The 'Great Stagnation' of the Japanese Economy: What went wrong, and what to do?

Prof Masazumi Wakatabe

Saturday, 6 March 2004; 7:30-9:30pm

Lecture Room 4, Engineering Department, Trumpington Street

Notwithstanding recent recovery, it has been well-known that the Japanese economy has stagnated for more than a decade, which has been called the 'Great Stagnation'. Although there has been a long, and quite often fierce, discussion as to the causes and possible cures of the stagnation, the economists, academic and popular alike, seem to have failed to provide the effective diagnosis and prescription.
In this talk, I shall start with an examination of several possible `explanations' advanced in the popular media, showing that most of them do not really stand up a closer scrutiny even without any knowledge of economics. A proper analysis of the problems of the Japanese economy, however, requires some knowledge of economics. In this talk I shall use only the most fundamental and simple tool, the supply and demand analysis, combined with a simple set of data, to show that the root cause of the Japanese economy lies in the deficiency in the demand side rather than any malfunction in the supply side, as the proponents of the so-called 'structural reform' argue.
Based on the analysis, a desirable set of policies is proposed to attack the root cause, which is basically a set of policies directed toward increasing aggregate demand for the economy. Any policy is, however, constrained by other factors, so that the feasibility and efficacy of proposed policies will be examined.
The last section of the talk deals with further issues such as the evaluation and prospects of the recent recovery, the long-run prospects of the Japanese economy, and the role and function of the media and economists in the economic policy making process.