The Media Myth of Japan's "Lost Decades"

The chart above shows annual real GDP per capita for Japan and the U.S. (data here) from 1980 to 2010, where each series has been converted to an index, with a value of 100 for the year 1980.   Compared to 1980, Japan's real GDP per capita in 2010 was nearly 70% higher, vs. a 66% increase for US real GDP per capita over the last 30 years.  Japan had higher economic growth than the U.S. during the 1980s, slightly lower growth during the 1990s, about the same growth during the 2000s, and slightly higher overall growth during the entire  30-year period from 1980 to 2010. 

So what about Japan's "Lost Decades" and economic failure and stagnation that we hear so much about from the media? According to Tokyo-based Eamonn Fingleton writing in The Atlantic:

"After studying the facts on the ground in Tokyo for decades I find it hard to avoid the conclusion that the story of Japan's stagnation is a media myth.

Certainly anyone who visits Japan these days is struck by the obvious affluence even among average citizens. The cars on the roads, for instance, are generally much larger and better equipped than in the 1980s (indeed state of the art navigation devices, for instance, are more or less standard on many models).  Overseas vacation travel has more than doubled since the 1980s. The Japanese boast the world's most advanced cell phones, and the biggest and best high-definition television screens. Japan's already long life expectancy has increased by nearly two years. Its Internet connections are some of the world's fastest -- something like ten times faster on average than American speeds.

At the heart of my analysis is a story of extraordinary progress by Japanese manufacturing. The reason you don't hear much about Japanese manufacturers these days is that the best of them have moved from making consumer goods to concentrate on so-called producers' goods -- items that though invisible to the consumer happen to be critical to the world economy. Such goods include the highly miniaturized components, advanced materials, and super-precise machines that less sophisticated nations such as China need to make final consumer goods. The label on everything from cell phones to laptop computers may say "Made in China" but actually, via producers' goods, highly capital-intensive and knowhow-intensive manufacturers in Japan have quietly done much of the most technologically demanding work.

In the early years after World War II the United States utterly dominated the higher reaches of the producers' goods business. Under pressure from foreign competition, however, American players one by one have closed down or outsourced in the last quarter of a century. The competition has come principally from Japan, which now enjoys broadly as dominant and geopolitically important a position as the United States did in the 1960s."

MP: The writer feels so strongly about the "lost decades" myth that he has issued a challenge to numerous myth proponents to debate him this year on the 20th anniversary of the great Tokyo stock market crash (details here).