Do We Have What It Takes To Get From Here To There? Part 1: Japan

The Japanese model of incrementally perfecting consumer technologies may well have have reached marginal returns

by Charles Hugh-Smith

Do we have what it takes to get from here to there?

This apparently simple question offers profound insights into the dynamics of individuals, households, enterprises and nation-states. If we answer this question honestly, it establishes a "road map" of what must be in place before a progression from here to a more sustainable future ("there") can take place.

Individuals, households, enterprises and nations can have goals--where they want to be in the future--but to get there, they need to construct the necessary foundation of values, processes, skillsets, networks, practical experience and capital.

Since my partner and I built about 100 houses back in the mid-1980s, I see building a house as a useful analogy for getting from here to there: each step requires different tools, skills, experience and sufficient capital invested to get to the next phase. If you don't have all of these in hand for each step, the goal of completing the house will remain a fantasy.

As correspondent Mark G. recently observed in an email, "hyper-centralized entities are institutionally incapable of adopting decentralized solutions." I immediately thought of the Federal Reserve, which has responded to a crisis of centralized "too big to fail" banks holding phantom collateral to support massive leverage and debt with increasingly centralized actions to recapitalize those same centralized banks.

The Federal Reserve is incapable of overseeing a decentralized economy; it has responded to the insolvency of our centralized banking sector by increasing counterproductive central planning (zero interest rate policy, money-laundering dodgy mortgages, monetizing Federal debt, etc.).

There is no way the Fed's policies are going to get the nation from here (centralized stagnation) to there (sustainable prosperity).

It's a profound question when answered honestly: Do we have what it takes to get from here to there? For most of the world's economies and societies, the answer is a resounding "no."

 The U.S. Status Quo is as intellectually bankrupt as it is financially bankrupt. Our "leadership" cluelessly clings to the only model they know: incentivize "consumers" into borrowing more money to buy more "stuff" from China, in the magical-thinking belief this churn will somehow lead to sustainable "growth." This is akin to handing a parched alcoholic a fresh bottle of whiskey to wean him of his addiction.

That model isn't going to get us from here to there.

Since Gordon T. Long and I were recently discussing Lessons From Japan (video), let's ask: does Japan have what it takes to get from here (fiscal-cliff stagnation) to there (sustainable growth)?

I recently presented a multi-part look at Japan's economy and society:

Narcissism, Consumerism and the End of Growth
Japan and the Exhaustion of Consumerism
The Hidden Cost of the "New Economy": New-Type Depression
The Future of America Is Japan: Stagnation
The Future of America Is Japan: Runaway Deficits, Runaway Debts

The short answer is no, Japan does not have what it takes to exit stagnation. After 20+ years of extend-and-pretend Keynesian Cargo-Cult "stimulus" borrowing and QE, Japan has managed to construct:

1. Bridges to nowhere (make-work projects for the powerful construction lobby)

2. An unprecedented fiscal cliff (interest on the debt and Social Security are 114% of tax revenues--oh yeah, that's sustainable)

3. A demographic cliff as having children is increasingly burdensome and the "long hours prove you're worthy" work culture deprive children of their fathers

4. An export-based economy that is now running structural deficits

5. A sclerotic, ruled-by-vested-interests Central State in the grip of intrinsically corrupt political parties

6. A revolving-door prime ministry with a new prime minister every year or so

7. Global corporations that have lost their edge (when was the last time you saw Sony or Toshiba on a hot new electronics device? It's all Apple, Samsung and Google)

8. An undeclared but very real trade war with China (Japanese brand auto sales have plummeted by 20+% in China, global auto makers' last best market) China, Japan and the Senkaku Islands: The Roots of Conflict Go Back to 1274 (September 25, 2012)

9. An immigration policy that restricts the very workforce Japan needs to offset its rapidly aging population.

(During my last visit, we stayed for a few days in an apartment owned by a friend's parents. The Japanese Police knocked on the door to check on the whereabouts and status of the previous residents, workers from Korea. Imagine the police in the U.S. keeping close tabs on every "foreign born worker." Maybe this is a make-work project in low-crime Japan, but it does suggest that immigrants are viewed as "other" their entire time in Japan. How appealing is that to immigrants?)

10. Innovation in Japan has atrophied to specialized techno-gimmicks, materials and biomedical research with unknown commercial applications. Yes, it remains a high-tech research dynamo, but without commercial applications, thousands of patents come to naught.

The Japanese model of incrementally perfecting consumer technologies may well have have reached marginal returns. Japan's reliance on the auto and machine tools industries is also creating a drag, as these once fast-growing sectors have reached the stagnation phase as China's growth matures. The notion that everyone wants a car is also on an S-curve as miles driven and auto ownership decline across the developed world.

There is a subdued but worried debate in Japan over many of these issues. Clearly, what worked in the postwar boom era from 1949 to 1989--forty years--no longer works, and indeed is now counterproductive.

The MITI model of deeply interconnected government agencies, banks and corporations that got Japan from "postwar ruins" to "advanced, wealthy democracy" is not enough to get Japan from here (stagnation and social recession) to there (a rejuvenated society that encourages and enables parenthood and sustainable growth).