Economics 272: Japan’s Modern Economy

Prof Smitka

Tuesdays and Thursdays, 1:25pm-2:50pm, Huntley Hall 220

Japan, with a population of 127 million, is the world’s 3rd largest economy. While smaller than the US (with 312 million people) it is bigger than Germany and only slightly smaller than China (with 1.3 billion people). It is the largest or second largest trading partner of most countries along the Pacific Rim, a major holder of US debt, and boast brands recognized on around the globe.
Of equal note, Japan’s economic experience offers many lessons. It was the first developing economy to gain a spot among the rich nations. It went through a huge asset bubble that broke in 1991, and so provides a case study for what that does to a modern economy. It suffered a large-scale natural disaster in the 3/11 Tohoku earthquake, the largest to hit a developed economy in recent decades. And it is in the demographic vanguard, with the world’s highest share of retirees and the first country to see population decline for reasons other than famine, war and pestilence.
For economists, another merit is that due to the vagaries of history, geography and politics, Japan differs across many dimensions from the US. We are prone to base arguments on our own domestic experience, which is essentially a single data point. Adding a second data point helps us avoid basic errors, and to focus on dimensions of problems we might otherwise ignore. To me as an economist, that is the most powerful argument for studying Japan’s economy!
I have spent approximately 7 years in Japan, over a span of almost 40 years. At present I’m working on a book on change in social and economic structures. Contrary to impressions in the media, Japan remains a dynamic place. What people consume, where they live, where they shop, the jobs in which they work, all have shifted. When I was first in Japan I could often look from end to end on a crowded train; now there’s almost always someone a head taller in my car, obstructing the view. And trains it was – back then, only one of my friends had a car. Not now. All of this interacts with the rhythm of daily life; Japan’s culture has changed in the process. Furthermore, it’s a big place, with the heterogeneity that upon reflection is natural in a large, sophisticated economy. That point is point seldom conveyed in popular writing; to me “Japanese” business is a term best avoided. Hopefully I can convey my experience in a way that makes you more adept at spotting unwarranted generalizations.
This is a partial list of “take-aways” for which you will be assessed through your understanding as reflected in exams, in class discussion and in the papers you write.
  • understand how to use a basic production function model to think about an economy, as a complement to the demand-side models emphasized in Economics 102 (Principles of Macroeconomics);
  • be able to identify salient policy issues in Japan, and analytic approaches to them, including demographic issues and the dilemmas of  using monetary and fiscal policy in a post-bubble, large fiscal deficit context;
  • be able to spot similarities in labor markets that may be hidden by the manner in which Japanese conceptualize their work experience (while not forgetting differences rooted in history and legal institutions);;
  • have an understanding of the role of Japan in the global economy, and international trade and finance in Japan;
  • be familiar with how to locate data and economic analysis tied to Japan’s economy, reflected in a research paper on a topic of your choice.
We economists divide up the world in an unusual way: if you examine the curricula of liberal arts colleges — I spent an hour scanning those of 19 peer institutions — you will find NO courses on “The US Economy” (and only 3 schools, including W&L, that survey any specific economy). That’s because this past half-century “economics” has defined itself around analytic “fields”, micro and macro theory, labor, international trade and so on. There is no received approach for us to organize the course, while to a greater or lesser extent you and I are limited in our exposure to standard analytic fields. We will on occasion compare Japan with other countries, but economists don’t do that systematically and it consumes time voraciously. So as often as not we will restrict ourselves to implicit comparisons to the US.
Given the structure of “economics”, a broad survey would thus prove neither comprehensive nor offer depth. Instead we’ll take up discrete issues, such as the impact of a disaster, the aftereffects of a real estate “bubble”, the implications of demographics, and the social (r)evolution of the past 30 years in the face of rising incomes and other “fundamental” forces. You’ll find this offers more breadth that at first glance, while keeping the content from being a mere assemblage of facts.
No current (English!) text exists on Japan. Instead we’ll use contemporary analysis including:
  1. OECD Economic Survey: Japan (July 2011), on-line; OECD surveys are issued at roughly 18 month intervals;
  2. International Monetary Fund, Japan: Staff Report for the 2012 Article IV Consultation, Country Report No. 12/208, and
  3. Japan: Selected Issues, Country Report No. 12/209, both available on-line together with previous annual reports;
  4. Tsunami: Japan’s Post-Fukushima Future, from Foreign Policy Magazine ($4.99 digital only, not available in a printed version); and
  5. Arai, Shinya. Shoshaman (UCal 1991), a business novel available in paperback in the bookstore.
  6. I will also  distribute the monthly The Oriental Economist Report and post readings on Sakai.
The course relies upon class discussion. I will pose a problem for analysis, and we’ll then (gradually) attack it, leading you to think through data and theory and how to bring them to bear.
We devote a portion of each week to current issues, which you present. The class will maintain a blog. You will also be required to write a position paper or two on policy issues, which we will then debate in class. Finally, all will be asked to write a longer research paper.
A midterm or two will check your grasp of basic institutions and analytic models. Economics is fundamentally empirical in nature, with data defined in the context of models, and so you need to know the “lay of the land” – political structure, economic geography, and the size and structure of the economy.
A final exam will ask you to pull things together, setting forth and arguing policy priorities, should you be named an economic advisor to the ruling party. Since the ruling Democratic Party of Japan is likely to be voted out in an election this fall, that is more salient than it might seem!
Required. In addition I have one speaker, several (unscheduled) skype sessions with people in Japan and two feature films. These require sessions outside normal class hours. Barring varsity athletic events I expect you to participate. Fraternity activities do not take priority.
Weights will vary depending on class size and hence our ability to undertake debates. Tentatively:
  • quizzes/midterms    15%
  • the final         20%
  • class discussion     10%
  • the term paper         25%
  • position papers         10%
  • presentations        10%
  • bloggin    g        10%.
Term paper:
You may never have written a research paper in economics. Typical paper problems include a weak topic, reliance upon poor sources, the failure to ground your research in relevant models, and poor organization. To help you write a good paper, I thus require that you submit a topic in advance, follow it up with a working bibliography, and then provide an outline and partial draft all in advance of the final version. In addition, at some point I expect to discuss your project during office hours and to utilize the Williams School Writing Consultants in the basement of Huntley. If you procrastinate, this process means you will do poorly on the term paper.
Submitting work:
Please submit all work in hard copy; printing a clean final version is your responsibility.
Honor code:
I take it as a given that you will uphold the honor code, as reflected in my use of take-home exams and self-grading on any group assignments. I will review with you standards for citing the work of others in your research paper.
Special accommodations:
As per university policy, please speak to me in private at the start of the term.
Office hours:
See WordPress for current hours. My office is HU125B (in the basement, underneath our classroom).
My  phone isn’t smart — please don’t text me. But do feel free to phone me or leave voicemail at (540) 460-6288. I check email frequently, and am often on Skype (@ jidoshasangyo).
Web site:
I will put all readings on Sakai, for convenience and to honor copyright restrictions. We will experiment with blogging, using WordPress hosted on the new dedicated W&L server. That site is at:

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