Economics

Economic overview during the first half of Twentieth Century
In contrast to the US economic crisis of 1929 later culminated into Great Depression that resulted from the internal structural weaknesses, Japanese economic debacle had been the side effect of World War 1 that the country had waged with its neighbors. The first economic slump that Japan faced with the onset of 20th century was during the inter-war period, named as the Showa Financial crisis of 1927 and Showa Depression of 1930. The former had surfaced due to persistent financial frailty that prevailed in that period as a result of fragmentary restructuring in business sector and the deferment in disposing off bad loans by financial institutions. The later Showa Depression of 1930-31 had been the result of US triggered Great Depression and it got worse with Japans propensity to return to the Gold Standard at old parity rates.

Historically the phase of Japanese economic rise and fall is divided into five sub-periods from 1914 to 1939. During 1914-19 Japan went through economic boom along with high rate of inflation, then it slithered into a decade of muted growth with mild deflationary occurrence (till 1929). For the next two years Japanese economy again got a hit the Showa Depression marred by extreme deflation and decline in growth. Nevertheless Japan was among the first major economies that came out of Depression seizer in 1932 rise that was spear-headed by Takahashi economic policy initiatives that lead Japan to achieve high growth rate with limited inflation. This is a brief of Japanese economic account that is quite different from what the Americans had experienced in first half of 20th century. USA in contrast had been a booming economy from the start of 20th century the only moment it slacked behind the rest of world was during Great Depression. One of the reasons for Americas impressive performance had been its detachment from the outside world affairs, it didnt take part in WW1 though it provided great moral and monetary support to its allies and was aloof to the global power politics.

We will focus on similarities and differences between policy responses to instabilities that ingrained into and blemished each of these two countries domestic financial systems and cause and effect of Great Depression

Japans economic debacle
In 1920s Japanese economy suffered severe cutbacks after an impressive growth prior to and during WW1. Real economy remained grey for most of the decade afterward marred with fainted economic growth, dreary inflation and shaky financial system, the period usually referred to as Japans chronic depression. In March 1920, stocks in Japanese Market began to plunge as investors foresaw deleterious state of countrys financial system after the end of WW1. This compounded an impression that Japan had virtually become a war-economy after years of persistent conflicts with its neighbors the period that gradually metamorphed countrys heavy industry tailored only for serving foreign military adventures. With war ended such an industry was doomed to stagnate thus stifling the rest of economy. In April 1920 the first victim of this deceleration was the Masuda Bill Broker Bank in Osaka that triggered a countrywide bank-run. This lead the Bank of Japan to extend special loans to alleviate pressure in financial sector and soothe apprehension among investors by coming out with actions to rescue and stabilize critical industries.

But the contagion that resulted from weak demand and declining output gradually began to spread to other areas, resulting in Ishii Corp rolling into bankruptcy at the start of 1922. This bankruptcy triggered the fall of banks again in Southwestern region which were the environs of this large company. From October till December 1922 the breadth and depth of bank-runs again spread throughout the country. Bank of Japan again extended special loans to at least 20 banks (from December 1922 till April 1923) to save the system from total collapse. It was followed by enactment of government regulations on small and medium sized banks by sanctioning of Saving Bank Act of 1921. Government also speeded up reform process across the countrys financial spectrum especially focusing larger banks.

There were ratification of two bills, first the Special Credit Bill for the Bank of Japan that entrusted the Government itself for granting indemnity guarantees against any ensuing losses the second one talked about accommodating financial institutions on the Taiwan island. These two bills were promulgated on May 8 to subdue ensuing panic in financial sector.

But major advancements in relenting financial crisis came when countrys reform process gained momentum spurring structural adjustment in banking sector (1927). Among the steps taken by Wakatuski cabinet was the facilitation in disposition of Kanto Earthquake generated bad debts with the help of government issued bonds. On March 14 legislative debate, the then Finance Ministers concocted declaration of Tokyos Watanabe banks failure spurred panic in speculative markets, though later the trepidation was contained with the passage of bill (March 20). Call rates declined greatly in spring 1927, as the market gradually gained confidence hence strength with the passage of new legislation the arrangement of Showa Financial crisis.

Later eminent economist Eigo Fukai the then Governor of Bank of Japan wrote  principal causes of massive failures in banking system (1927) were incongruous business practices after the end of WW1 and provisional and insufficient measures taken to tackle them. Another eminent scholar Kamekichi Takahashi elaborated, huge financial panic inspired radical and rigorous reforms in Japans banking system, this restructuring prior to the onset of Great Depression helped Japan to cope with its severe hit thus helping it in effectively fending off Depressions worst effects. As several major economies of world at that time suffered immensely from the Great Depression during third quarter of 1931, US was hit with worst shock in first quarter of 1933. When global economy reeled through economic stagnation and ensuing painful recovery, Japan remained unblemished and was back on track even before the crisis hit its trough reasons had been the outcome of policy changes coupled by depreciation of its currency, these measures infused in its financial structure remarkable resilience

The Great Depression
Now so that, the cause, effect and remedies of Japanese economic despondency has been mentioned we now move forward to explain patterns of Great Depression and in the process compare both the economies.

One of the major differences between economic plagues of these two countries had been the nature of contagion spread while Japan was reeling in slump for almost a decade no one in the world except for her colonies got affected by that, whereas the one triggered by US brought down virtually the economies of whole industrialized world, showing that the American economy was much more integrated and prodigious even in 1920s with the rest of world then Japans. Secondly US economy was much more developed thus the clout it projected beyond its shores was much greater then the imperialistic yet confined Japanese empire.

