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In today's society, it is impossible to escape the power of statistics, and most of the times statistics are accepted without much thought of how they came about - or what could be wrong with them. Consider some of the statistics referenced during the course of a normal day. Turn on the television, and the weatherman claims the chance of rain is at 80%. After deciding to trust this statistic and grabbing an umbrella, you open up the newspaper, and the headline reads "President's Approval Rating Climbs to 66%." On your way to work, the traffic announcer informs you of a crash on the highway, resulting in about a forty-five minute delay. You trust the statistic and take a longer route to work, because you will still get there faster than waiting in traffic an extra forty-five minutes. Statistics are everywhere, and they are usually trusted without a second thought.

In today's society, it is impossible to escape the power of statistics, and most of the times statistics are accepted without much thought of how they came about - or what could be wrong with them. Consider some of the statistics referenced during the course of a normal day. Turn on the television, and the weatherman claims the chance of rain is at 80%. After deciding to trust this statistic and grabbing an umbrella, you open up the newspaper, and the headline reads "President's Approval Rating Climbs to 66%." On your way to work, the traffic announcer informs you of a crash on the highway, resulting in about a forty-five minute delay. You trust the statistic and take a longer route to work, because you will still get there faster than waiting in traffic an extra forty-five minutes. Statistics are everywhere, and they are usually trusted without a second thought.

This paper argues that the cause of Japan's stagnation in the 1990s was not inefficient corporations, a failure to implement adequate reforms, or bad macroeconomic policy. The problem was more fundamental: a structural inadequacy of aggregate demand. By the middle 1980s Japan was approaching economic maturity, and its savings rate should have fallen as consumption replaced private non-residential investment as a source of new demand. Demographic factors, however, prevented this adjustment from taking place. Much of the population was now entering middle age, the stage of life in which people everywhere increase their savings in order to prepare for the exigencies of retirement. The behavior of these older people kept the savings rate elevated long past the point where such elevation was helpful; and the country consequently suffered from a surfeit of capital which, if not absorbed by some sector of the economy, might well have pushed it into a prolonged recession or even a depression. The most obvious way to resolve this imbalance would have been to ship the excess funds abroad through a much larger current account surplus. The government, however, could not weaken the yen in order to produce this effect because Japan's trading partners were complaining that it was already exporting too much and, perhaps paradoxically, because important domestic interest groups were also opposed to a policy of aggressive depreciation. Political considerations likewise prevented the government from enacting structural reforms that might have lowered the savings rate, as is evident in this paper's review of conditions both in the overall economy and in the automobile, retail, banking, and construction industries. By default, then, Japan was forced to rely on a combination of excessive corporate investment and ever larger government budget deficits as a means of employing capital and forestalling recession. This strategy cannot be adjudged a complete failure, for it bolstered demand and enabled the country to achieve GDP growth of some 1% per annum. But it was certainly suboptimal, leaving the economy highly inefficient and causing the national debt to increase dramatically. Japan would therefore have fewer resources with which to remedy its profound structural distortions when it finally attempted to do so in the 2000s and 2010s.

In today's society, it is impossible to escape the power of statistics, and most of the times statistics are accepted without much thought of how they came about - or what could be wrong with them. Consider some of the statistics referenced during the course of a normal day. Turn on the television, and the weatherman claims the chance of rain is at 80%. After deciding to trust this statistic and grabbing an umbrella, you open up the newspaper, and the headline reads "President's Approval Rating Climbs to 66%." On your way to work, the traffic announcer informs you of a crash on the highway, resulting in about a forty-five minute delay. You trust the statistic and take a longer route to work, because you will still get there faster than waiting in traffic an extra forty-five minutes. Statistics are everywhere, and they are usually trusted without a second thought.