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The 'Japanese Experience'


You hear a lot about the "Japanese experience" these days. This does not, as you might hope, refer to reasonable portions of fish and extremely small electronics. This is the grim path out of the financial crisis. Economists talk about it the way your doctor talks about heart disease. It means slow growth and stagnant incomes. A loss of international prestige and a drop in consumer confidence. But economists tend to invoke the condition a bit more often than they tend to explain its component parts. It's generally just the Thing That Will Happen unless the speaker's specific policy solutions are followed.

James Surowiecki did some useful digging, however, and came back with a couple papers explaining what exactly made the Japanese experience so unpleasant. The specific culprit appears -- at least in the eyes of some -- to have been a practice called "evergreening": Japan's weak banks "kept extending additional credit to companies that already had loans with them. By extending credit, the banks enabled weak corporate borrowers to keep making their interest payments, and to put off bankruptcy." And so the economy was populated by dying, unproductive companies. The banking system was weakened because it kept indulging borrowers who could never pay it back. Some estimates suggest that 30 percent of Japan's publicly-traded firms were on bank-provided life support in 2000.

So we shouldn't do that. But I'm always struck by a sort of contrary thought in these conversations: If Japan's experience is the nightmare scenario, then that's actually pretty good. Not "good" as in preferable, but "good" as in "not Argentina." Japan might have underperformed in the 90s, but it was hardly a Mad Max-style dystopia.

Photo used under a CC license from Flickr user Reggae Dori.

By Ezra Klein  |  May 18, 2009; 9:00 AM ET
Categories:  Financial Crisis  
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Argentina was a Mad Max-style dystopia? Why weren't there more movies about it?

Posted by: flashrom | May 18, 2009 9:05 AM | Report abuse

isn't what Japan did exactly what we are doing now? Borrowing money (well, not really, we're just printing money) - and not worrying about how we have to pay it back?

The borrowing we do do is from other countries. No insistence, like during WWII, for AMERICANS to buy AMERICAN bonds. No, that might be too painful - just suggestions to spend more money we don't have. Great. Um, isn't that going to lead us back to where we were, only with trillions in debt? It's not a good idea for a household to go into too much debt, why is it okay for the govt?

Posted by: atlmom1234 | May 18, 2009 9:14 AM | Report abuse

Economists get it wrong on a constant basis. If economists got it right the GFC would not have happened. Assuming infinite growth like economists do is the start of the problem.
I agree with the Japan analysis. Maybe for the next analysis a comparison of Australia and its economy to that of the US is in order.

Posted by: guytaur1 | May 18, 2009 10:02 AM | Report abuse

This blog is the first time I've seen photo credits like this in the Post online, and I've now seen this in two postings. Usually they are either absent or next to the photo. Also, I don't think I've seen these "Creative Commons" credits before.

This is interesting. Are you a pioneer test case, or are you just the first Post blogger to use these CC photos, or do you have a different photo credit policy for your blog vs the rest of the Post (which seems a little redundant, but maybe you have your reasons)?

Let us know.

Posted by: fairfaxvoter | May 18, 2009 10:06 AM | Report abuse

Welcome, Ezra!

Do the regular copy editors also edit your copy? I'm curious about the hyphen in between words that normally wouldn't be hyphenated, such as "publicly traded" and "aptly named." I've seen this in a couple of your blog posts so far, but it's a construction that doesn't appear in other edited articles.


Posted by: KimY1 | May 18, 2009 10:34 AM | Report abuse

you mean taking money from the competent and giving it to the incompetent and telling them to go compete w/ the competent is not good policy?


Posted by: millionea7 | May 18, 2009 10:35 AM | Report abuse

The comparison with Japan shouldn't be as heartening as Ezra thinks since Japan relied on their immense exporting power to keep them afloat, whereas we lack that economic model to fall back on. So don't make fun of Argentina just yet!

Posted by: poldy1 | May 18, 2009 11:23 AM | Report abuse

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