In the comments to my recent post On Deflation (and “too-low inflation”), a commenter expressed a frequently-heard belief, that a negative “example of deflation is Japan from 1990 to the present.”
I appreciate all comments and, without picking on the person, I wanted to examine the claim. Is it true? Here is a chart (from tradingeconomics.com) that shows Japan’s consumer prices since 1990:
Points that stand out:
- Japan’s CPI today is over 10% higher than it was in 1990.
- It’s true that from 1998 to 2013, Japan had a slight CPI decline; perhaps 5% total, over the 15 years.
- Japan’s CPI is now shooting up again.
Clearly, Japan has not had a large deflation. But perhaps the commenter’s (restated) point might be that Japan has had basically-stable prices since 1990, and the stable prices have done nothing to help Japan’s moribund economy. Here’s how I would answer that.
Japan has long had a relatively government-planned economy. And, over the period shown above, Japan has pursued inflationary, “stimulus” policies of government spending, deficits, expanded national debt, and money-printing. How has it worked out for them?
It hasn’t worked out well. As we see above, Japan’s inflationary policies may have prevented a large-scale deflation (not that that is necessarily good; see my other post). The inflationary policies also seem to have done nothing to fix Japan’s multi-decades of a debt-burdened economy.
In the midst of a 20-year lame economy, stable consumer prices have been a saving grace for Japanese households. But now that Japanese CPI inflation is on the rise in 2014, real living standards in Japan are dropping and “Abenomics” is gaining well-deserved unpopularity among the Japanese.
Japan is not an example of the failure of pro-freedom and sound-money policies, because Japan didn’t try them. Japan is an example, rather, of the failure of what they did try: Big Government, pro-debt, inflationary policies.
UPDATE: David Stockman tells the story of Japan, with charts. RTWT. They inflated massive stock, debt and real estate bubbles in the late 1980s; the bubbles burst; and ever since, they’ve piled up more debt and money-printing in trying to re-inflate their bubbles. Like we’re doing – with no better results.