That is about the only thing that readers can learn from an article on Japan in the business section today. The article includes a variety of complaints about Japan's economy, many of which are contradictory. For example, the chart accompanying the article complains that consumers are "neither spending nor saving." This is bizarre, because saving simply means not spending, so, if consumers are not spending, then by definition they are saving. In fact, this chart shows a big increase in consumption over the last twenty years with the saving rate having fallen from more than 15 percent in 1985 to about 4 percent in 2005. The article later complains that consumers are not spending because they don't have confidence in the country's pension system (which it tells us is a warning to the United States), but it is not clear how much lower they would want the saving rate to go. (The chart shows that nominal consumption has fallen by more than household income, which implies that either taxes have increased or the data in the chart is inaccurate.) The article also repeats the standard line about people not spending because deflation means that goods will be cheaper in the future if they wait. It is questionable how much of a factor this dynamic really is. Japan's deflation was generally less than 1.0 percent. This means that a consumer who was considering buying a $600 television would save approximately 50 cents by delaying the purchase a month. They could save $6 if they delay it a full year. It seems unlikely that many people would delay purchases of big ticket items for such modest savings (computer prices in the United States have been falling more than 15 percent annually for two decades), and the savings on smaller items would be virtually undetectable.
--Dean Baker
