http://www.socialistreview.org.uk/article.php?articlenumber=10348
Economic crisis: the new 1929 or the new Japan?
Feature by Costas Lapavitsas, April 2008
Costas Lapavitsas is an economist at the School of Oriental and African
Studies in London. He has written extensively on Marxist theories of
finance. He spoke to Socialist Review and answered questions on
historical parallels with the current economic crisis and its impact.
Many mainstream economic commentators are comparing the current economic
crisis to the one that hit Japan in the late 1980s, which saw the
country stagnate for 15 years. How strong are the similarities?
There are some clear similarities. First, the bubble that is now
bursting in the US economy is in property. That was the same in Japan.
Much of the speculation that led to the crisis of the late 1980s in
Japan was related to housing and commercial property.
A second similarity is the bad debt that accumulated in the banking
system. This seriously hampered the banks in their day to day operations
and their ability to extend credit. The crisis in the US is still in its
early stages. Nevertheless it is obvious that banks are pulling in their
horns in terms of making loans and generating credit. That is bound to
have serious negative repercussions on the rest of the economy if it
continues. The difficulty in offering credit was also a key factor that
led the Japanese economy to stall.
A third similarity could be a decline in individual consumption.
Obviously the two economies start from very different points. The US
working class and the population more generally have been spending way
above their means in the past few years, by getting heavily into debt.
Not so much of this happened in Japan in the 1980s. But after the crisis
Japanese people were forced to reduce consumption significantly, and
something similar seems to be happening in the US. That could make the
general economic situation much tighter.
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