When Consumers Cut Back: An Object Lesson From Japan
As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.
The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan’s economy.
A case study of Japan’s economy may not be off-base, but well, just how far can you draw the parallel?
Found via Woot blog who found it via The Consumerist.
There’s plenty of debate out there about thrift and household debt and savings, and what the numbers all mean.
Another view from the web:
Even without tariffs as a cause, in 2008, copper fell from $4.00 a pound to $1.27 a pound in 5 months. This reflects the depression and trade interruption. This is not a price deflation due to Keynesian animal spirits. It is not so much due to a change in expectations as it is to a drop in demand. That drop in demand is not due to a sudden burst of thrift. We did not suddenly get plunged into depression because people stopped buying. The reverse is more nearly the case. The boom economy produced goods that people did not want to buy at prices that cover costs. The depression economy is the inevitable result, because businesses will not continue to produce goods that can’t be sold at prices high enough to cover costs.
Imagine that nearly everyone is put to work for a month by businesses that build high-priced houses induced by government stimulus. While that is happening, fewer people are employed baking bread. At the end of the month, people try to buy bread and find that there is not enough. Meanwhile, they do not want to buy the high-priced houses. There are too many of those. Home prices fall. Bread prices rise. (Consumer goods prices rose 0.3 percent in January.) The workers in homebuilding are laid off. Home prices decline. Lenders find their home loans going bad. The economy goes into an adjustment that is a recession in order to correct the imbalance. The economy needs more bread factories and bread makers. Left to its own devices, the adjustment will occur. The possibility of making profits by making bread will see to that. The losses in homebuilding will see to it that fewer homes are built.
But suppose that the government steps in with a stimulus bill and hires labor to pave roads. The adjustment toward bread making is delayed. At first overall production seems to improve, counting the money spent on roads. But eventually there is a surplus of paved roads and not enough bread. The bread makers try to hire labor. They compete with the road pavers. Wages rise. The economy sees price inflation. It still does not have the bread it wants.
There is much more to it, of course. But this is the idea. Deflation in prices is not a problem. It is part of the solution.