Time and again, Americans are told to look to Japan as a warning of what the country might become if the right path is not followed, although there is intense disagreement about what that path might be. Here, for instance, is how the CNN analyst David Gergen has described Japan: “It’s now a very demoralized country and it has really been set back.”
But that presentation of Japan is a myth. By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.
Japan has succeeded in delivering an increasingly affluent lifestyle to its people despite the financial crash. In the fullness of time, it is likely that this era will be viewed as an outstanding success story.
As Mr. Kelly pointed out (and this author alludes to), the myth of Japanese stagnation is due to a lack of monetary inflation. It is impossible for Keynesian-trained economists to even imagine economic growth if GDP doesn't rise. But Japan's central bank has kept a remarkably tight rein on the nation's base money supply for over a decade resulting in price inflation of near zero. If there's no additional money being supplied, the dollar (or yen) figures cannot increase. Meanwhile, though, the Japanese have continued to invest, produce and prosper.
Now that the cat is gradually crawling out of the bag, instead of holding Japan up as the model of economic failure, perhaps we can begin to point to it as an example of capitalistic success.