It has continued to sink, closing at 12,854 on Thursday. But in Japan, a stock market crisis immediately becomes a banking crisis because banks own large amounts of stock in corporations that are their customers. 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. 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. Compounding the problem with perverse policy, in 1997 a tax on consumption was raised from 3 percent to 5 percent.
Households earn zero on savings accounts.
When Japan is in protracted stagnation, Asia cannot grow, which exerts some drag on America'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. There is a moral obligation to be intelligent, so Americans are obliged not to be panicky. His column is published on Monday.