Japan’s lost decade of 1991-2000 is often cited as a situation that American policy-makers hope to avoid. In an eerily  similar repeat of history, the Japanese real estate bubble burst followed shortly thereafter by a banking collapse. Governments tried to stimulate the economy by lowering interest rates to near zero or zero percent (although they never flooded the system with so much capital). A nation of savers became even greater savers and, with a general lack of demand for anything, the economy went into a general tail-spin.

But how accurate is the Japanese analogy to our situation?

What often gets glossed over in looking at Japan was that, regardless of real estate pricing or the stability of the financial markets, the country was going to slow down structurally due to its demographics. Simply put, Japan got old in the 1990’s and old people don’t buy as much as younger people.

In 1990, 20% of the Japanese workforce was made up of workers over 55. In 2005, the Bureau of Labor estimated 16% of the American workforce was over 55. By 2000, this figure in Japan was approximately 24%; a figure which the U.S. will not reach until 2030.  With an average immigration of approximately 15,000 people a year for a nation of approximately 127 million people, Japan could not replace itself and the nation and economy literally got old and died out beginning in the 1990’s; sadly, this is now reaching a critical point (CIA Fact Book projects Japan will lose 1.9% of its population this year).

In comparison, the U.S. is eking out small population gains every year (estimated at 0.975% this year by the CIA) mostly by barely replacing deaths with births and immigration equal a growth of 1/3 of 1% (legal immigration stats only). The population base is not growing but it is not shrinking either. It is, at least, keeping its head above water.

More importantly though, Americans born between 1979 and 2004 constitute 60 million people vs. 72 million baby boomers.  As a generation  born with advertising everywhere, this generation of consumers will soon replace the baby boomers as drivers of the economy. While less numerically than the baby boomers, they constitute a large enough consumer base to avoid the type of generational chasm that is occurring in Japan as one generation got old not to be replaced in sufficient numbers by the next.

While America 2009 looks similar to Japan circa 1991, a strict comparison between the two economies is an inaccurate one since it fails to factor an important structural issue, demographics, that would have rendered Japan’s fall from economic might regardless of its management of its banking system. Having said that, the comparison may only be off 10-15 years when American faces the same issue unless there is a drastic change in its immigration policy or a substained uptick in its birth rate.