Of course, I flatter myself by putting myself on Krugman's level. Nevertheless some of his criticism is identical to mine-which tells me I was on the right track in may analysis. Here was me yesterday:
"For 20 years Japan has been something of a enigma being the object of a lot of analysis and soul searching. Krugman's revised "liquidity trap" paper back in 1998 was about Japan. It was a cautionary tale: if the LT could happen in Japan, why could it not happen here?
"Indeed, the argument is now made that it has indeed happened here, just with higher unemployment. Then again, there's a literature that argues that maybe Japan's not so bad after all: if you go by per capita income they don't look so bad. I'm always somewhat wary of per capita arguments; I mean Sumner is always telling us that liberals shouldn't worry about median income being flat over the last 30 years, as, well, median income doesn't matter, only consumption per capita does. Then, of course, he tells is that we should eliminate all income and corporate taxes and tax only consumption. So, I'm always skeptical of per capita arguments seeing where a Sumner can take them."
"Still, the point about Japan is well taken: the real problem there is mostly about lack of population growth and a declining birth rate. Of course that's the one thing you won't see Abe do to stimulate the economy-encourage more immigration."
Here is Krugman today:
"First, you should never make comments on Japanese growth or lack thereof without taking demography into account. Japan has low fertility and low immigration; this has translated into a dramatically aging population and a declining working-age population. So what does Japan’s performance look like if you calculate real GDP per working-age adult? (In the picture below I define working-age as 15-64; this is one case in which you DO NOT WANT to look at FRED, which defines working age as 16+ and therefore takes no account of aging)."
"I’ve used a log scale, so you can view vertical distances as percentage changes. If we look at growth from the early 1990s to the business cycle peak in 2007, we have growth of about 1.2% per year. That’s actually not bad; you can argue that demographically adjusted, the whole tale of Japanese stagnation is a myth."
Krguman further points out that what's realy noticeable with Japan however, is two extended periods of beneath trend growth:
"What is true is that there were two long periods of depressed output relative to trend, one in the mid-1990s and another, much worse, between 1997 and 2007. And one other thing: Japanese monetary policy was still up against the zero lower bound in 2007, leaving it no room to counter the Great Recession, and hence leaving Japan open to a deep slump when exports plunged."
In fact, he argues that Japan has been in an extended liquidity trap since the early 90s. The trouble is that at full employment-and Japan's unemployment is only a little of 4%-exceeds the amount they'd be willing to invest.
Parenthetically, I can't but notice how Krugman's point here might rankle a Scott Sumner who insists that savings and investment are literally the same thing due to the accounting identity. Sumner denies that there can ever be too much saving.
The reason Japan has been in this situation he argues is because of first of all the debt overhand from the real estate boom/bubble. However, their declining birth rate and immigration has exacerbated this. Without such demographic weakness-indeed, this has been a source of U.S. strength-we should pull out considerably quicker.
Abe may be an effort to finally provide enough fiscal and monetary firepower to the problem.
"So, is Japan a cautionary tale? Yes, but not the tale everyone tells. Its performance isn’t that bad given the shortage of Japanese; and it’s a tale of fiscal and monetary policy that have been too cautious, not of stimulus that failed."
"What Abenomics seems to be is an attempt, finally, to do what should have been done long ago: combine temporary fiscal stimulus with a real effort to move inflation up."
If only Abe would do immigration reform-never happen; he's about Japanese atavism more than anything-then he'd really get some wind at his back.