Economics Discussion Assignment (Japan & Canada)

Kayla Colendich

Within the “lost decade,” Japan’s economy took a sudden collapse much similar to the United States early twenty first century economy. In Japan, in the early 1990’s, “sluggishness persisted,” spiraling the nation downward. Before the 1990’s, stock prices and real estate soared, creating economic stability. In the turn of the next decade, the economy busted, along with an asset price boom, enhancing a price collapse and an economic downturn. Immediately following, banks issued bad loans, creating chaos and trouble within the banking system. People’s wealth quickly reduced, producing times of economic panic within the common households.

         After surviving the housing bubble in the United States, in the early 2000’s, and Japan’s 1990’s catastrophes, economists have come to the conclusion that similarities were much present in both crises. When dealing with the fiscal policy, the response in both cases was very similar. The rush of government debt, enlarged government spending, and enormous budget deficits were the immediate action taken within the fiscal policy. Also, in the reading, Lessons from Japan and Canada, states, “The elderly population increased substantially in Japan during the 1990s, and the same thing will happen in the United States in the decade ahead.” This was a large reason of why productivity and income growth rapidly slowed down.

         On the other side of the table, when economists analyzed the monetary policy, they identified differences in the U.S. and Japan’s disasters. Japan, being a large, productive, and structured environment, was much more restrictive during the 90’s decade, when dealing with the monetary policy. On the contrary, the U.S. was far from restrictive, and in fact, was very expansionary. The U.S. actions were proven expansive, due to the steps taken from the Federal Reserve. Restrictive vs. expansionary monetary policy changes the economy experience in the future decades ahead.

Work Cited

“T6 Japan and Canada.pdf.” Google Drive, Google, drive.google.com. Accessed 24 July 2017.

Michael Mullins

The U.S. has a chance to not make the same mistake Japan made in the 1990’s. Very similar to the U.S. economy in the early 21st century the Japanese economy went through a large boom in the late 1980’s. In Japan the real estate and stock prices soared in the 1980’s, similar to how he housing prices in the U.S. soared between 2001-2005. This surge in the Japanese economy created great optimism about their economy going forward. The rising incomes generated strong demand for both commercial real estate and business shares.

The real estate market busted in 1990 and this produced a sharp downturn in economic growth. When the real estate assets collapsed it took down both the purchasers and the institutions handing out the loans. The Japanese government tried to fix the problem by increasing government spending, running a large budget deficit but it did not fix the problem. This spending led to higher interest rates, increased future taxes and changes in the structure of demand. Japanese policy-makers thought they were creating an expansionary monetary policy but they were creating a highly restrictive one. This can be seen through the reduction of the money supply.

There are many similarities between Japan's situation in the 1990’s and the U.S. situation in the first decade of the 21st century. not only was there a boom in both economies, particularly in the real estate market, there was also an increase in the elderly population. This increase can and will lead to increased government spending to help fund the retirement benefits and health care. Also, since more of the population is retired and not working, productivity will decrease. These factors will slow the economic growth.

The U.S. can learn what not to do by looking at what happened during Japan’s “lost decade.” The increase in housing prices brought upon bad investments and excess capacity, just like in Japan they will most likely not rebound quickly here. Also, Japan tried to generate stability by adopting stimulus packages designed to enhance economic growth. They were unsuccessful and likely would be unsuccessful in the U.S. in generating sustainable recovery. Lastly, a restrictive monetary policy could throw the economy back into a recession but the expansionary monetary policy of the U.S., all though it may promote a stronger economy, could lead to future economic instability.

Works Cited

“T6 Japan and Canada.pdf”. Google Drive, Google, drive.google.com. Accessed 25 July 2017.