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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Reuters

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.

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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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