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Don't scorn Germany and Japan; learn from them
Some economists demonize their policies, but the U.S. would be lucky to be as successful in many ways.
By Steven Hill
July 29, 2010
In the midst of the Great Recession, the United States is suffering through nearly 10% unemployment, rising inequality and poverty, 47 million people without health insurance, declining retirement prospects for the middle class and a general increase in economic insecurity. The global marketplace has become tumultuous, so when we find a bright spot, one would think it deserves a mention.
How then should we regard a country that has 5% unemployment, the lowest income inequality, healthcare for all its people and is one of the world's leading exporters? On top of that, this country scores high on life expectancy, low on infant mortality, is at the top in math and literacy, and is low on crime, incarceration, homicides, mental illness and drug abuse, according to British researchers Richard Wilkinson and Kate Pickett in their seminal book, "The Spirit Level." It also has a low per capita rate of carbon emissions, doing its part to reduce global warming. In all these categories, this particular country beats the United States by a country mile.
Doesn't that sound like a country from which Americans might learn a thing or two about how to get out of the hole in which we're stuck?
Not if that place is Japan. During and before the current economic crisis, few countries have been vilified as an economic basket case as much as the Land of the Rising Sun.
Google "Japan and its economy" and you will get many hits about Japan's allegedly sclerotic economy, its zombie banks, its painfully slow economic growth. This week, this newspaper had an article about Japan's incurable deflation spiral. This malaise has been called "Japan syndrome," sounding like a disease to warn U.S. policymakers, as in "you don't want to end up like Japan."
No one has been more influential in defining this narrative than Nobel Prize-winning economist Paul Krugman. Throughout the 1990s, and still today, Krugman has skewered Japan's economy and leaders. In the late 1990s, Krugman wrote a series of gloom-and-doom articles, bluntly stating in one: "The state of Japan is a scandal, an outrage, a reproach â€¦ operating far below its productive capacity, simply because its consumers and investors do not spend enough."
But let's look at some of the Japanese metrics during that time. Throughout the 1990s, the Japanese unemployment rate was about â€” ready for this? â€” 3%, or about half the U.S. unemployment rate at the time. During that allegedly "lost decade," Japan also had universal healthcare, low income inequality, the highest life expectancy, low infant mortality and low rates of crime and incarceration. Americans should be so lucky as to experience a Japanese-style lost decade.
Reopening the case of Japan raises some important questions. How do economists such as Krugman decide what to value and prioritize? How do they decide what to measure? What is an economy for? To produce the prosperity, security and services that people need? Or to satisfy economists and their theories and models?
In the current debate over fiscal stimulus versus deficit reduction as the best course for economic recovery, various economists now are criticizing Germany. Krugman says Germans are not spending or consuming enough to stimulate their economy â€” the same criticism he has leveled at Japan.
Yet in the early 1990s, when the United States was plagued by large deficits and recession, the Clinton administration didn't employ Krugman-type fiscal stimulus. Instead, it cut the deficit. By the end of the decade, the U.S. budget showed a sizable surplus and the economy was booming. Reality seems to defy economic theory on a frequent basis.
Japan's economy has been and remains successful. So is Germany's. They have reached an economic steady state in which they don't need roaring growth rates to provide for their people. But for the economic Cassandras, apparently it doesn't matter if people's needs are being met; what matters is whether their theories and equations balance.
Unfortunately, there is a common-sense aspect to this that gets lost amid all the headlines. Two of the lessons of our times are that economic bubbles eventually burst, and that the environmental consequences of unbridled growth are severe. U.S.-style trickle-down economics doesn't work anymore.
In other words, it's no longer strictly about economic growth; it's about sustainability and learning to do more with less. The world needs to figure out how economies can provide for their people without relying on destructive bubble-driven growth or overheating in a Venus-like atmosphere. This is not an easy challenge, yet it is the path that Japan, Germany and others have chosen. Americans would be wise to learn from them.
Steven Hill is the author of the recently published "Europe's Promise: Why the European Way Is the Best Hope in an Insecure Age."
Copyright Â© 2010, Los Angeles Times
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Interesting comment from readers:
Conner at 3:57 AM July 30, 2010
Japan is no country to admire. I live and work in Tokyo. Healthcare here is low quality. Doctors here all get paid the same salary (around $60,000 a year) and have no motivation to increase their skills, as they wont get a pay increase. You cannot receive the latest treatments or latest medicine, because its not covered by the national health insurance and you will have to pay 100% out of your own pocket. So, they prescribe older meds and older treatments to meet government budget guidelines. Hospitals and doctors are under alot of pressure to cut costs. If you have a disease or a genetic disorder not recognized by the J-government, then you have to pay 100% of the costs. National health care in Japan is bad joke. Most of expats have private insurance, which much better than National Health Insurance.
Unemployment is calculated completely different in Japan. If you have a job that pays $100 a month and/or work one day a month then you are counted as EMPLOYED here, so thats why the unemployment rate looks so low. I read a recent Japanese news article stating the real unemployment rate, using the U.S. formula is actually around 29% in Japan. Japan is a master of skewing data. Japan is a country of smoke and mirrors. Toyota is a prime example of Japanese behavior.
He's right about some things. The Japanese do practice a lot of "empty" employment methods to skew statistics and the government pumps money into what amounts to unofficial welfare by employing people in jobs with little actual value. Also unemployment there is super high when it comes to young graduates. From what i've heard from friends who work in Japan it's astonishingly high and crippling to the point that some Japanese grads just choose to live with their parents until they are well into their late 20's and early 30's.
On the other hand the American model is dying a slow drawn out death too. The "f**k you got mine" attitude when it comes to things like healthcare and the slow death of the middle class is going to hit America hard down the road.
In my opinion both economies have major flaws that have to be addressed. America should be looking more towards the Scandinavian countries who seem to have gotten it right but their success at balancing social welfare and prosperity is difficult to replicate in America.