Despite all the talk about Japanese deflation, Scott Granis highlights that Japan hasn’t really experienced deflation over the last 17 years, even if there has been some volatility on a year-by-year basis:
Since Mar. 1993, Japan’s price level hasn’t budged: inflation has netted out to zero. That’s over 17 years of price stability. From the very peak in Japan’s inflation, which was in late 1998, Japan has “suffered” an average annual decline (i.e., deflation) in its price level of 0.4%. It’s hard to see how this might be the killer deflation scourge that it’s made out to be.
Moreover, the economy hasn’t stagnated from the perspective of an individual Japanese person. Japanese GDP growth has averaged just 0.8% since 1998, while America’s has averaged 2% per year. Yet Japan has achieved this growth despite a shrinking workforce, which means that on a per-capita basis Japan has done just as well as the U.S.:
From the end of 1998 to June of this year, Japan’s labour force actually shrunk by 3.1%, or about 2 million workers. That means that on a per worker basis, Japanese output expanded by about 13%. By comparison, the U.S. labour force grew by 10.8%, or about 15 million workers over the same period. That translates into a 13% expansion per worker, almost exactly the same as in Japan!
This is another example of how when deciding whether an economy is ‘good’ or ‘bad’, one must ask the question ‘for whom?’, as we mentioned earlier today in regards to a Roubini interview.
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