%, but trend growth shouldn’t change.”

    Note: NGDPLT is a “one-time gain”! Wow. I’m sure Sumner will think of some lame reason why he wrote this, like “unique only to Japan” or other such nonsense.

    Waiting for Godot…

  77. Gravatar of ssumner ssumner
    20. August 2015 at 04:13

    Genauer, I stopped reading after you said this:

    “The problem is the American centric view, ignoring population growth differences and PPP (food is now on average 50 – 80% more expensive in the US than in Germany) ”

    Ray, Check out my new Econlog post, you might learn something.

  78. Gravatar of bill bill
    20. August 2015 at 04:19

    Germans spend more on food – those quoted items are probably supported by the government.

    wsm.wsu.edu/researcher/wsmaug11_billions.pdf

    US tax returns can get surprisingly long once you get all your K-1s. Worse, if you own property in more than one state, those returns get very complicated too.

  79. Gravatar of mike smitka mike smitka
    20. August 2015 at 04:55

    I went to the BOJ monthly report (Aug 10, an English language translation normally follows a few days later). Lots of series, not all mutually consistent (the Household Consumption and Expenditure Survey shows falling consumption, others surveys don’t except for a few months that fed into the latest negative GDP numbers). Except for the last quarter (released subsequent to the BOJ report), consumption’s been rising since 2009, with exceptions for 3/11 and for the Apr 2014 consumption tax increase More important, labor markets show steady improvement, even for part-timers; hours, wages, income. While the working age population may be only falling by -1.4%, the largest cohort is at about age 65 by which point labor participation is falling. Newspaper accounts of problems hiring (the Nikkei) and a rise in the minimum wage all match a much stronger labor market.

    Finally, residential construction has been rising slowly but steadily since 2009, despite a falling population. In travels there, Japanese are visibly better housed than 25 years ago, and the treatment of housing in GDP is problematic. I was just there for 6 days in Kyushu this month, including 2 trips into rural areas. Shopping malls crowded in Fukuoka [1+ mil pop] with hordes of Chinese and Korean tourists [my wife & I stayed in an Airbnb, we were the first non-Asians they’s hosted]. But the population aging and population decline is clear: most of the stores in the covered shopping arcade of Karatsu, a city 90 minutes west of Fukuoka by train, had gone out of business, and didn’t have “tenant wanted” signs. Iizuka, about an hour south of Fukuoka, was doing better (local manufacturing esp autos, factories in Kyushu are now the core of the industry) and the shops that were closed had “tenant wanted” signs.

    Now this is informal analysis; I’ve not tried to fit it into a growth equation. But the geographic and demographic transformation clearly weighs on measured productivity: until the last of the baby boomers businesses close – I’ve chatted with owners, for many staying open gives them something to do, but they have no sales yet will show up in the labor and capital stock measures that feed into TFP calculations.

    Finally, you ought to look at Handbury, Watanabe & Weinstein, “How Much Do Official Price Indexes Tell Us About Inflation?”, NBER Working Paper 19504. They suggest that the CPI in Japan is overestimated, so real consumption is higher than data suggest. That too matches my casual experience of stopping by supermarkets, food prices are often lower than in my local Krogers. Eating out in Japan is distinctly cheaper, even at fairly good restaurants we could eat for US$10-US$15, less than what I have to pay locally (rural Virginia) at a mediocre sit-down place for their basic hamburger. A good seafood (live squid, a Japanese-style banquet) ran $20-$25.

    So … in the data I see less puzzle than you do, and experientially what I see on the ground is a significant improvement in the standard of living since the 1990s, and a turnaround in labor markets more recently, qualitative change that aggregate numbers fail to catch.

  80. Gravatar of mike smitka mike smitka
    20. August 2015 at 05:15

    Oh, I should add that in Japan the minimum wage tracks actual wages, and varies by region. It’s a suggested floor [not a lot of enforcement action] to try to keep employers from taking advantage of workers with low mobility, not a binding constraint as in some regions in the US. And there is plenty of abuse of part-time workers, and while the labor board will take action, the victories are pyrrhic: you can get back pay, but not damages. It’s retribution, and plenty of workers are sufficiently pissed off they pursue that, at considerable cost to themselves. One person I know is currently caught up in one such nasty situation, I attended a meeting they had with a group that walked them through their legal options…two others I know got screwed over and decided to just walk. Oh, and our Airbnb was there because the wife had a “regular” job but was pushed to work such long hours that with twin boys at home she was essentially forced to quit. “Regular” work is not family-friendly. But factoring such fine-grained institutional detail into macro models … well, if you’re going to aggregate, you can’t do that, unless you pick your favored fine grains and ignore the rest of the beach.

  81. Gravatar of Ray Lopez Ray Lopez
    20. August 2015 at 07:40

    @Sumner – I read your Econlog piece “Policy affects levels, not growth rates (except in transition)” and it does not explain your 2011 passage above. Specifically, do you feel NGDPLT would be a ‘one-time’ gain in Japan? Either retract what you said in 2011 or embrace it. Weasel words won’t work.

    @mike smitka – impressed that you apparently speak Japanese; unless the small-business owners all speak English, which I find unlikely (I live in the Philippines and they barely speak English here, and they’re well known for being fluent in English here by Asian standards).

  82. Gravatar of ssumner ssumner
    20. August 2015 at 10:04

    Mike, Thanks for those very interesting comments. You said:

    “So … in the data I see less puzzle than you do, and experientially what I see on the ground is a significant improvement in the standard of living since the 1990s,”

    I had nothing to say about living standards in my post. So it’s not clear that anything in your comment conflicts with the claims in my post.

    Ray, Of course NGDPLT would be a one time gain, that’s what I said in both posts; there is no conflict. Not sure why you saw one, but then I don’t have the 120 IQ

  83. Gravatar of dtoh dtoh
    20. August 2015 at 10:25

    @mike smitka
    Interesting read on Japan. A couple of points.

    1. Agree the standard of housing has improved…. at least in the cities. A couple of things driving that….low starting point, residential property yields high relative to borrowing costs, very high occupancy rates resulting in low risk on investment, and legislation to encourage JREITs.

    2. Agree cost of living quite reasonable except housing in the cities (especially Tokyo). Think that will continue…. thank you Amazon.

    3. Tokyo has the best dining of any city in the world ….by far.

    4. Rural areas and towns are being decimated.

    5. Agree the labor market is tightening a bit. However, there’s been a really big shift to part time.

    6. Consumption is a little tricky. I think there is a fair amount of substitution going on. Not sure how to interpret when someone gives up car ownership and spends more on restaurant meals. Changing preferences or they can no longer afford to own a car? Think it’s a bit of both.

    7. Tourism really helps. Chinese seems to be the lingua franca in Ginza these days.

    8. I think what you may be missing is a lot of young people still living in very cramped housing with long commutes, very little surplus income, and very little hope of anything improving.

  84. Gravatar of E. Harding E. Harding
    20. August 2015 at 15:18

    @ssumner
    -Your IQ is certainly over 120. Don’t be so humble!

  85. Gravatar of TallDave TallDave
    20. August 2015 at 19:09

    Wonder if Japan’s shame culture is particularly susceptible to sticky wages.

  86. Gravatar of TallDave TallDave
    20. August 2015 at 19:11

    food is now on average 50 – 80% more expensive in the US than in Germany

    The worst part is, despite all that extra spending on food, our food outcomes are worse than many other industrialized countries.

  87. Gravatar of ssumner ssumner
    21. August 2015 at 08:46

    E. Harding, I wasn’t being humble, I simply said my IQ wasn’t 120. 🙂

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