Under U.S. law, governments cannot sue for libel. There should be prominent warnings to this effect. Then newspaper readers would realize that articles do not need to apply the same standards of accuracy to reporting on governments or countries as they would to an article on an individual like Bill Gates or a company like Microsoft. If Japan were a U.S. corporation, the Washington Post would be squirming right now to evade a lawsuit. Continuing its long series of hit pieces on Japan's economy, the Post tells readers about Japan's "long, slow slide." The basis of this slide are two serious confusions/distortions. First, the article confuses currency conversion GDP with purchasing power parity GDP, telling readers that Japan ranked 4th in the world in per capita GDP fifteen years and today ranks 20th. Economists (unlike the Washington Post) do not use currency conversion measures of per capita GDP when they want to make cross country comparisons of living standards. The reason is that the exchange rates fluctuate wildly and have little direct bearing on living standards. Compared to the euro zone countries, living standards in the United States have fallen by close to 40 percent in the last five years using a currency conversion measure of GDP. This is of course nonsense and the Post has thankfully not run any pieces arguing this case. Purchasing power parity measures of GDP try to control for changes in exchange rates and apply (in principle) a common set of prices for the goods and services produced in each country. While Japan has been through some tough times in the wake of the collapse of its stock and housing bubbles in 1990, its per capita GDP is now growing more rapidly than the per capita GDP of the United States. According to data from the IMF, over the 15 years from 1992 to 2007, Japan's per capita GDP grew by an average of 1.1 percent annually compared to 1.9 percent in the States. But, if we go back to 1987, taking in some of Japan's pre-crash boom years, both countries showed per capita GDP growth averaging 1.8 percent annually. More importantly, over the last five years, Japan's 2.0 percent annual growth rate somewhat exceeds the 1.8 percent rate in the United States. It is also worth noting that Japan is running a current account surplus equal to 4.5 percent of GDP, which means that it is building up wealth that it will be able to draw upon in the future. By contrast, the United States is running a current account deficit equal to 5.7 percent of GDP. This is money that it is borrowing from foreigners on which it will have to pay interest in the future. The other major confusion in the Post article is that it equates slower overall GDP growth with a weak economy. There is no reason for a country to be concerned about weak, or even negative, GDP growth if it is associated with a declining population. A smaller population reduces pressures on land and resources. This can be especially desirable in a crowded country like Japan. A shrinking population will also make it much easier for countries to reduce greenhouse gas emissions. Per capita GDP is what matters in determining the wealth of a country's people, although its political leaders may value overall GDP to enhance their stature in international affairs. The article also makes a big point about the recent decline in Japan's stock market. While the market's value matters a great deal to those who have a lot of money invested in it, stock markets have about as close a relationship to economic well-being as the quality of the country's national soccer team.
--Dean Baker