Sunday, February 22, 2009

Our relation to crap part 3: What happens to the economy when consumers don't spend enough

The New York Times has an article on Japanese consumers, the frugal habits they formed after Japan's recession in the 1990s, and the effect on the economy.

TOKYO — As recession-wary Americans adapt to a new frugality, Japan offers a peek at how thrift can take lasting hold of a consumer society, to disastrous effect.

The economic malaise that plagued Japan from the 1990s until the early 2000s brought stunted wages and depressed stock prices, turning free-spending consumers into misers and making them dead weight on Japan’s economy.

Today, years after the recovery, even well-off Japanese households use old bath water to do laundry, a popular way to save on utility bills. Sales of whiskey, the favorite drink among moneyed Tokyoites in the booming ’80s, have fallen to a fifth of their peak. And the nation is losing interest in cars; sales have fallen by half since 1990.

The Takigasaki family in the Tokyo suburb of Nakano goes further to save a yen or two. Although the family has a comfortable nest egg, Hiroko Takigasaki carefully rations her vegetables. When she goes through too many in a given week, she reverts to her cost-saving standby: cabbage stew.

“You can make almost anything with some cabbage, and perhaps some potato,” says Mrs. Takigasaki, 49, who works part time at a home for people with disabilities.

Her husband has a well-paying job with the electronics giant Fujitsu, but “I don’t know when the ax will drop,” she says. “Really, we need to save much, much more.”

The article goes on to say that Japan's economy is heavily dependent on exports, which enabled them to make a partial recovery in the early part of the 2000s. Their domestic spending grew very little in the early 2000s.

This has implications for the future in Western countries. A rising tide lifts all boats. From the perspective of the economy, we shouldn't get into a situation where people are spending too little. On the other hand, I think Jesus would frown on us spending too much on needless crap - this is the guy who said sell everything you have and give to the poor, only then will you enter the Kingdom. How we balance the two is beyond my pay grade but we need to find a way.

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