US now = Japan in the 90s?

Another thoughtful article from Stephanie Flanders of the BBC.

Some quotes from the article:

In terms of economic growth, the US's performance over the last five years now looks no better than Japan's in the five years after its asset bubbles burst in the late 1980s. Indeed, in employment terms it has been considerably worse.


The jobs picture was already bleak at the start of the year - but, if anything it now looks even worse, with unemployment still hovering around the 9% mark, and a record 40% of the jobless now unemployed for more than six months. 

In the past, economists have tended to laud the flexibility of the US labour market: unemployment might rise more quickly in a recession, but it would then fall more quickly as the economy recovered, and long-term unemployment was always much lower. Now US labour flexibility seems only to be operating in one direction, while the "over-regulated" German labour market has performed surprisingly well.

A few startling statistics highlight the failure of the US economy to deliver jobs for its rising population: in 1958, 85% of working age American men were in work. Today, less than 64% have jobs, and - in case you think that is simply due to women entering the workforce - the share of all Americans, men and women, in work is now lower than it has been since the early 1980s. 

It's not only jobs. In its latest assessment of the US economy, the IMF looked in detail at the past ten US recessions. On nearly all the key measures - loss of output, employment, investment or growth in personal disposable income, the two downturns of the 21st century (2000-1 and 2008-9) have been the worst.

That is what gives rise to the suggestion that the US has already suffered a "lost decade" - at least on Main Street. Real average household income fell by 3.6% between 2001 and 2009, and real incomes have fallen again in 2011, as inflation has picked up but wages have remained flat. The weakness in earnings is also uncannily similar to Japan (see Capital Economics chart 8).

 All the evidence suggests that the US model of aggressive (some might say vicious) capitalism has failed.