Japan's stock bubble was accompanied by a property boom, during which it was somehow considered reassuring for Japanese to joke that the palace grounds in central Tokyo were worth more than California. The property boom came to a screeching halt. John Makin, who studies Japan's dysfunctional political economy for the American Enterprise Institute, notes that Japan's problems are severe and intractable because Japan has such a political economy. Yet Japan's economy remains unstimulated. Compounding the problem with perverse policy, in 1997 the tax on consumption was raised from 3 percent to 5 percent.
Households earn zero on savings accounts.
Today, Japan's debt is 130 percent of its GDP, the highest of any G-7 nation. America's debt is 32 percent of its GDP, the lowest among the G-7. When Japan is in protracted stagnation, Asia cannot grow, which exerts some drag on U.S. growth. Yet even though Japan is about 15 percent of global economic activity, America boomed during Japan's bad decade. The average price of American stocks is 21 times earnings, higher than the historical norm of 14 times, but well below the recent peak of 35.