Hillary Clinton’s Wall Street Journal Interview: Does she Really Fear a “Japan-Style Malaise” in the US?

March 29, 2008
By Ken Worsley

Hillary Clinton undoubtedly raised some eyebrows with comments that appeared in Thursday’s Wall Street Journal (in the Friday edition of the Wall Street Journal Asia). During an interview last Wednesday with the paper, Clinton asserted that the US government should be prepared to assume sour mortgages from the balance sheets of investors and lenders, in an effort to spur economic recovery.

What caught my attention was the Senator/Candidate’s fleeting use of Japan’s “lost decade” as a warning for the US financial system, which was mentioned in only the first and third paragraphs of a 19 paragraph article entitled, “Clinton Fears Japan-Style Malaise.” After the third paragraph, however, it became obvious that Clinton was not making any serious comparison to the situation faced by Japan in the years after the bubble burst.

At any rate, here’s the actual quote:

We might be drifting into a Japanese-like situation. I don’t think we can work our way out of the problems we’re in in the broad-based economy with monetary policy alone. I think the Japanese tried that and tried and tried that.

Is Clinton implying that Japan attempted to deal with it’s troubles solely with adjustments to its monetary policy? Is she simply forgetting about Japan’s pump-priming spending on public works, the lowering of Japan’s top income tax rates, and the fact that overly strict laws regarding the capital necessary to start a business - and thus drive emergent entrepreneurship - were left in place until one Mr Koizumi came along?

Clinton might respond by saying Japan’s monetary policy was worth mentioning due to the blunders made in the early years and the extreme nature of the zero interest rate policy which ended not even two years ago. She might point to the fact that banking reform in Japan was very slow to come, and that this was behind a fair portion of the lingering malaise.

All would be fair points, but we doubt that Senator Clinton is willing to go much further on the spurious link between Japan fifteen years ago and the US today. A few weeks ago we laid out our position as to why attempts in the media to link the two events were simply untenable, constituting lazy journalism at best, and scaremongering at worst.

It’s worth pointing out, however, that on the day after Clinton’s interview appeared in the Wall Street Journal, James Pethokoukis of US News and World Report finished his commentary with a very interesting parallel between Clinton and deflationary-era Japan:

Let’s be clear: An economic downturn caused by a banking and real estate crisis in Japan was exacerbated by higher taxes, higher regulation, and protectionism. And keep in mind that Clinton has been calling for higher taxes, more regulation, and a timeout from trade. Something to ponder.

This is well put, and thrusts some of the potential risks for the US into focus. However, there is much grey area left unsaid and we feel that there is still no real connection between the two events; the context behind both and the cocoons from which both emerged were too different for one to serve as a blueprint for the other.

Besides, Senator Clinton won’t become President.

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23 Responses to “Hillary Clinton’s Wall Street Journal Interview: Does she Really Fear a “Japan-Style Malaise” in the US?”

Steven Towns on March 30th, 2008 10:40 am

Hillary is dangerous. How ironic she draws parallels to Japan’s struggles, yet is poised to be the driving force behind the realization of similar mistakes. Ultimately it’s a matter of convenience to conjure up such worry. There are few people who understand what happened in Japan post-bubble. So, what else would we expect from a politician and the media but to publish this rubbish. I’d agree with you Ken that she won’t become president.
Ken Worsley on March 30th, 2008 12:34 pm

Ultimately it’s a matter of convenience to conjure up such worry. There are few people who understand what happened in Japan post-bubble. So, what else would we expect from a politician and the media but to publish this rubbish.

I agree - it seems to be about getting more eyeballs on the page. I don’t think her remark was the thrust of what she was talking about, but we get a chopped-up version of the interview with a headline that ascribes more importance to her comments that it should.

In the end, it’s simply an attention-getting, meaningless headline. Too bad it’s getting attention for the wrong reasons.
Nitpicker on March 30th, 2008 5:54 pm

“However, there is much grey area left unsaid and we feel that there is still no real connection between the two events;”

Are you using the Royal “we”?
newyawker on March 30th, 2008 6:50 pm

She’s just trying to whip up fear, it’s not a new strategy for her. She’s also trying to get Wall Street on her side by saying “You’re in trouble but I’ll help you out.” She might be able to trump McCain on this. And I don’t think it’s impossible that she could get elected.
Ken Worsley on March 30th, 2008 8:34 pm

newyawker,

She does seem to play the fear card, and relate that to her ‘experience’. What experience does she have in dealing with the economy that should allow her to play the fear card? (a question that holds for all candidates, I suppose).

