Bubble" or "Boom"?: Investigation of the Japanese economy in the second-half of 1980s with the firm-level data from the "Corporate Enterprise Annual Statistics", as preparation for studying the "Lost Two Decades
Yoshiro Miwa ()
No CARF-J-078, CARF J-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo
Using the firm-level data from the "Corporate Enterprise Annual Statistics (hojin kigyo tokei nenpo)", in this paper I investigate the capital investment behavior of Japanese firms, focusing on the second-half of 1980s, with which I prepare for full-fledged study of corporate behavior and the Japanese economy in this period and the following one, called the "Lost Two Decades", and begin it. Of the Japanese economy in the second-half of 1980s, immediately after the time becoming a common practice to call it "the Bubble Era", observers have rushed to criticize and reproach the behavior, investment behavior in particular, of firms and households as "bubbly". They have seldom looked at it squarely. It has rarely become an object of full-fledged serious study, either. Of the next long-term stagnation era, called the "Lost Two Decades", observers have diagnosed as its aftereffect or "penalty", on which they, including the government, have adopted prescriptions and policies. It has been claimed with a strong wide support that the long-run stagnation of the Japanese economy is the result of ill enforcement of these prescriptions, with insufficient policy size. The first aim of this paper is to pose questions about the basic premises of this conventional wisdom, and through detailed empirical investigation liberate readers from the spell both of the judgment as "the Bubble Era" and of the expression as "bubble". In place of "the Bubble Era" with which observers direct excessive attention to firm's land-related investment behavior in relation to spectacular land-price fluctuations, I propose to call it a "Capacity Investment Boom Era" to promote the transition of reader's attention to the firm's investment behavior toward "capital assets other than land" in which by far larger portion of firms actively took part. As a consequence, readers become easier to begin a sound real study of the Japanese economy during this period. This is the more important second aim of this paper. In addition, this paper critically examines two points. First, the validity of two assumptions that have played critical roles as the basic premise of the conventional wisdom: (1) that banks occupy the predominant position and play a critical role in the Japanese financial market; (2) that firm behavior is strictly conditioned under binding constraint of bank borrowing. Second, aftereffects of the "Bubble", symbolized by bank?fs "bad loans" and firm's "excess capacity", have been the major cause of the long-run stagnation called the "Lost Two Decades". This paper, together with Miwa[2011c], shows that all those popular claims, using fuzzy but colorful expressions, are mostly hard to understand, that rarely they provide understandable logical foundation or persuasive evidence, and that they all substantially deviate from the reality. This conclusion enables to liberate the Japanese economy in the second-half of 1980s from the preoccupation of "the Bubble Era", criticizing it as "bubbly", on which we will begin a full-fledged study of its reality. In Conclusion, I write as follows. "The Lost Two Decades" is a period when, getting blind drunk in "bubble talks", symbolized by such expressions and images as "bubble", "the Bubble Era", and "aftereffect or 'penalty' of the 'bubble'", observers have wasted time and energy, leaving the Japanese economy in a long-run stagnation. The basic aim and role of this paper is to lift the research and discussion, diagnosis and prescription about the Japanese economy out of such a long-lasting dreadful state. With this, liberated also from the basic stance of the dominant view and the conventional wisdom that have sought in "the Bubble Era" the cause of the long-term stagnation since the 1990s, we are well prepared for fully beginning the study and diagnosis of the "Lost Two Decades".
Pages: 211 pages
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