Pethokoukis, Economics, U.S. Economy

You know, there’s an economy where they’ve been running Obamanomics for 30 years


President Obama has made it clear that he doesn’t think much of America’s market-oriented economic reforms that started in the late 1970s. All those tax cuts and deregulation policies gave America was middle-class stagnation and rising inequality. As Obama said back in 2011:

There is a certain crowd in Washington who, for the last few decades, have said, let’s respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If we just cut more regulations and cut more taxes—especially for the wealthy—our economy will grow stronger. … But here’s the problem: It doesn’t work. It has never worked. … Over the last few decades, huge advances in technology have allowed businesses to do more with less, and it’s made it easier for them to set up shop and hire workers anywhere they want in the world. … In the last few decades, the average income of the top 1 percent has gone up by more than 250 percent to $1.2 million per year. …  And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a one-in-three chance of making it to the middle class—33 percent. … And yet, over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk.

I think Obama has his facts wrongs on inequality, middle-class incomes, and mobility, though his views suggest Elizabeth Warren rather than Hillary Clinton would be a more obvious successor.

But let’s put data disputes aside for a moment. Wouldn’t it be great if there were some real life natural experiment where on one side we had an advanced economy — like the US or UK — that dealt with the stagnation of the 1970s by liberalizing its economies, and on the other side an economy that chose to keep its labor market tightly regulated with strict rules on firing employees, kept corporate taxes high, shielded domestic markets from imports, and ran its financial system so as to discourage hostile takeovers. As Noah Smith points out, Japan is that counterfactual (h/t to Reihan Salam and Fair Jilt):

Buoyed by the last spurt of its postwar catchup growth, Japan managed to sail through the 1980s without having to face hard choices about the structure of its economy. …

Many features of the Japanese economy that are commonly attributed to culture are, in fact, the result of Japan trying to run a modern economy without neoliberal reform: powerful but inefficient corporations, little job mobility, low unemployment, a relatively equal income distribution, and a job market that is heavily rigged against women. Taiwan, which is probably the closest country to Japan in cultural terms, has much higher inequality, greater labor mobility, more gender equality, and a higher per capita GDP than Japan. Taiwan, of course, is a low-tax, low-regulation country that is heavily exposed to trade with China.

I’m am not sure I would prefer living in the Asian Obamaland — a nation of incremental innovation as opposed to disruptive innovation — the past three decades vs. the US. (Certainly seems less fun.)  Even less so if I were a women. Also don’t forget Japan’s massive national debt and falling birth rates, also a reflection of its economic stagnation. Something to consider as US policymakers try to figure out America’s next economic steps in the aftermath of the Great Recesssion. (And here is another take on the issue from earlier in the year.)

One thought on “You know, there’s an economy where they’ve been running Obamanomics for 30 years

  1. While less regulation the better, I am surprised at Pethokoukis on this one: Japan’s obvious, glaring problem has been tight money!

    The Bank of Japan has pursued zero inflation since 1992 (until very recently), and the results are a debacle.

    The yen has soared, proof money was tight.

    Milton Friedman famously advised the Bank of Japan to buy bonds and keep buying bonds until they saw real robust growth and inflation. See his seminal piece:

    Japan is an example of what sustained tight money can do to a nation.

    Is Japan more or leas heavily regulated then the USA? Who knows? State and local regs? Fed regs? Tax laws?
    You could spend a lifetime trying to prove that Japan or the USA was the most hidebound.

    Listen, in SoCal conservative Orange County, they nixed an international airport, and in Newport Beach you have to get permission from voters to build a structure of more 250,000 square feet. A lot of land was recently and dramatically downzoned as voters do not want too many houses in their neighborhoods.

    So we are lecturing Japan to loosen up?

    But monetary policy is clear—the Bank of Japan asphyxiated their economy.

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