The Depression began in late 1929 and it persisted through the whole decade, thus we can say that 20s was the lost decade for Japan while 30s was wasted for US. There were series of events that brought US economic miracle down but the most significant was the melding of highly unequal dispensation of wealth during the roaring 20s and the resultant extensive stock market speculation at the end of decade. While Japan was reeling through the after-effects of WW1 stagnation, US on the contrary (as it wasnt directly involved in any of those eras conflicts) was coasting through economic sensation but the triumph it was generating wasnt seeping evenly through all strata of its economy. There was growing asymmetry between rich and middle-class, industrial and the agricultural sector within the US and between America and Europe. This imbalance within and between major segments and continents made the whole global economic structure highly fragile and unsustainable. Due to soaring wealth speculations in stock market hovered on empty winds until they finally struck their sealing and capsized the whole economic construct.

Talking about the economic disparity Brookings Institute stated that in 1929 the top 0.1 American elite had accumulated wealth equivalent to combined wealth of the bottom 42, and the same 0.1 of families had 34 of all American saving in their coffers while 80 of Americans didnt have any savings at all.
This income disparity had been the result of enhanced manufacturing output and major chunk of profitability getting its way into few private hands. In fact during the six years (starting from 1923 till 1929) corporate profits soared by 62 and stock dividends 65 (this tells of heightened speculation in stock markets).

In contrast the corporate sector in Japan wasnt that developed, they were still a controlled economy with most of their industry working under the directives of government for serving her military. Nevertheless there were some resemblances for instance the Suzuki and his business concerns had gained much sway both inside and out of the government, like the Ford group in US that enabled them in influencing the orchestration of policies.

Another stark difference lied in the drive of both of these countries boom cycle. Japans economy had metamorphed into war driven industry with the stall in WW1  the whole economy had virtually come to stand still, whereas US economy was driven during its peak cycle partially by war and post-war demands of shattered Europe but largely by its internally generated consumption. In Japan the government in post-conflict era was embroiled in saving and kick starting national institutions they were more concerned about the general populace while their American counterparts were busy in accelerating corporate business domain. The Revenue Act of 1926 by Calvin Coolidges administration (reduction of Federal Income Tax and inheritance taxes), served to further this cleave becoming more visible since 1923 between rich and poor.  By pampering the rich class United States gradually began to rest its weight more and more on two factors in order to remain on even keel sales of credit, spending in luxury and investment from rich.

Some similarity existed the way industries of both of countries developed during the war period as mentioned before that Japan over the years as as result of her imperialist design and foreign military adventures had transformed its industry specifically catering into her projectionist policies abroad in the US too similar demand was driven by European engagements. Though America distanced itself form direct confrontation nevertheless it served as a manufacturing base for its European allies difference lie in the economic fate of WW1 aftermath when industry in Japan wasnt able to adjust while US on the other hand transmuted by continuing supply to war-torn and destroyed Europe.

International wealth distribution created problems for US as it became sole lender in post-conflict Europe to help them rebuild. These lending were attached with strings that forced Europeans to buy 90 of American goods by the total lent money (this explains how US managed to keep its industry alive while Japanese lingered). None of the major borrower was able to pay off burgeoning debt hence making their currencies weaker exasperated by the flow of European Gold to US. In face of weakened currencies United States acted by heightening its tariffs by as much as 100 that virtually blocked European goods from entering US ports. These measures made disparity between the US and Europe all time high so much so that historians during the 20s tended to call US as the worlds banker, food producer and manufacturer but a country that accepted goods as paltry as possible from the rest of world. The policy of un-scalable perpetual barriers combined with philosophy of self-dependence was proving ruinous for US and others the Europeans were neither able to sell their products to US because of tariffs nor to any other nation as no one was prosperous enough to buy form them and pay this scheme of lending and confining was making Europe poorer, while making them default on US bills. The increasingly poor Europe began to hurt US exports as they stopped buying American goods due to nonexistent purchasing power. The trend culminated into loss in exports that dipped by 30 immediately in1929.

American strategists in the course of protecting their industry indirectly had weakened the very foundations of theirs and European economies. In September 1929, stock prices became volatile although analysts shrugged this instability as temporary. One disturbing trend was the consistent ignorance of reality that despite production declines, made stocks climb this trend was enough to tremble any economists spine. Until the big bang happened on October 24, 1929 known as the Black Thursday. This panic was unprecedented as investors began to sell stocks as quickly as possible despite efforts by J.P.Morgan to rescue the market. The Great Crash culminated into Great Depression as it seeped into psyche of economy.

Series of events that brought both of these nations to standstill had its genesis in WWI. Japan actively participated and US audaciously contributed excessive demand-tailored industrial base of both of these economies towards serving war-driven demands, leading both the economies thriving during WW1. Post-war period nevertheless was different as Japan lost the steam as demand dwindled, whereas US shifted its focus from helping European military adventures to the one ordained in re-building the continent. And while US reaped fruits of excessive lending and by feeding her ailing allies, Japan succumbed to her own wounds. America thus by becoming the nerve center and lifeline to her own glory and significance on the way committed inordinate mistakes that gradually debilitated her foundations which were based on sound market principles (the same period during which Japan was rescuing, learning and restructuring her financial system). This was the time when corporate America was enjoying endless sway in aligning political forces in its favor gaining maximum leverage while their Japanese counterparts were bearing the pain of restructuring pill. In some way it could be said that Japanese policy makers and subsequently Bank of Japan acted wisely, timely and prudently with much far-sightedness to re-orient and augment their economic foundations even though such painful and contentious measures made their political mentors pay heavy price. Robustness of these measures materialized when it was able to cope well in face of worldwide Great Depression and emerged briskly virtually unscratched. US politics and policies on the other hand were getting dictations from the market thus the mood in stocks was not only swaying industry trends rather they were governing legislations Which was wrong and ultimately proved detrimental..