David Andolfatto, “Who’s Afraid of Deflation?,” MacroMania, September 8, 2014.And what is the evidence?
He notes that Japanese real per capita GDP since 2009 has risen at what seems like an unusually high rate: about a 3% annual growth rate. Certainly this is higher than the rates in the US or UK.
So what’s going on here?
First, Japanese real GDP has, except for 2010, not been spectacular:
Real GDP Growth Rate 2008–2014The statistic of real per capita GDP is calculated by dividing real GDP for a given year by the population in that year.
Year | Growth Rate
2009 | -5.53%
2010 | 4.65%
2011 | -0.45%
2012 | 1.45%
2013 | 1.54%
2014 | 1.35%
http://www.statista.com/statistics/263607/gross-domestic-product-gdp-growth-rate-in-japan/
Well, according to news reports, Japan’s population has been affected by a long-run decline in population since 2004 and has one of the lowest fertility rates in the world (currently at 1.39).
It is reported that in 2013 Japan’s population actually fell by “a record breaking 244,000” (see also here).
You need only look at this graph to see the trend.
And below we have another graph of Japanese population from 1994 to 2013 (with data from the World Bank).
So Japanese real GDP has continued to rise since 2004, but population peaked then started to fall. It would seem that Japan’s unusual real per capita GDP growth since 2009 is more a function of its population stagnation and decline, then above average real GDP growth.
So what does this say about the merits of deflation? Not much.
Japan had both fiscal stimulus and monetary intervention in 2008–2009 and later years. That was what got it out of the great recession.
Another point is that Japanese deflation (at least according to World Bank figures) ended in 2012, as we can see in the graph below.
Japan had deflation in 2009, 2010 and 2011, but it was mild deflation.
Further Reading
“Japanese Real GDP Growth, 1925–2001,” January 22, 2013.
“Average Annual GDP in Japan 1980–2009,” May 22, 2012.
Japan is a tough one. The population dynamics are definitely playing a role in the stagnation. Which makes the Krugman story about the US and the West "turning Japanese" highly misleading.
ReplyDeleteAt a glance it seems to me that what is occurring at the moment is a massive transfer of wealth from the young to the old -- and probably from the poor to the rich. Even though real GDP per capita is rising, wages are falling quite severely:
http://jp.fujitsu.com/imgv3/jp/group/fri/en/column/Current-Topics/20110131.gif
The Japanese seem to be stuck in a trap of people working to send exports abroad. The revenue from these exports then seems to be redistributed -- through a variety of channels -- to the old and the rich.
Such an economy cannot gain momentum. That is why all the stimulus packages have a sort of "pump and slump" dynamic. They never seem to generate acceleration. But that is because there are serious underlying symptoms, some of which you have highlighted.
Solutions? The simplest is also the most complex: raises population growth through immigration. Why is this complex? Because the Japanese are, how should I put this politely... very keen on, erm, maintaining their culture. I.e. they are anti-immigrant.
Alternatively, redistribute the income from the old to the young and the poor to the rich. But that is a thorny bush in itself.
Anyway, all this shows why the West does not suffer from the "Japanese disease". When we stimulate in the West the accelerator principle holds and investment/consumption picks up pace.
Should read "rich to the poor".
DeleteCPI is not GDP deflator. The Sumnerists have pointed this out long ago. How much of the productivity-real wage difference is simply due to the difference between deflators?
ReplyDeleteJapan had high per capita growth rates before 2009, see http://www.economist.com/node/10852462 .
ReplyDeleteJapan had about 2.0% per capita GDP growth from 2003-2007, less than the UK, and right at the time its population started to stagnate and then fall, which would suggest that that 2.0% was partly a function of its population dynamics, not outstanding real GDP growth.
DeleteSo were you trying to confirm my post?
The real GDP data:
Delete2004 | 2.36%
2005 | 1.3%
2006 | 1.69%
2007 | 2.19%
2008 | -1.04
2009 | -5.53%
2010 | 4.65%
2011 | -0.45%
2012 | 1.45%
2013 | 1.54%
2014 | 1.35%
http://www.statista.com/statistics/263607/gross-domestic-product-gdp-growth-rate-in-japan/
-------
From 2004 to 2007, it was pretty average.