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If Japan had a severe recession in 1991, why is it still so expensive?
- Thread starter ronki23
- Start date
Prices are 'Sticky'. It takes them a much longer time to go down than up. Every time an economic tool is used, eventually it causes prices to rise. If you tax, there is inflation. If you borrow there is inflation. If you take money out of the economy there is inflation. If...you subsidize then eventually there is inflation. Its because prices are sticky. (Probably. I only took one course on this and its been a while.)
Shadow Wolf
Certified People sTabber
They may have had that Recession 26 years ago, but they've been stuck in a very fragile stagnant economy ever since.
metis
aged ecumenical anthropologist
But there are problems with attempts to manipulate the value of currency, and even China has back off its doing so. One either plays the free-trade game or they don't, and if they don't there's a price to be paid.
The only reason China got away with for so long is because so many other countries saw the opportunity to expand their own markets there.
Milton Platt
Well-Known Member
prices reflect the cost to produce or import the goods. If materials and wages are high, then the cost of the goods will be high.
ronki23
Well-Known Member
But why are wages so high? It's a chicken-egg situation; if it wasn't so expensive to live in Japan the wages wouldn't be so high. And the the house prices collapsed which in turn should have reduced wages and the cost of goods
ronki23
Well-Known Member
But Japan is in a deflationary spiral, not inflationary.
Milton Platt
Well-Known Member
There are wage controls and other things in place that contribute to high prices. A high minimum wage, for instance. Back in the early 90's when I was there, I think it was in the $15 range. I don't see the connection between a housing price collapse and the price of, say, a loaf of bread, or a computer. You'll have to connect the dots for me.
Karl R
Active Member
Example 1:
Let's say housing prices and apartment rentals in my neighborhood double. Under those circumstances, it would be likely that the rent in retail spaces would also double. Since the rent on the bakery has gone up (and presumably, people in the neighborhood are still eating about the same amount of bread as before), the price of each loaf of bread will need to increase. Otherwise, the store owner will be unable to afford his rent.
Example 2:
Back when I earned $5 per hour, I had to share a tiny apartment just to afford the rent. As I started to earn much more than that, I could afford my own place, and I could afford larger places. If enough people have their wages increase, they will be able to afford more housing. Therefore, demand for housing will increase, and housing prices will rise.
On the other hand, if the cost of labor increases too much, it becomes cheaper to automate and lay off some of the workers. (This is why you pour your own drink at fast food chains. The free refills cost less than employing the extra employees.) If enough people lose their jobs, they can afford less housing, demand for housing decreases, and housing prices fall.
The price of bread and land will both be influenced (directly or indirectly) by how much people earn, and how many people are employed. And the examples I gave were simplistic. They only demonstrated an influence in one direction, not a reciprocal influence.
There is no single economic factor which causes an economy to display its behavior.
It's a complex system, with all things inter-related. Think of it as solving a massive
multi-variable differential equation, ie, it ain't simple. And this is further complicated
by human behavior not comporting with the classical homo economicus (the theoretical
rational human). So there is no what should happen...only what does happen.
Milton Platt
Well-Known Member
a housing market collapse does not affect what it costs to import or manufacture goods and does not affect wages except for those whose wages rely on the housing market. When the housing market collapsed in the U.S., did the wages of the people building autos or washing machines, or air conditioners go down? did the cost of the materials used in those items go down? No.