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23.05.2003, 16:34

U.S. vs. Japan: Which Economy is Stronger? / Artikel mises.org

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U.S. vs. Japan: Which Economy is Stronger?
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By Sean Corrigan 

[Posted May 23, 2003]

How much comfort can the U.S. take in the sufferings of
Japan? In a side-by-side comparison of the productivity of the two economies,
the U.S. comes off looking worse than one might expect, while Japan, long in
the mire of recession, not as badly as one might assume. 

True, this little examination may seem misplaced now that
Resona Bank, Japan's fifth biggest, has been extended a Y2 trillion lifeline,
after a more stringent accounting treatment of its deferred tax losses meant
its capital to asset ratio fell to just 2%, and that its official capital
adequacy threatened to breach the already wafer-thin domestic bank minimum
ratio of 4%.

However, let us take a second look at the Japanese GDP
figures and compare them to the U.S., in order to see whether or not the
Japanese Prime Minister's pronouncement that"the real economy is not too
bad" was taken straight from the Marie-Antoinette school of social
commentary. 

Well, actually, let's acknowledge that the fruits of
previous Japanese prudence—their vast stock of assets held abroad—bring in
a good deal of income too, and consider GNP instead. Then, let's
perform our usual trick and throw away government spending (since that's
exactly what the government does with its citizens' confiscated money, more
often than not) and concentrate on the private sector.

In short, let's look at the health of the true center of
wealth creation. We'll call this pGNP. Next, let's see how this wealth can
potentially be spread around, by looking at pGNP per capita—or pGNPpc.

Finally—and accepting there are major epistemological
problems with the way all these things are measured—we'll look at some of
these aggregates in both real and nominal terms, so we don't confuse a lower
paycheck with a smaller basket of purchasable goods.

Though the headlines were partly correct in that nominal
pGNP was barely changed on the year and, indeed, fell 1.2% annualized on the
quarter, real pGNP climbed 2.9% from March 2002, and 0.6% even in
the first three SARS and war-ridden, stronger-yen months of this year.

True, since the Asian Crisis broke out six years ago, those
Japanese prices associated with these two aggregates have declined a
cumulative 8.3%—or by 1.5% a year—to reach 1985 levels. Despite this, the
recovery in real private income has simultaneously taken this last measure to
within a whisker of its all-time highs and fully 6% above its end-1999 low.
This all but erases the effects of both the Asian Contagion and the
U.S.-Techno Bust.

That Japan has not met its potential since the early 90s is
obvious from the statistics, we have to admit. But with the wholesale monetary
manipulation of domestic credit levels, interest rates and exchange parities,
combined with a creeping necrosis of socialization of the productive economy,
which has seen public spending hit 33% of private domestic outlays, this is
hardly to be wondered at. 

Nominal pGNP more than doubled in the 11 years to the
Bubble's peak, rising by 6.7% a year, but it has essentially stagnated ever
since. In real terms though, the contrast is a touch less intimidating,
dropping from a 5.5% pa compound rate of climb (equivalent to 5% per head) to
0.8% (0.6% per head).

Over this last period, the comparable U.S. figures show
markedly stronger trend growth of 3.4%, which translates into 2.8% per capita.
However, if we take a smaller sample and concentrate only on the past three
years of turmoil, it becomes evident that post-bubble Americans have actually
slipped behind their Japanese colleagues in the bust.

 [image]

With the differential in the change in these two burdensome
obligations hitting a two-decade-plus record of 11.1% in the last four
quarters, the relative size of this harmful intrusion into the free market has
seen U.S. spending jump from 150% to 200% of Japan's since the bust began,
continuing a reversal from a point in 1995 where these were almost equal.

So let's not have any pious criticism of Koizumi and Co. on
that score: whatever their undoubted failings elsewhere, they're doing a whole
lot better than Dubya-Dubya III and his team in this particular regard and
if continued—you never know—some day soon, once their credit system is
patched up, it might set the stage for a period of relative economic vigor.

So, government wastefulness, housing mania and debt-fuelled
personal spending aside, has Japan's 8.3% price decline, or the United States'
8.6% price increase done more or less harm, in real terms, to the crucial
private sector economy?

The above analysis, we would suggest, implies the answer is
not as straightforward as the sound bite doomsters would have you believe.

Indeed, it has to be a source of sardonic amusement that the
news of Resona's bail-out and a massive BOJ liquidity injection has seen the
yen hit a 27-month high against the dollar, pushing it up against all sorts of
long-term chart points and prompting a bout of intervention as it did.

But then, as Treasury Secretary John Snow put it, when dismissing
the Greenback's 23% fall from its 2002 peak against the world's other major
currencies as"fairly modest" (sic):

What you want to be strong is that you want people to have
confidence in your currency, you want them to see a currency as a good medium
of exchange. You want the currency to be a good store of value. You want it to
be something people are willing to hold. You want it to be hard to counterfeit.

So on at least four of those five counts, we
can rule out the Once Almighty Dollar!


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Sean Corrigan is a principal of www.capital-insight.com,
a London-based economic consultancy. He is also comanager of the Bermuda-based Edelweiss
Fund. See his Mises.org Articles
Archive, or send him MAIL.
See also the Study
Guide on Business Cycles.