Rethinking Japan’s So-Called Lost Decade
During Japan’s so-called “lost decade,” life expectancy rose six years, crime dropped by two-thirds, and the country built the most advanced rail network on Earth. The word “stagnation” did a lot of heavy lifting.
The term “lost decade” didn’t originate in Tokyo. It was coined by American economists in the late 1990s and formalized by the IMF in 2003. The yardstick was aggregate GDP growth versus the U.S., which was running a tech-fueled expansion. A metric, notably, that made the framers’ own economy look superior by default.
Japan’s working-age population peaked in 1995 and has been shrinking since. When researchers measured GDP per working-age person instead of per capita, Japan matched U.S. and U.K. growth rates and actually outperformed both from 2001 to 2019.
Part of the “lost output” was people working less. A 1988 labor law moved the standard workweek from 48 hours to 40. In 1992, Prime Minister Miyazawa set a national goal of cutting average annual hours from 2,100 to 1,800. Economists Hayashi and Prescott later argued this reduction explained a significant share of the GDP slowdown.
From the standpoint of aggregate output, shorter hours look like stagnation. From the standpoint of someone leaving work to eat dinner with their family, they look like progress.
Thomas Kuhn observed that paradigms do their deepest work not by shaping answers, but by limiting which questions get asked in the first place. The “lost decade” frame directed attention toward asset prices and monetary policy. It directed attention away from life expectancy, crime, infrastructure, and working conditions. The questions that would have produced a different diagnosis simply weren’t asked. They never are, once a frame is installed. So before you absorb the next verdict on an economy, a company, or an industry, two questions worth asking:
What are they measuring?
And why did they choose that metric?
Every yardstick is a worldview.