As alleged populism spreads the globe, one nation, Japan, stands alone.

Economists struggle to figure out why.


In Japan Resists the Populist Tide, Plender says Japan’s immunity to a virus consuming other developed countries is remarkable.

After December’s No vote in the Italian referendum, the rise of Donald Trump and the British vote to leave the EU, it appears that the political landscape of the developed world is being redesigned by the victims of globalisation and technological change. Anger towards political elites is pervasive. Yet a few rage-free zones remain, of which Japan is the most conspicuous. How come this country, whose economy has been in the doldrums for two decades and where the suicide rate is vastly higher than the global average, is not in the grip of anti-establishment populism?

The docility of the Japanese certainly appears counter-intuitive. This is, after all, a country that has suffered from debilitating deflation since the late 1990s and where wages have lagged behind productivity growth for years. Since the bursting of Japan’s notorious bubble in the 1990s, the loss of wealth has been huge. Richard Koo, chief economist of the Nomura Research Institute, has estimated the cumulative loss of wealth on shares and real estate between 1990 and 2015 at ¥1,500tn ($12.8tn) — three times America’s loss measured in relation to gross domestic product in the 1930s depression.

Please Think

It would behoove economic writers bemoaning deflation to stop for a mere second to ponder two facts.

  1. Consumers love falling prices.
  2. The Bank of Japan has failed in its idiotic mission to spur price inflation

Counter-Intuitive Madness

Instead of pondering why nearly the entire Japanese nation has not embraced inflation, Plender ought to look into a mirror in search of the problem.

Consumers like falling prices. Despite decades of Japanese central bank madness, Japanese consumers are actually happy.

No Conundrum

There is no conundrum. It is the ruling class wealthy and politicians that suffer from lack of inflation.

Since Plender believes otherwise, I invite him to my challenge: “Prove Rising Prices Provide an Overall Economic Benefit”.

Recall that the BIS did a study and found routine deflation was not any problem at all.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.

It’s asset bubble deflation that is damaging.

And in central banks’ seriously misguided attempts to fight routine consumer price deflation, central bankers create very destructive asset bubbles that eventually collapse.

When those bubble burst, and they will, it will trigger debt deflation, which is what central banks ought to fear.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Meanwhile economically illiterate writers bemoan deflation, as do most economists and central banks. The final irony in this ridiculous mix is central bank policies stimulate massive wealth inequality fueled by soaring stock prices.

Mike “Mish” Shedlock