deflation

As the financial markets, particularly the bond boys, hype up the concern about inflation, it certainly seems from global manufacturing numbers we remain fairly entrenched in a deflationary environment. The FT has a piece about Japan stating:

The Japanese government on Wednesday unveiled an ambitious economic growth plan, pledging to create millions of new jobs and achieve average growth of 2 per cent over the next decade.

This is an interesting point on several levels, most importantly the FT calling 2% growth "ambitious." But as the FT points out, "Japan has not seen gross domestic product growth of 2 per cent since the 1980s."

In American history there have been two previous deflationary periods, the 1870s to 1890s and then the 1930s. Globally, the most recent deflationary period has been the Japanese economy, which began with the popping of the Japanese financial bubble in the early 1990s and the Japanese have failed to extract themselves to this point. Much of the US reaction to the popping of our financial bubble has been very much what the Japanese did and as we can see this failed to bring substantive growth.

The deflationary periods of the past and Japan's more recent quandary are not completely analogous. I believe there's deeper currents running here, particularly in Japan's case, what happens when you have what might be called a mature industrial economy, simply you cannot achieve growth rates obtainable in going from an agrarian to industrial economy. This means, as Bill Greider points out in his excellent book Come Home America, you simply cannot rely on growth to meet many economic and political challenges. This changes how you must address these challenges. Doing so will require a great rethinking of political economy. Make no mistake, a stagnant or low growth American economy will instigate tremendous political changes.