Differences Between Japan and the United States

The NYT seeks to find lessons for the United States in Japan's efforts to recover from the collapse of its stock and housing bubbles in 1990. It argues that Japan's economy did not finally recover until it cleaned up the books of its major banks, which led several to be nationalized or go out of business. While there are undoubtedly many lessons for the United States from the Japanese experience, it is important to note that banks play a much less central role in providing capital in the U.S. economy. For example, most mortgages are financed through securitized mortgage pools. The same is true of car loans and other types of consumer debt. Large corporations typically obtain short-term capital by selling commercial paper on the market. The Fed and Treasury have taken steps to ensure that this route of obtaining capital is open, which means that the problems of the banks will have less consequence for the U.S. economy than was the case for Japan. While it would still be desirable to repair the banking system as quickly as possible, the need is not as urgent as this article implies.

--Dean Baker