Let’s cut the crap about Japan’s lost decade

Marshall Auerback, a Director of Institutional Partnerships at the Institute for New Economic Thinking (www.ineteconomics.org) Let’s cut the crap about Japan’s Lost Decade.

As Hill notes, we tend to use very narrow metrics to determine a nation’s economic success: “Americans are the only ones who seem to think they need three refrigerators, four televisions and a car for everyone in the household” is the best way to measure national well-being. I admit that terms like “happiness” and “well being” can be somewhat amorphous, although it is only in the last 40 years or so that we have defined prosperity solely in terms of the metric of growth and of course, Japan always seem short-changed in that regard.

One shortcoming of investment-led growth is the traditional Harrod-Domar issue: it is difficult for aggregate demand to keep up with the additional supply capacities created by previous investment. This is probably less of a problem in underdeveloped economies where improvements in standards of living are badly needed (provided, of course, that the capacities of production are used for internal markets rather than exports to developed countries). But it is definitely a concern for mature economies.