Who had a better first half, the US or Japan?

The US had 4% real GDP growth in the second quarter, whereas Japan just announced a 6.8% annualized decline in second quarter RGDP.  So which country had the better first half?  Over the entire first half US GDP rose by 0.475% (not annualized) whereas Japanese RGDP fell by 0.175% (not annualized.)  So the US looks better.

But shouldn’t you adjust for different trend rates of population growth?  Isn’t per capita GDP what matters?  The most recent 6 month growth rate in working age population for the US was up 0.113% (not annualized) whereas it was down 0.64% (not annualized) for Japan.  So in the first half of 2014 RGDP per working age adult rose slightly faster in Japan than the US.

Even so, there’s no sugar-coating the weak Japanese first half.  I’ve consistently argued that the BOJ needs to do more to hit its 2% inflation target, and also that they should target NGDP, not inflation. If they target prices, they really need to do level targeting.

Given the rapid fall in the Japanese population, even a 2% or 3% NGDP growth target, level targeting, would be much better than the pre-Abe policy regime of falling NGDP. The NGDP growth rate should be at least high enough so that the Wicksellian equilibrium nominal rate is not negative (as it is today). Japan needs to raise the denominator of the debt/GDP ratio.

PS.  I also have a post on Japan over at Econlog.



19 Responses to “Who had a better first half, the US or Japan?”

  1. Gravatar of TallDave TallDave
    15. August 2014 at 09:24

    Japan’s de facto policy seems to be 0% NGDP growth.

  2. Gravatar of dlr dlr
    15. August 2014 at 09:43

    If you use Japan’s “real domestic demand” (no inventories, no exports), it fell 1% in the first half (non-annualized), while US private final domestic purchases rose 1% (non-annualized).

  3. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    15. August 2014 at 09:50

    Those numbers are distorted by Japan’s drastic increase in the sales tax–from 5% to 8%. Probably a surge of buying durables before the tax increase, followed by comparative slack afterwards.

  4. Gravatar of benjamin cole benjamin cole
    15. August 2014 at 09:58

    Tight money does not work and can be corrosive to long-term economic prosperity. See Japan.

  5. Gravatar of Edward Edward
    15. August 2014 at 10:03

    Didn’t the wall street journal have an article saying that the sales tax hike was what created the decline?

  6. Gravatar of Luis (Miguel) Luis (Miguel)
    15. August 2014 at 10:59

    Your twistings to demonstrate that japan is in better shape that US are completely ridiculous. Better asking how many Americans would change their economic condition for the Japanese one.
    I am for abeconomic, but the data seems not to be very optimistic. Better to be honest and looking for another explanation! And please, not ad hoc…

  7. Gravatar of Luis (Miguel) Luis (Miguel)
    15. August 2014 at 11:13

    (From focus-economics)
    The contraction in Q2 reflected a sharp deterioration in domestic demand, while a sizeable drop in imports buttressed the contribution from the external sector of overall growth. Private consumption plummeted from an 8.4% increase in Q1 to an 18.7% contraction in Q2, which was the largest decline on record. Conversely, government spending expanded 1.5% in Q2 (Q1: -0.4% quarter-on-quarter SAAR). Gross fixed capital formation tumbled from a 19.1% expansion in Q1 to a 12.3% decrease in Q2, while private non-residential investment registered a 9.7% decline (Q1: +34.6% qoq SAAR).

  8. Gravatar of Luis (Miguel) Luis (Miguel)
    15. August 2014 at 11:15

    So, it’s seems that the main cause of a so big contraction has been of fiscal origin, perhaps a little Keynesian…

  9. Gravatar of Vivian Darkbloom Vivian Darkbloom
    15. August 2014 at 11:44

    What is the current ratio of working-age persons to public debt in Japan? Didn’t that just go up significantly? Isn’t per capita public debt what matters?

    How is this going to play out in the long run if demographic trends continue the same trajectory? I suspect this has something to do with the decision to take an additional 3 percent on everything a Japanese pensioner consumes from the proceeds of the sale of his Japan bonds.

  10. Gravatar of Maurizio Maurizio
    15. August 2014 at 11:45

    Don’t you think the increase in the sales tax from 5% to 8% played a role?

  11. Gravatar of TD TD
    15. August 2014 at 11:47


    Well you see, central banks increasing monetary stimulus at the same time as fiscal tightening (e.g. US 2013) is evidence of monetary offset. Therefore the Keynesians are wrong for paying any attention to fiscal policy instead of solely paying attention to monetary policy.

    But central banks failing to offset fiscal tightening (e.g. Japan Spring 2014) is evidence that there aren’t enough people calling for the right monetary policy. Therefore the Keynesians are wrong for paying any attention to fiscal policy instead of solely paying attention to monetary policy.

    Monetary offset cannot fail, it can only be failed.

    P.S. Scott predicted that the tax hike would hurt (he was still for it though), but when Keynesians predict that fiscal tightening can hurt at the ZLB they’re wrong and they’re to blame for the lack of NGDP targeting.

  12. Gravatar of ssumner ssumner
    15. August 2014 at 11:51

    dlr, I’ve never understood why people would look at domestic demand rather than total demand.

    Patrick, Yes, the sales tax increase explains the difference.

    Luis, Not sure what post you are commenting on, but it doesn’t seem related to mine. And yes “fiscal.” But no, definitely not “Keynesian.”

    Vivian, Yes the debt problem definitely explains the sales tax increase. And yes, per capita debt is what matters. Which makes the Japanese policy of shoveling tax revenues into the bonfire over the past 20 years even more maddening.

  13. Gravatar of ssumner ssumner
    15. August 2014 at 11:52

    Maurizio, Yup, it was the main factor.

  14. Gravatar of Vivian Darkbloom Vivian Darkbloom
    15. August 2014 at 11:52

    Well, I guess I should have expressed that as public debt to working age persons rather than the reverse.

  15. Gravatar of Brett Brett
    15. August 2014 at 13:08

    How high of a NGDP target do you think Japan could go for before they get unacceptably high levels of inflation? They’ve got a somewhat stagnant financial sector and very low immigration, but they also have a lot of domestic labor and capital that could be put to much more effective use (while corroding some noxious workplace practices, like the whole “show your company commitment by doing nothing for hours until the boss goes home” that Noah Smith has pointed out).

  16. Gravatar of dtoh dtoh
    16. August 2014 at 00:21

    As other have pointed out the elephant in the room is the 60% increase in the consumption tax effective from April 1, which makes any comparison with the U.S. wholly irrelevant.

  17. Gravatar of ssumner ssumner
    16. August 2014 at 05:59

    Brett, I don’t think there is such a thing as “unacceptably high levels of inflation” because inflation doesn’t matter. At some point they’d get unacceptably high levels of NGDP growth, but I’m not sure where that is for Japan.

    dtoh, I didn’t mention that because I assumed everyone already knew that. My point was that Japan did better than the US despite that tax increase.

  18. Gravatar of Luis (Miguel) Luis (Miguel)
    16. August 2014 at 14:33

    Not Keynesian? A falling in consumption because a rise in consumption taxes, is not Keynesian?

  19. Gravatar of ssumner ssumner
    17. August 2014 at 09:06

    Luis, Never heard of rational expectations?

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