Japan is thought of as a place with intelligent and highly educated people. But they sure have some people who are really stupid when it comes to economics.
After Japan was devastated from World War II, the country turned to the free market and the people working in a free market system created a lot of wealth in a short period of time. The same could be said for Germany. It is amazing how fast these two countries recovered after the war that left so much death and destruction. They both became two of the wealthiest countries in the world.
In the 1980’s, some Americans started to fear that Japan was going to take over, whatever that means. They were afraid because the Japanese could sell inexpensive electronics. Even as a child, I didn’t understand the hysteria. Some company from Japan wants to sell me a really cheap television and I am supposed to get upset about this? Imagine the outrage if they were giving away televisions for free.
Unfortunately, the last several decades has seen Japan turn away from the free market economics that led to its very prosperity. The government has essentially adopted a policy of mercantilism, where it cares more about its exporting business than the standard of living of Japanese citizens.
The debt-to-GDP in Japan is ridiculously high. It is well over 200%, far higher than any industrial nation on the planet. Yet many Japanese investors stupidly buy government debt. Actually, I guess the stupid ones will be those who don’t sell it before a default or massive interest rate increases. Even with foolish investors buying government debt, it still cannot be sustained forever.
When it comes to holding U.S. government debt, Japan competes with China. As of May 2013, Japan held over $1.1 trillion in U.S. treasury debt. Just like China, the Japanese people are providing a temporary subsidy to the American consumer.
Back in April, the Bank of Japan promised to compete with the Fed by creating massive new amounts of money out of thin air. This goes back to its mercantilism. The Japanese central bank said it will double the country’s money supply, creating $1.4 trillion in new money.
Japan also has an aging population with massive unfunded liabilities.
You can take almost every problem that is in America and it seems to be magnified in Japan. I think it is a good idea to watch what happens there, as it could be a precursor of what takes place in the U.S.
I try not to generalize too often because each individual stands on his or her own merits. But as a whole, I really do believe that the Japanese people are smarter and more hardworking than Americans. Again, this is only a generalization. But I would probably give an edge to Americans when it comes to creativity and entrepreneurship.
Unfortunately, it seems that an even larger majority of Japanese people (as compared to Americans) do not understand basic economics. If they did, there is no way the Japanese government and central bank would be able to get away with what it has. Just like every other government and central bank in the world, the Japanese government and Bank of Japan are sucking away the production of the Japanese people. The people suffer with a far lower standard of living than would otherwise be the case. I hope Japan can find the free market economics that was discovered after World War II and return to being a prosperous country.