Japan needs to abandon nostalgia for golden era - Nomura

Richard Koo, Chief Economist at Nomura, suggests that a look at the duration of the golden ages experienced by Western countries and Japan and other Asian economies suggests these eras are growing gradually shorter.

Key Quotes

“Globalization has enabled countries to reach a certain level of economic development comparatively easily today, but once they reach that level they tend to be quickly overtaken by other emerging economies and fall into the category of pursued economies.

Additionally, a look at the changes in economic development over this extremely long time span makes it clear that there are many instances of accepted beliefs that were valid in one era no longer working in the next.

Many of those supporting the candidacy of Donald Trump in the US presidential election are blue-collar voters with relatively low incomes who look back with fondness on the nation’s golden era. Similarly, older voters who can recall the glory of the British Empire easily outnumbered younger voters among those who voted for Brexit in the UK.

The external environments faced by both Britain and the US have changed remarkably, and a return to the days when a high school graduate could buy a spacious home and a large automobile on a single income is simply not possible. The arguments of Mr. Trump and the Brexit camp are well received by so many because they elicit nostalgia for the golden eras of the past. This is something that must be closely watched, because they are pushing the country to a goal that does not exist.

Japan, too, needs to accept that there is no going back to the golden era, and that the accepted beliefs that worked then will no longer work today. It must engage in extensive reforms of its economy, society, and educational system to ensure that they remain relevant for today’s world.

A pursued economy that implements these reforms and is able to achieve a proper mix of fiscal and monetary policy will be able to remain an advanced economy. One that delays such efforts until it is too late will find its economy regressing.”