Paul Krugman has critiqued my analysis of Japan
Update: My response is here.
In an article in the January 8 issue of the New York Times Sunday Review, I extensively debunked the story of Japan’s lost decades. My analysis has not only drawn a flood of email but has been extensively noted in the blogosphere. I am happy to say that most of the comments have been complimentary, particularly comments from Americans with a real understanding of Japan (not least the sort of people who have actually visited the country!).
The most common criticism I have had is that I did not address the Japanese government’s supposedly out-of-control debt. Actually the original article did address this as well as several other myths not dealt with in the final edit but my comments had to be cut for space reasons (there are so many myths out there you would need to write a book to deal with them — come to think of it I have!). The first thing to note about Japanese debt is that the Japanese government can borrow 10-year money for little more than 1 percent — the lowest rate of any government I am aware of and lower even that the rate at which the British government could borrow at the height of British financial hegemony in the late nineteenth century. To say the least buyers of Japanese government debt don’t seem to agree that things are out of control. Basically the issue here is accounting. The ratio of 200+% of GDP often cited involves an enormous amount of double-counting with various government agencies borrowing from one another. The usual figures in other words are phony. It should also be noted that much of the money borrowed from the Japanese public goes to finance not Japanese but American government spending. Much of the rest of it goes to finance various semi-bankrupt European governments.
As for the blogosphere, of particular interest is that my analysis has been critiqued by Paul Krugman. Krugman is not only a first rate economist but a gifted writer and I find myself agreeing with most of his analysis of the American economy. His understanding of Japan, however, is a different matter. I plan to respond to his comments later this week and will deal also with one or two other intelligent interlocutors. In the meantime I am racing to meet a big deadline for my next book. Watch this space.