Abe — who will host President Trump later this week at the beginning of Trump's 12-day Asia trip — came into office five years ago with a mandate to jolt Japan's economy out of its somnolent state. That, at least, was the story he told. Reality, though, was a bit more complicated. Japan, you see, had been the first county to go through the boom, bust and stagnation cycle that the rest of the world has gotten to know and hate so much the past 10 years.
But even that doesn't give you a sense of how bad things were, or how much worse they could have been. Japan really did have one of the biggest bubbles in history. One story — almost definitely a myth, but one that gives you an idea of how crazy things were — held that the land under Tokyo's Imperial Palace was at one point valued as more than the entire state of California. Not to mention that Japan's stock market hit what is still an all-time high of 38,916 back in 1989. It's only 21,740 today.
To put that in perspective, Nomura economist Richard Koo estimates that Japan lost three times more wealth then, as a share of its economy, than the United States did after the 1929 crash. There aren't many things you can say were that much worse than the Great Depression.
There were no bread lines in Japan, though. There wasn't even 6 percent unemployment. Part of that was due to the fact that, for cultural and institutional reasons, Japan tends to have a lower official unemployment than everyone else. But more important was that Japan's central bank cut interest rates to zero (although not even that was enough), and its government spent whatever it took on infrastructure to keep people working. It was enough to stop a collapse but not start a recovery. Between 1990 and 2000, Japan's economy only grew about an average of 1 percent a year. After that, it did a bit better than other rich countries, once you account for the way its aging population meant it had a shrinking workforce.
But despite this, as economist Brad DeLong points out, Japan never made up all of the ground it lost during the 1990s. Instead, it got stuck in a low inflation, low interest rate trap where debts got harder to pay off because prices weren't rising, and negative shocks got harder to deal with because the central bank couldn't cushion the blow with rate cuts. The result of this good-but-not-good-enough economy was that a lot of young people ended up in dead-end jobs that didn't give them the financial security they needed to start a family, with the worsening demographic crunch putting even more pressure on interest rates to stay at zero.
This is the problem that Abe wanted to fix. And he came up with a novel solution: try everything.
That, he said, meant spending more money, printing more money, and tackling the inefficiencies that have long plagued Japan's economy. Well, at least in theory. In practice, he hasn't really done all of these things. Tokyo, after all, has carried out more austerity than stimulus the last few years. And while it has made some definite progress reforming the country's corporate culture, governance and competitiveness, there's still a long ways to go.
It hasn't mattered, though. Or at least not that much. Abenomics, as it was inevitably called, has still been a big success. In particular, the central bank's aggressive money-printing has not only increased the country's exports by pushing down the value of the yen, but also, as The Economist's Simon Cox points out, been an even bigger boost to domestic demand. That, together with the government's continuing efforts to get more women in the workforce, has led to Japan's strongest labor market in a generation.
The unemployment rate is a mere 2.8 percent, and the share of 25- to 54-year-olds who should be in the prime of their working years and are in fact doing so has reached a new high of 84.1 percent. It was 80.5 percent when Abenomics began. (By point of comparison, this increased from 76 to 78.9 percent in the U.S. during this time).
Which is to say that just about everyone who wants a job has a job in Japan.
Of course, there's still a lot left to do. First and foremost, Tokyo needs to get wages rising. That would get the economy back into a virtuous circle where companies would invest more because people were buying more, and people could buy more because companies were investing more. But, in a bit of a surprise, that's not happening so far despite the fact that unemployment is so low. Abe, for his part, has been reduced to exhorting unions to demand a bigger piece of the pay pie.
Japan, in other words, has been able to engineer a boom, and now it just needs to make that self-sustaining. That might be a First World problem, but it's one that a lot of First World countries haven't been lucky enough to have for a long time.
Maybe it's time that they remember what the sincerest form of flattery is.