Via this post by Elizabeth Beattie at Japan Times comes the news that Japan’s GDP has declined to the fourth largest in the world, behind Germany, China, and the United States:
Setting aside the debate over the state of the Japanese economy, the figures have seen the country lose its position as the world’s No. 3 economy in dollar terms — slipping behind Germany — as was projected last year by the International Monetary Fund.
India is ultimately projected to overtake both countries.
Despite a prolonged period of low growth, Japan had managed to maintain its standing as the world’s third-largest economy for more than a decade. It was previously the world’s No. 2 economy after the United States, but China claimed that position in 2010.
Japan’s step down the economic rankings is partly a symptom of the yen’s stubborn weakness against the dollar. At the same time, the Japanese currency’s weakness is also reducing consumer purchasing power by contributing to inflation through increased import costs. Private consumption declined 0.2% in the October-December period from the previous quarter.
It’s hard to know how to react to this news. For the couple of decades Japan’s per capita GDP although noisy has been more or less flat.
Find more statistics at Statista
That means that despite Japan’s declining population and deteriorating dependency ratio, standards of living in Japan have been pretty stable.
Japan’s public debt to GDP ratio is simply staggering—264%. That debt overhang is clearly a drag on Japan’s GDP. The questions are when will that be felt and what the reaction of the Japanese people to it will be?
There is another ranking out there (PPP?) that makes China no. 1, India no. 2, US no. 3, Japan no. 4, Russia no. 5, and Germany no. 6. Germany is declining rapidly, and Russia is gaining on Japan, if it has not yet passed it.
Note that BRICS 10 includes three of the five largest economies, over 40% (50%?) of the world’s manufacturing, most of its population, and much of its natural resources. BRICS 10 combined economies are larger than the G7’s.
The western Ruling Caste’s insane economic policies and war madness are leading to the West’s economic and demographic collapses, and they have brought us the the edge of a world war.
I’m sorry. But I’m about to be a prick. Including to our host, who I admire greatly.
We have absolute economic nonsense all around us. This blog talks about the evils of “financialization.” I stay mostly silent, chuckling.
Horseshit. Its pejorative and is predicated upon the decline in mining and manufacturing, which Bob points out routinely. The two can coexist. Financialization comes with the needs of an advanced economy. Credit, capital formation, liquidity (trading and M&A), foreign exchange etc . Mining and manufacturing’s relative decline is a byproduct of policy to get rid of icky industries and offshore labor intensity to the Far East, mostly. The steves of the world, and the American consumer, need to be asked to look into the mirror.
I spent most of my career trying to make small, (but very, very significant) US manufacturers competitive, and stay in the US. We won most battles; we lost some. People who focus on financialization are fools. Parroting the flavor of the day.
People need to ask not what to do about financialization, but what to do about basic industry and manufacturing. That will change the ratio.
Its not hard. Deep six wholesale immigration. Forget the charade of global warming. Recognize foreign mercantilism. Don’t idolize TicTock people, or Taylor Swift; how about slugs, like engineers, software people, front line retail people, craftsmen, etc etc……..
The left is a real threat to the US’ future. This clown Taylor over at OTB represents everything wrong in the country. I’m sure well meaning. But he peddles leftist nonsense to beholden students (children, really; that’s his customer) at a third rate institution for a living. And I assume he gets paid handsomely.
Taylor? Or plumbers, electricians, roofers, engineers and so on and so forth. Who produces value anymore? An academic? An entertainer? But that is what society rewards.
I’ll stick with my buddies in manufacturing and capital deployment. That’s where the rubber meets the road.
Consider the DJIA. At this point it depends almost entirely on tertiary production. Tertiary production involves at most about 15% of the population. I don’t see how a prosperous, just, or even decent society can be maintained based on tertiary production.
bob sykes:
PPP is useless for determining the size of an economy. It is used to compare standards of living in different countries.
bob sykes: There is another ranking out there (PPP?)
PPP is a good measure of well-being for individuals, in that people can buy tomatoes cheap at the local green grocer. But when comparing countries, PPP doesn’t properly reflect economic power in the global economy.
Dave Schuler: At this point it depends almost entirely on tertiary production.
Service production, especially the knowledge (or quaternary) sector are signifiers of an advanced economy. Almost any country can make an internal combustion engine vehicle or sew clothes or mine iron. But Google etc. is real wealth in that people who sew clothes or mine iron are more than happy to trade their product for more Google etc.
