Saturday, March 11, 2006


Japan's Income Disparity Problem

Today’s Washington Post alerts us to an emerging problem in Japan: Income Disparity. Conspicuous Consumption Shapes New Tokyo Skyline. The article’s sub-title further explains “Income Disparity Raises Demand for Public Housing”.

Always eager to learn more about economics, I carefully read the piece. Unfortunately, Post writer Anthony Faiola never really explains how income disparity goes about raising the demand for public housing. Opening the article with a description of Tokyo’s Roppongi Hills and its $50,000-a-month apartments ($50,000-a-month!?!), Mr. Faiola then contrasts that with the “flip side”:

“Even as the area's population growth has stagnated, the number of applicants for each low-income housing unit has nearly doubled in the past four years.”

If I’m supposed to see an obvious correlation, I’m still missing it. But the way Mr. Faiola’s uses some terms throughout his article leads me to believe it was never there to find.

“In 2002, the most recent year for which numbers are available, the richest 20 percent of Japanese earned 50.4 percent of the nation's wealth, compared with 48.8 percent in 1999 and 44.3 percent in 1987. The poorest 20 percent were earning only 0.3 percent of the wealth in 2002, compared with 0.8 percent in 1999 and 2.7 percent in 1987.”

(I’m not sure what he’s trying to convey here because I’m not sure if he is using the term “wealth” for “income”. They’re not the same. Let’s say I make $10 million this year: that probably would put me ahead of Ted Kennedy for income, however I would still significantly lag him in terms of total wealth.)

Lost in his recitation of numbers is any kind of analysis as to the significance of the changes. For example, compare the income disparity among professional football players from 1970 and today and you’ll find that the range is much greater today than in 1970. However, the lowest-paid players today are doing significantly better than their counterparts were in 1970. It may be a smaller percentage of the pie but it’s still a much bigger piece.

But for many, income disparity is a per se evil, so who’s to blame?

“The reasons for the shift remain in dispute, with opponents of Prime Minister Junichiro Koizumi citing his reform efforts, which have forced banks to come down harder on debtors and eliminated massive pork-barrel spending that had created a trickledown effect of wealth.

“Others blame the rise of the generation of Japanese who grew up in the 1990s disillusioned by the burst of the economic bubble in 1991 and lacking in education and training.”

Yet Mr. Faiola doesn’t seem to make the link between those two paragraphs and his next one:

“Yamada, the sociologist, said well-paying jobs were plentiful for most of the Japanese workforce during the period of its economic dominance in the 1980s, known as the bubble years.”

The 80’s were known as the bubble years for a reason. The government, through its Ministry of Finance, was way too involved with banking decisions. Land was often the collateral for loans (to the extent that one estimate had the aggregate value of all the land in Japan in 1990 at fifty percent greater than the rest of the world combined) and banks were (and are) holding onto too many non-performing loans. That’s why the banking reforms the opponents of the Prime Minister were citing were (and remain) so important. That economy, with its “plentiful” well-paying jobs, was simply unsustainable.

He goes on:

“Today, despite a low unemployment rate and Japan's steady economic growth, many young Japanese find themselves working in lower-paying jobs with little security and long hours, even as others have found ways to get in on the new gravy train.”

“..even as others have found ways to get in on the new gravy train.” – He makes it sound like it’s all the luck of the Irish (well, maybe not the Irish in this case but you know what I mean) but this implied income disparity is not simply a matter of some getting good jobs by knowing the secret handshake while the other, less-connecteds languish in more menial, lower-paying endeavors. As he cited, there are those “disillusioned” who are lacking in education and training. They are and will always be at a disadvantage, especially in the more developed economies (and, despite its problems, Japan remains the number two economy in the world). That’s the problem…not some joker living in a $50,000-a-month apartment ($50,000-a-month!?!).

And I’m still trying to figure out just how having high-wage earners take a pay cut reduces the demand for public housing.

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