I don’t think it’s impossible for her to become President, I just think she won’t.
Kraig on March 31st, 2008 11:34 am

It won’t stop!!!

From the FT: Japan’s ‘lost decade’ offers dire pointers for the Fed
http://www.ft.com/cms/s/0/7ce7f152-fe57-11dc-9e04-000077b07658.html?nclick_check=1

“The US has traditionally felt that if a financial institution was broken it should be sold or liquidated,” says Timothy Ryan, former vice-chairman of JPMorgan. “Now it seems that the government believes that some form of open bank assistance may be the least-cost resolution – I think they’re right.”

So now they’re openly advocating communism?
Ken Worsley on April 1st, 2008 12:05 am

Call it what you want Kraig, but now the (unelected) Fed’s going to get those greater (unaccountable) powers so dearly needed to make sure that this sort of thing doesn’t happen again!
Contrarian on April 1st, 2008 7:45 am

I’ve already agreed with you, Ken, that this is not 1990s Japan…yet. Sure, we have equities and real estate bubbles popping, but this has happened in plenty of other countries and it seems pretty generic to point specifically to Japan.

However, the Anglo-Saxon countries could easily drift into some retarded big government bungles and life support to the vegetables in the banking system, dragging out a long period of low or negative growth in order to avoid a short, deep recession. Japan comparisons are premature, but they could still prove accurate in time.

As for American politicians, let’s just call the three of them, “Barack McClinton.” Put them in a brown bag and shake it up–they all look the same. They do whatever Wall Street tells them too while they split hairs over meaningless crap like gay marriage and online gambling. Whenever someone asks me who will win the election, I say, “corporations.”
Kraig on April 1st, 2008 8:22 am

Japan comparisons are not going to stop any time soon:

Business Week on the situation

Best quote:

So there should be no or just minimal conditionality in the US. These measures are to save the country, not the banks. In a situation like this, you have no choice.

So why isn’t the Red Cross in on this? If the US is going to go the socialist route, then fine. But let’s not kid ourselves and call it capitalism or democracy anymore.
Ken Worsley on April 1st, 2008 1:38 pm

Kraig, It’s nothing new…airlines, banks, etc. The part that gets me is conflating private businesses with national security.
Amadou D. on April 2nd, 2008 10:44 pm

Ok first off for you to make such a general and brash conclusion that she won’t win the election is contrived. I’m not saying I support her, nor care too much about the politics of the US, but your no better then the silly “jouranlists” at the WSJ!
Secondly on that note, if you take anything written in the headlines of the Wall Street Journal these days at full value, you clearly need to realign your priorities and business ideology. As many of you who read this blog would probably be aware, the WSJ has gone to the crapper with the purchasing of its parent company Dow Jones by right wing, yellow-journalism afficianado Rupert Murdoch. He’s put people in high ranking seats at the has-been prestigous newspaper to drive up sales of the Journal at no cost!
You have no idea what we’re in for in the next coming months, as the WSJ starts to look more and more everyday like the N.Y. Post, I’m sticking with the Grey Lady (N.Y. Times/Herald Tribune) for my source of factual news.
And one more thing, while Hillary clearly is misunderstood on the parralells between the US and Japanese bubble economy, there is one big difference she completely ignored in her asessement. The Japanese economy failed in the 90’s mostly due to the Japanese obession of following status-quo. The in ability for firms to grasp changing tides and adopt new policies is what lead to that demise, don’t get me wrong westerners weren’t any better with the Derivatives fiasco, but we (American’s) actually have the capability of preventing our own demise, unlike the Japanese who let the market dictate.
Ken Worsley on April 2nd, 2008 10:55 pm

Ok first off for you to make such a general and brash conclusion that she won’t win the election is contrived.

But she won’t win - and how in the world is making a prediction about an election ‘brash’?. None of the three candidates left will win. Corporations will win.

You are 100% right about the WSJ and the Dow Jones buyout. I wish it were different, but this is the issue Americans need to deal with; get away from major media (and advertising funds) and let’s do our own research and analysis.

But I wouldn’t turn to the New York Times as an objective source of news. It simply has no credibility left with the errors that happened in the last few years. Given what the NYT has written on Japan recently it’s very difficult to read at times without laughing.

unlike the Japanese who let the market dictate.

