Wednesday, November 08, 2006

Is Japan a global cool pop power?

Japan has the world’s second or third largest economy depending on whether you adjust its GDP for purchasing power parity (PPP). Last summer I was lucky to get a grant to study the Japanese economy and society for a few weeks. It was a fascinating experience. I learned a lot about bubbles and the problems faced by an aging society.

Japan’s economy was once a world-beater. Twenty years after its defeat in World War II, Japan had emerged as the world’s second-largest economy and a major exporter of autos, consumer electronics, semiconductors and other sophisticated products. During the economic miracle from the 1950’s to 1980’s (“Rising Sun”), Japan evolved into the most productive manufacturing economy in the world. During the 1980’s books and studies extolled Japan as a paragon of the modern global economy, and Japan seemed on the verge of surpassing the United States as the world’s dominant power.

No country in modern history has moved so quickly from worldwide admiration to dismissal as did Japan in the 1990’s, as the bubbles in its stock and real estate markets popped big time. By any macro measure, the 1990s were a disaster for the world's second-largest economy. Macroeconomists asked how could a once-dynamic economy experience such a long period of meager growth? While the Japanese economy stagnated, Japan lent hundreds of billions of dollars to America helping to fuel the economy here.

Recently a number of more upbeat statistics and reports on Japan’s economy have begun to appear, suggesting the country may finally be recovering from its “lost decade.” However, last year Japan’s population saw its first decline in peacetime since records have been kept. The government predicts that the Japanese population of nearly 128m will fall to just over 100m by the middle of the century.

I have come across some good online resources that deal with recent developments in Japan. American RadioWorks has an entertaining program on Japan's Pop Power that you can access online. To many young people around the world, the capital of pop culture is Tokyo, not New York or LA.

On the other hand, Michael Zielenziger's new book, Shutting Out the Sun: How Japan Created Its Own Lost Generation, offers a pessimistic perspective on current Japan. He argues that Japan has not recovered from the economic stagnation of the 1990s, and he describes an tradition based economy now “jeopardized by disaffected youth.”

Extra Credit: What is purchasing power parity, and why is the concept important for macroeconomists? If you are the first student to send me an e-mail ( with the answer, you will be rewarded with two extra credit Discussion Board points. Only two points extra credit per student can be earned in any given week from the blog questions.

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