Drew: Or plumbers, electricians, roofers, engineers and so on and so forth. Who produces value anymore? An academic? An entertainer?
Many plumbers and electricians work in the service industry. And many plumbers, miners, and factory workers are happy to trade their product for more Taylor Swift. In times past, people would pay to watch Shakespeare in the Globe Theater or allow a blind poet to join in a meal in return for a song. But what did they know?
Dave Schuler: At this point it depends almost entirely on tertiary production.
Consider the financial services sector. Where to invest? Which industries? Which businesses? Financing is at the heart of the entire capitalist enterprise. London is one of the world’s great cities, largely because of their long history of financial services, with investments across the globe.
Drew said much the same thing upthread. Yes, the financial sector is necessary and it is possible for the financial sector and the “real” economy to grow simultaneously. But it is also possible for the financial sector to grow without the “real” economy growing. Why take risks and invest in the “real” economy when investing in the financial economy is a sure thing?
Dave Schuler: But it is also possible for the financial sector to grow without the “real” economy growing.
You can have a bubble in any area of the economy, including tulips. However, it’s the financial sector that is largely responsible for investment capital in the “real” economy. You don’t have modern copper mines without financing. You don’t have modern electrical systems without investment. You don’t have modern electrical appliance factories without investment. To minimize the importance—the economic value—of financing decisions, is to wave away the entire premise of modern capitalism.
Then there’s Google etc. People who mine or manufacture or push buttons on a computer to make investment decisions will gladly pay to Google or Facebook or Swifty. That’s the definition of economic value.
If the only thing that mattered was farming and farm equipment, there would be no such thing as a modern economy. Indeed, there was more to the economy in ancient Egypt than just farming and farm equipment.
Swift is in the spotlight, but the number one selling album in the WORLD today is by an artist called YE, it’s mostly profanity and cruel insults but it’s top of the charts.
I think the poster child for bad financialization – at least that I can think of – was GMAC.
I think we made a lot of poor policy decisions starting decades ago, especially when it comes to international trade and the priorities we made in agreements. We’ve also tolerated Chinese mercantilism and have not even used the meager tools allowed in international institutions to combat it.
Now that I work in telecommunications, I can see it much more clearly. And what Dave has been saying for years is correct – the intellectual capital and property are following the manufacturing capacity overseas.
Lets all appreciate the irony of a guy who says we need more manufacturing supporting the immense growth in the financial sector that also doesnt manufacture anything and that in spite of all its growth did not lead to more manufacturing. If we had massive growth in the finance sector AND growth in other sectors that we could point to as a result then there might be something to defend.
Steve
“Why take risks and invest in the “real” economy when investing in the financial economy is a sure thing?”
Dave, you really aren’t prone to saying silly things. But that’s silly. The financial economy is comprised of some of the most risky activities on the planet. Maybe its a matter of exposure. Trading? Good luck.
Investment? Seriously? Credit is harder than you may think. M&A?? The prices of M&A services reflect the risk.
Maybe insurance, which I know you despise, colors your view. I, too, think insurance is a racket. But I don’t have to deal with fraud etc. But you can see what is happening in markets for casualty insurance in high risk geographies, well discussed on this blog. The insurers are getting out. The state is stepping in. Your, and my, view is probably the same: stop subsidizing unwarranted risk taking and put it back on the guy who builds his mansion of the Gulf of Mexico…………just in time for Hurricane Irma.
I’ve asked before. Never get an answer. Just exactly what are these dead weight “financialization” economic activities, and how are they misallocating resources. I suspect what one-off examples people could come up with are dwarfed by impotent and, well, hysterical, environmental policies. Just to name an example. How about our simply horrible misallocation and mismanagement of resources in education, or health care? Or entertainment. But a comment like that just simply isn’t politically correct………
“But a comment like that just simply isn’t politically correct”
That’s just diversion. It’s very much OK to discuss health care spending and the fact that the US spends more than anyone else in the world. People on the left routinely criticize our system. People on the right mostly ignore health care as an issue but when they do occasionally write about it they dont get canceled. We have discussed it here many times. I think most fo the proposals for cutting costs are not well thought out but I could be wrong and fully support individual states experimenting, which in fact they mostly dont do.