T here are five myths circulating the globe regarding the financial crisis that has it in its grip. This is the view of Pavel Minakir, director of the Institute of Applied Economic Research in Khabarovsk, Russia. His fascinating and sobering assessment of these myths appeared in a recent issue of the institute’s quarterly journal, “Prostranstvennaya Ekonomika.”
If Minakir’s “myths proposition” is correct, how might it apply to Japan in the past, present and coming years?
Myth No. 1: That the global financial crisis occurred suddenly, and that’s why it is so destructive.
In actuality, Minakir says, the global financial system, so intertwined as it is, has been displaying danger signs for years.
Myth No. 2: That the perpetrator of the crisis was its “organizer,” the United States of America. (This myth may have been most fervently nurtured in Russia.)
Says Minakir, the policies adopted were a collective choice, taken “entirely rationally”; and, “consequently, the crisis was the result of collective miscalculation . . . ” The crisis, he states, is the “natural result of excessive globalization.”
Myth No. 3: That this is an exclusive — i.e. one-off — disaster that cannot be explained within the framework of traditional theoretical concepts of economics.
Myth No. 4: That countries such as Russia have been the innocent victims of global machinations.
Myth No. 5: That greed, or what Minakir calls “egoism,” caused the crisis.
In reality, he insists, it was not greed and the excesses of speculation that were behind the crisis, but rather the inadequacy of the system of regulation that opened the door to it, inviting it in.
Reading this report got me to thinking about how Japan showed the way to disaster long before the credit crunched in the United States.
Japan has also demonstrated to the world the wrong way to go about ameliorating the crisis.
In the nearly two decades since the bubble burst here, Japan has been what the Japanese call a hanmen kyoshi, a teacher who sets a bad example. If only the world had watched this teacher and learned what not to do!
In the 1990s, the United States, in particular, was distracted by the IT boom and the end of the Cold War. The economy was booming amid a “we won” euphoria: What happened in Japan could never happen here, thought the Americans of their own situation.
But the very definition of euphoria — a false feeling of wellbeing in an essentially sick person — should have been the clue.
The real-estate bubble, the all-too- easy credit, the sense that the country was on top of its economic problems, which seemed to be vanishing . . . these conditions existed in Japan in the 1980s, just as they did in the U.S. in the 1990s and the first years of the 21st century.
Euphoria is the perfect word to describe the giddy state the Japanese found themselves in. The entire country was living on overleveraged emotions. On television talk shows — which, in the 1980s, became the most popular national medium for the discussion of social and political issues, overtaking the print media in influence — Japan was touted as the world’s most successful nation.
Japan, so its citizenry was led to believe, had the best education system in the world . . . few social problems to plague society . . . and money to burn on every conceivable luxury. These televised boasts became the new sources of national pride.
It was not until the bubble burst at the start of the ’90s, followed by the two enormous shocks of 1995 — the Great Hanshin Earthquake in January and the sarin nerve-gas attacks on the Tokyo subways in March — that the nation’s confidence was well and truly rattled, and people here saw through the myths of the boom years.
The education system that had been an excellent training ground for nose-to-the-grindstone company- transfixed working men and women was to prove inadequate as a creative arena to develop young people with initiative and broad imaginations. Horrid incidents of bullying, child abuse, sexual harassment, neglect of the needs of the disabled, the disadvantaged and the elderly came to light in the 1990s, and people began to realize that these problems had certainly existed in the past as well.
The populace, single-goal oriented toward economic growth, had failed to notice the gross injustices practiced right under their nose.
As for all that money to burn, it burned a hole in virtually every pocket, save the pockets of speculators with inside information and manipulators of real-estate “values,” known as jiageya — the sharks who fleeced naive people of their primary assets and sold them to developers for exorbitant profits. Millions of ordinary people were left with meager savings and mortgage debt exceeding the value of their land and home.
If it doesn’t sound familiar, it should. And it should have been a warning to the U.S. citizenry that euphoric borrowing and spending, like the sicknesses underlying it — greed and a false sense of security — was no Japanese monopoly.
Until recently, Americans believed, just as Japanese did until the 1990s, that they were clever enough to control anything and everything that might come their way — and that the good times were just going to roll on and on and on. . . .
This is where Minakir is right when he points out that the global financial crisis has been neither sudden nor inexplicable in terms of macroeconomic theory.
I would only add to his analysis that the present crisis began in the 1990s, when Japanese banks were burdened with colossal bad debts and real-estate values around the country were about as true-to-life as those in proverbial cloud-cuckoo-land.
Back then, the Japanese government, too, responded by infusing massive amounts of capital to prop up banks, just as the Obama administration has done in the U.S. Successive administrations here under the ruling Liberal Democratic Party — particularly during the 2001-06 regime of Prime Minister Junichiro Koizumi — turned away from much welfare spending. The philosophy was that you help your own at the top first, and the benefits will trickle down.
The Japanese chose to give the lifeboats to those on the upper decks, who, having been saved, promised to return to the ship and save the rest of us. Alas, they have just sailed away into the sunset.
The result in Japan, and in the crisis- laden West,is rising unemployment and a huge, ever-widening gap between the rich and poor.
Perhaps Minakir might add a “Myth No. 6” to his list: Crises like the present one teach us to learn from our own mistakes and those of others.
In reality, however, they don’t.
The only hope here is that since Japan was first to go off the deep end, it may also be first to swim out of danger and lead all its citizens to safety. To do this, there will need to be lifelines of welfare created, so that the weak and disadvantaged can be saved, too. If this happens, the Japanese will change from being a negative to a positive example, and provide a bit of hope for the rest of the world.
We are now in the same boat: It’s sink or swim for us all.
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