Japan's Weak Economic Growth Could be Due to Failed Macroeconomic Policy

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Thursday, 17 January 2013 05:29

A NYT article that reported on the surge in college education in China told readers, "Japan’s experience shows that having more graduates does not guarantee entrepreneurial creativity," referring to the growth slowdown of the last two decades. While it is possible that a lack of innovation is a factor in this slowdown, it is far from obvious that this is the case. Japan does still have a large trade surplus with the United States, suggesting that U.S. consumers like the things produced in Japan more than Japanese consumers like the things produced in the United States.

It is also very plausible that Japan's weak growth is attributable to inept economic policy. Deficit scolds of the sort that dominate U.S. policy debate have restrained the government from running larger deficits even though its ratio of interest payments to GDP is less than 1.0 percent and it remains plagued by deflation. It is rather presumptuous to assert that a failure of innovation is a major problem in this context when no evidence is presented to support this contention.