Is Japan outgrowing growth?

Yesterday in the Times Japanese Professor Norihiro Kato reflected on the news that China recently overtook Japan as the World’s second biggest economy.  Surprisingly, Kato reacted with “relief,” as if a “load [was] off my shoulders.”  In fact, he calls the new Japanese reality a maturity:

“The rest of the world’s population is still exploding, and we are coming to see the limits of our resources.  The age of ‘right shoulder up’ is over.  Japan doesn’t need to be No. 2 in the world, or No. 5 or 15.  It’s time to look at more important things, to think more about the environment and people less lucky than ourselves… Freshly overtaken by China, Japan now seems to stand at the vanguard of a new downsizing movement, leading the way for countries bound sooner or later to follow in its wake.  In a world where limits are increasingly apparent, Japan… may well reveal what it is like to outgrow growth.”

Some economists, those of the ‘right shoulder up,’ neo-classical province, would argue that limitless growth is possible, especially if you remove all regulation and government interference.  These neo-classical economists do not recognize limits, they do not account for the stock of natural resources that is blindly being used.  Of course, Kato points out that in Japan the new 20-somethings are revolting against the old logic of limitless growth.  He calls them non-consumers, frugal, savers.  Will the United States follow Japan?

Inevitably, yes.  Japan is mired in deflation, where “consumer demand has become so weak – and deflationary expectations are now such the norm – that the economy seems no longer to respond to such monetary tools.”  Sound familiar?  Interest rates are at record lows here in the United States, and the economy is responding sluggishly, if at all.  Economists are arguing that the era of inevitably rising house prices is over.  That housing wealth was the engine for the nacent growth in the past decade.  With health care costs continuing to rise, our current economic model is unsustainable.

Of course, when you consider looming resource limits, where oil, minerals, and even fresh water will become more scarce and more expensive, and you have a recipe for a sea change.  The old guard will continue to argue for exponential growth, but sooner or later, the kids won’t buy the same tired argument.

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