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Could the U.S. become another Japan?
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September 21, 2001: 12:47 p.m. ET
After this past week, I can't help thinking about the problems Japan has had the past 10 years.
Money senior editor Walter Updegrave
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NEW YORK (Money) - Q. I suspect the U.S. economy is just going through a normal economic cycle, but after this past week I can't help thinking about the problems Japan has had the past 10 years. Do you think there's a risk the U.S. could become another Japan?
A. I can understand why someone with a fertile imagination like you might see some parallels between us and the Japanese. Back in 1989, Japan was at the height of its powers, its economy seemingly ruled the world, its stock market generated astounding returns -- and then it all went downhill from there. Today, more than a decade later, the Nikkei remains 70 percent below where it was at its peak.
In 1999, by contrast, the U.S. was at the top of the economic summit, our New Economy was growing at an incredible pace and our stock market was posting phenomenal gains. Now, of course, those stock market gains have evaporated, the economy is teetering on recession and our famed New Economy has become the butt of jokes.
That said, however, I think the chances of the U.S. descending into a deep, deep economic funk like Japan's are about as likely as sashimi replacing hamburgers and hot dogs as our national cuisine.
Why? Well, for one thing much of Japan's problems lay in the way their economy was managed -- or mismanaged, as it turned out. The Japanese belonged to the "top-down" school of economic planning where resources were directed by bureaucratic agencies like the Ministry of International Trade and Industry. Their banks bankrolled much of the investment in the economy either through loans or by holding stocks of companies. When companies floundered, the banks were under huge political and social pressure not to foreclose on loans or sell stocks.
This system allowed stock and real estate prices to rise far above their intrinsic value -- and then prevented the situation from righting itself for many years. In my opinion, the whole shebang was essentially rigged, and the country is now paying the price for trying to run a rigged economy in a world where market forces dominate.
In the U.S., stock prices certainly got pushed to blimpish values during the tech and dot.com stock craze. But our economic system responds more quickly to market forces. The NASDAQ got trashed, stock prices fell, companies have gone out of business -- and we're in the process of rebuilding from the rubble.
The main difference between us and Japan, as I see it, is that we're more likely to let the chips fall where they may, take our licks and then let the market decides which companies are strong enough to come back.
I also think Fed Reserve chairman Greenspan would do all he could to spur a recovery. And he's certainly got plenty of room to continue cutting rates. That doesn't mean, of course, that our economy may not slip into recession. We've had them in the past and we'll have them in the future.
And, who knows, it may turn out we're in one now, since official pronouncements of recession from economists often don't come until the recession has actually ended.
So call me a cockeyed optimist, but I find it hard to imagine any scenario where the U.S. economy sinks into a 10-year quagmire and our stock market remains 70 percent below its peak ten years from now.
But just to be on the safe side, would you please be sure to spend your tax rebate check and encourage your neighbors to do the same, so we can keep pumping life into this economy? Thanks. 
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