When you look at the money supply figures, with M3 increasing at 11% annual rate and even M1 (which is now no longer a reliable measure) increasing at 4% (in the U.S.) we may already see an effort by the U.S. financial authorities to anticipate a contraction of equity values and to prevent it from going too far. So far it seems only to have caused further stock price inflation and to have increased the danger of a collapse.
As you correctly point out, there are many differences between the U.S. in the 1930s and Japan in the 1990s, but there are some important similarities, and there are few well-documented periods that one can offer for comparison. I don't have the exact figure, but interest rates in the U.S. in the 1930s were about as low as they have been in Japan, and for some of the same reasons: prudent borrowers did not want to borrow and prudent lenders did not want to lend to anyone but a prudent borrower. In Japan the lesson of speculating with borrowed money has also been well learned.
I believe that it is true that in Japan there is much greater reciprocal loyalty between workers and management in the various companies, and that a loyal worker is much less likely to be let go in hard times than in the United States. Also, Japan has continued to post enormous trade balances in its favor, and this has kept unemployment down. The workers are working for other economies as well as their own.
In the United States, keeping the minimum wage low has causes a big increase in the service jobs. I don't know how many manufacturing jobs have been lost to other countries that we import from.
But in the end, the failure of the Japanese stock market to recover any significant part of its 70% loss of value in the 1990s is a result of stagnation that in some ways resembles what happened in the United States in the early 1930s: 1. excessive creation of debt (which has not yet been liquidated in Japan); 2. unwillingness of qualified lenders or borrowers to take on new debt despite very low interest rates after business began to flag; 3. a strong propensity to save rather than spend or invest.
The difference is that as soon as Roosevelt was inaugurated in 1933, he and the congress took an extraordinary series of measures to stimulate the economy. Nothing comparable to that has been done in Japan. I am suggesting that perhaps the reason is partly the cultural differences between our countries--differences that have prevented exposing serious fundamental problems and solving them. Even the paternalistic concern for workers, humane in itself, may have made it seem less urgent to take measures needed to restore business to the degree of profitability that would warrant higher stock prices. The 25% unemployment rate in the US in 1932-33 could not be ignored; Japan lacks that urgency.
American stock prices in 1930s, in comparison with the Japanese, made an enormous recovery by 1936--though sinking back for another ten years as the country converted to wartime, with all the controls and regulations that that entailed. Including 100% (i.e. NO) margin requirements for the purchase of stock.
I think that the low unemployment in Japan, to some degree reflects a more family- and tradition-centered culture, whereas within the United States economic competition has always been more ruthless. Companies never hesitate here to announce that, say, 10,000 people are to be laid off and we just accept it as part of how they do business. Diversity in the US may mean tolerance but it can also mean certain kinds of callousness.
Japan does not seem much interested, yet, in trying U. S. -style remedies. |