Really? Japan let the market dictate? I think it would be the status quo that dictated. The market is still rigged. Imported wheat is bought by the government and then sold on at a set price, to cite but one example. Bureaucrats dictate the economy. Look at what Mr Yanagisawa did when he headed the FSA and tell me why that didn’t happen under free market conditions.

In a sense, I agree with you. Americans would not allow a 20 year malaise to continue. They would not have interest rates at 0.5% after 20 years following the bubble. It just wouldn’t be tolerated.

We must remember that Japan’s approach to ‘curing’ its economy after the bubble burst was borderline socialist/communist. Re-distribution of wealth, nationalization of banks,higher effective taxes, massive public works spending - and the suppression of entrepreneurship through excessive regulation and red tape. America must not follow Japan’s blunders.

Granting more powers to unelected, unaccountable bodies such as the FRB is a mistake. Let the failures fail and the successes succeed. Let’s not allow America to sink into mediocrity.
WG on April 3rd, 2008 12:38 am

Let the failures fail and the successes succeed.

So you’d let Bear Stearns (and Citibank) fail?
Ken Worsley on April 3rd, 2008 1:05 am

So you’d let Bear Stearns (and Citibank) fail?

WG, I get the joke.

But I don’t think that’s the right question. The question is whether a free market would let them fail. I happen to believe in a free market. I’ve yet to see a convincing argument that socialized risk is part of a free market.

Propping up failed businesses is stupid. America has been doing this with airlines for decades. Will the taxpayers view this as the government further subsidizing failure, in an election year no less?
Matt Dioguardi on April 5th, 2008 5:55 am

I wanted to forward this link when I first read this article, but couldn’t find it. I stumbled across it again today, so am forwarding.

This may not be exactly what you are talking about, but Jim Rogers has compared central bank policy in America to Japan at the end of the bubble. He is deeply critical of this. He’s certainly someone who is willing to put his money where his mouth is.

Here is the link:
http://video.google.com/videoplay?docid=-6046520409389956642
Ken Worsley on April 5th, 2008 9:02 pm

Matt, thanks…I’m not sure why, but Google Video just doesn’t seem to be working for me. I’m going to try the direct download option (now why don’t they have that for YouTube?)

Update: Well, both Quicktime and VLC won’t play it…I might try just putting it into some video editing software and see what happens.
Matt Dioguardi on April 6th, 2008 9:53 am

Here’s the YouTube link:
http://www.youtube.com/watch?v=lTXEWh2yT_g
Ken Worsley on April 6th, 2008 4:48 pm

Thanks Matt…that one works. I think there’s a lot to what he says there, though the comments on Japan are very brief. From about 6:30 is pretty much the points I’ve made and seen others make, which now members of Congress are saying in open sessions - especially Republicans, in an election year no less.
Søren Kjær Vestergaard on April 10th, 2008 10:37 pm

I have studiet the race between Obama and Clinton closely over the last 6 months. It seems evident that Clinton´s concern is mostly about holding her own campaign alive and most of the things that she is saying are focusing on this one task. To my mind it is extremely important that we listen to what the Senator from Illinois has to say because his is must likely the next President of the US.
Gangsta Boo23 on April 15th, 2008 7:55 am

Newyawker, you ain’t nothin but right! She just scurred dat she gonna lose votes. So any bad comment or somethin said dat she dont like she gon butter up whoeva said it and save herself. She promisin junk she know she cant keep. Im all 4 da women steppin up to B da President and all, but i think she bribin folkz wit dese votes! 2 B honest, i dont think dat she could B elected maself. But if yall think she gon give yall or help yall wit wat yall hear her B sayin, she gon do us just George Bush did. He aint give a dern bout us, he said he wold help us and look at wat he did! Yall fallin 4 da same mess as last time! >:(
Ken Worsley on April 27th, 2008 4:35 pm

Finally (and from WaPo, no less!): This isn’t Japan
Ken Worsley on August 24th, 2008 2:14 pm

Amadou D.,

http://www.youtube.com/watch?v=t8Ky1_pyn6Q

You seemed really bothered by the fact that Hillary had no chance to win. What do you think of Obama after the VP pick?
PL on September 17th, 2008 2:54 am

Well, good thing Hillary is out! I’m out of work now and the policies of Bill Clinton are 100% to blame. Only McCain can take America back.

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Hillary Clinton’s Wall Street Journal Interview: Does she Really Fear a “Japan-Style Malaise” in the US?

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