In 1990, Japan was 17 percent of the global economy and was easily the second largest economy in the world. It also accounted for the largest share by far of global growth, having completed two ferocious decades during which time it’s economy had grown annually by eight to ten percent. Only the most skeptical doubted that within a decade or two Japan would overtake the US as the world’s largest economy.
First, a collapse of that magnitude in the Japanese growth rate would create an enormous drag for the rest of the world. Without Japan to power it, global growth would be anemic at best.
Second, the Japanese people would have been unwilling to accept with equanimity such a disaster. At the very least there would be a surge in social instability and Japanese voters would have revolted against their leaders.
In spite of the virtual collapse of the Japanese growth machine, the world experienced robust growth in the 1990s. Second, the Japanese people turned out to be remarkably docile about the terrible turn the Japanese economy took.
