Avoiding Japan’s economy

Economists say Japan’s economy has been in a major slump for much of the past 15 years, says host Mary Walden. Some say that there are parallel trends in the U.S. economy and Japan’s. She asks her husband, N.C. State economist Mike Walden, “Can we or will we avoid where Japan has been?”

Mike Walden says, “Well Mary, this is a very, very important question, because as you’ve said we can see a pattern, sort of a mirror pattern between where we’ve been going and where Japan has been. You have to keep in mind Japan is still the third largest economy in the world.  And I think there are some key differences between the U.S. economy and the Japanese economy.

“One difference is demographic. Japan is a rapidly aging country, very little immigration of young people. On the plus side for the U.S., we have a much brighter demographic picture. We’re adding people, adding younger people. So, I think that’s a plus on our side.

“Japan did go through a real-estate crash in the early 90s, just like we went through in the mid-2000s. But many say that Japan did not use the correct mix of fiscal and monetary policy to deal with that, whereas the U.S. has done that. So, that may be a second difference that helps us.

“And then lastly, Japan’s economy is very tightly controlled and regulated in the sense that there’s not as much flexibility there for businesses, on one hand, to close and new businesses somewhere else to open and people to change jobs. That’s much more highly regulated in this modern economy, dynamic economy. That can put you behind.

“The U.S. economy is much more flexible. Capital and labor can move. So I think, because of these three key differences, many say that the U.S. is not going to follow the path Japan has laid out.”

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