Feb 21 · Last update 15 days ago.

Why did Japan fail to overtake the US economically?

During the 1980s Japan was widely expected to overtake the United States economically, Japan’s GDP had risen steadily during the post-war period as part of Japanese economic miracle. After the Second War Japan went through a period of heavy industrialisation that allowed the country to switch to large scale export trade in the coming decades. Japan’s Ministry of International Trade and Industry oversaw an economic system that relaxed monopoly laws to allow the re-emergence of Japan’s industrial conglomerates, a similar system that played an important role in the country’s pre-war development. This, coupled with the over-borrowing of conglomerates from the Bank of Japan, allowed companies to plan for long-term growth over short-term profit. Yet Japan entered into a recession in the 90s, and although the country came close through this huge economic boom they never overtook the United States as the world’s largest economy. As debate rises around the possibility of China doing so within the next decade, why did Japan never overtake US economically? Is China likely to share a similar fate?
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A burst bubble that Keynesian controls made worse
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A burst bubble that Keynesian controls made worse

Both the practice of bank over-lending and massively overpriced land prices in Japan generated one of the biggest asset price bubbles in history, which burst in 1991 starting off a period of economic stagnation known in Japan as the “lost decade”. However the government’s reaction was to implement a series of Keynesian policy controls which prolonged this stagnation into a “lost 20 years”, spending 100 trillion yen on ten fiscal stimulus packages throughout the 90s to no avail. A similar future is possible in China, recent years have seen a relaxation on borrowing restrictions on local governments and an ease on limits on home purchases in big cities, while economist think the Chinese government may use policy to stimulate consumption, include subsidies to boost purchases of cars, home appliances and other large items.

aier.org/article/the-keynesian-trap-lessons-from-the-japanese-slump mises.org/library/explaining-japans-recession danieljmitchell.wordpress.com/2019/07/29/china-and-keynesian-economics-a-strategy-for-stagnation-and-debt

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