Is the U.S. Turning Into Japan? We Should Be So Lucky

If Japan is really our worst-case scenario, maybe that's not such a terrible fate

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Over the past few years, it's become ever more common to hear comparisons between the United States and Japan. They are not favorable. They come in the form of dark warnings that the current policies of the United States will lead to a fate similar to Japan's over the past 20 years: stagnant growth with no end in site.

Let's just say for the moment that the United States is becoming Japan - a nation of little to no economic growth, high public debt and a broken financial system. How bad is that? Is becoming Japan really a worst-case scenario?

The past 20 years for Japan have been called the lost decades. Government debt is in excess of 200 percent of GDP. The country has suffered from chronic deflation, a sluggish job market, an aging population, an insular culture and growth stalled at between 1 percent and 2 percent a year. Governments have come and gone. What's most notable is that until recently, Japan has rarely been at the forefront of economic news the way it was in the 1980s and 1990s, even though it is the world's third-largest economy and one of its wealthiest. If you factor in deflation, Japan hasn't just seen tepid growth; it has seen none: Nominal economic output has barely budged since 1992.

Now we look at the United States and see ... mounting government debt burdens, deflation, slow growth, a blech labor market and political sclerosis. And that does sound awfully Japan-like.

Except that it isn't, because that isn't the entire story of Japan. Yes, those numbers are factually correct, but they paint a dire picture that doesn't square with today's reality. First all, Japan is not just a country that for 20 years has had higher debt, no growth and less global impact. It is one whose citizens are in extremely good health, with the third-highest life expectancy in the world after tiny Macau and Monaco, which means for all intents and purposes it has the highest in the world. Its levels of violence are low. Democratic government is orderly and ordered, and a technocratic and efficient bureaucracy attends to issues such as public safety, infrastructure, education, housing and healthcare with a high level of competence and efficiency. The country is peaceful; its citizens are prosperous. And while defense forces are bulking up in anticipation of tension with China, it has dramatically ended a culture of war that dominated society until 1945.

So if the United States is becoming Japan, why, exactly, is that a fate to be avoided at all costs? Why is a long-term future of social stability, affluence and effective day-to-day governance where most citizens have good educations, decent healthcare, adequate housing and nourishment, and do not go about their days fearful about their personal security something to fret over? For the entire recorded (and probably unrecorded) history of humanity, such a scenario would not have been a fate to fear but a utopia.

That we view it instead as a failed experiment and a broken economy and a perilous example of what might await the United States says much about our expectations and our fears. Apparently, sustainable prosperity is not sufficient.

Instead there must be endless and hyper-charged growth. Debt is viewed as inherently unsustainable. Though very high levels of public debt have yet to cause a dramatic implosion in Japan, that is chalked up to high levels of personal savings, which Americans lack. In essence, Japan's debt stability is explained away as a product of the government borrowing recklessly from frugal consumers. Doubters say low growth is not tenable over the long term (though it has apparently been tenable in Japan for 20 years), even if the alternative isn't higher growth but severe contraction. Social stability, good public services and general level of affluence count for little.

The degree to which those positives are discounted or dismissed is troubling. Of course, many Japanese are deeply disenchanted with their own economic model, largely because it has ceased to evolve and adapt, especially with China rising just across the sea. But the disdain for Japan in the United States coupled with the view that life there is a disaster demonstrates that our ambitions for what we should achieve economically may be blinding us to more prosaic but stable outcomes.

Yes, it would be more desirable for the U.S. economic system to evolve and exhibit dynamism and innovation that benefit the many and the not the few. But rejecting a path of lower and slower growth accompanied by higher levels of health, education and social well being while simultaneously ratcheting up the level of hysteria about collapse does us no particular good.

In fact, those expectations may be doing us particular harm; it may be a classic case of letting the great be the enemy of the good. If Japan is indeed a worst-case scenario for the United States, we should stop for a day and celebrate our good fortune that the future in store is so stable, so conducive to living productive and secure lives. Japan may be something the United States actually aspires to if things go astray over the next decade: The Japanese at least have a strong commitment to social safety nets, which still meet with divisive ambivalence in America. Those nets, frayed as they are, do keep a lid on social unrest.

Our inability to embrace a status like Japan's as an acceptable, albeit less desirable, outcome is a greater challenge, because it makes a true resemblance less likely. We may indeed be in for a decade during which we mimic Japan statistically; let's hope we can live with that socially. If not, there are much worse fates one can imagine.

"The Edgy Optimist" column is initially published at, an Atlantic partner site

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Zachary Karabell is Head of Global Strategy at Envestnet, a financial services firm, and author of The Leading Indicators: A Short History of the Numbers that Rule Our World. More

At River Twice Research, Karabell analyzes economic and political trends. He is also a senior advisor for Business for Social Responsibility. Previously, he was executive vice president, head of marketing and chief economist at Fred Alger Management, a New York-based investment firm, and president of Fred Alger and Company, as well as portfolio manager of the China-U.S. Growth Fund, which won a five-star designation from Morningstar. He was also executive vice president of Alger's Spectra Funds, which launched the $30 million Spectra Green Fund based on the idea that profit and sustainability are linked. Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (2009), The Last Campaign: How Harry Truman Won the 1948 Election, which won the Chicago Tribune Heartland Award, and Peace Be Upon You: The Story of Muslim, Christian, and Jewish Coexistence (2007), which examined the forgotten legacy of peace among the three faiths. In 2003, the World Economic Forum designated Karabell a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC and CNN, and has written for The Wall Street Journal, Newsweek, Time, The Washington Post, The New Republic, The Los Angeles Times, The New York Times, and Foreign Affairs.

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