Three months ago, I noted that Japan entered recession before us. Baffled by the willingness of the Japanese people to re-elect the same party decade after decade despite its stewardship of the longest recession in the industrialized world, I diagnosed Japan with bipolar manic-recession, "alternating between periods of extreme stagnation and hyper-productivity." At the end of the post, I noted that the nation has recently been run by "a series of controversy-prone bureaucrats who have deftly succeeded in doing absolutely nothing, which is just how the [Liberal Democratic] party likes it. The latest PM, Taso Aso, took office in September and appears to be no different."

Quelle understatement. Quelle understatement. The Japanese economy contracted 3.3% (12.7% annualized) in 4Q08, Japan's worst decline since 1974--and that includes the burst of its own real estate bubble and decade long swoon from which it had only recently recovered. By contrast, the U.S. economy shrank 1% (3.8% annualized). And economists forecast "a drop of around 4% in 2009--a contraction twice as severe as in America and Europe."

Fortunately, Japan's finance minister, Shoichi Nakagawa, has taken aggressive actions to deal with crisis. He has a 12 step plan:

OK, so the finance minister resigned in disgrace after appearing drunk at a G-7 press conference and then blaming the symptoms on cold medicine. But the rest of the government is functionally effectively.

Except for the ex-transport minister, Nariaki Nakayama, who resigned after calling the teacher's union a "cancer" and Japan an "ethnically homogenous" country whose people "do not like nor desire foreigners."

Unwilling to let his ministers get all the credit, Prime Minister Aso is something of gaffemeister himself. Between malapropisms, as when he spoke of his hopes for "cumbersome meetings" with the Chinese Government, and just plain stupid comments, as when he accused doctors of lacking common sense, Aso is like the brain-damaged love child of George Bush and Joe Biden. One Japanese journalist wrote that he has "made so many verbal slips that we need a list to keep track."

Liberal Democratic Party members are of course deeply disappointed by their choice of prime minister, who they had hoped would be solution to their party's problems after their previous disappointing prime ministers, Shinzo Abe and Yasuo Fukuda each resigned in disgrace. After all, he is a "man of the people" who even reads manga comics. He was suppose to surge in popularity like Junichiro Koizumi and call snap elections to sustain the party's rule for eternity.

Alas, even love of manga is not enough to sustain the popularity of an incompetent leader. His approval rating is 9.7 percent, worse than either of his predecessors when they resigned. What the party leaders don't understand is that Koizumi's popularity was not due only to his common man persona. Koizumi was a reformer, which the Japanese hunger for, even if they can't seem to bring themselves to vote for an alternative party. Aso and the ministers who preceded him are of the party elite. And the party elite has long ago lost the ability to act or change or accomplish anything beyond bare self-preservation.

An election must be called by September. The LDP looks to be in very bad shape. But with one very brief exception, the Japanese people have stubbornly returned them to power year after year since the 1950's. Will Japan finally embrace change in 2009?

The Nakagawa story offers some insight. Domestic news organizations initially ignored Nakagawa's drunken G-7 tour de force. It was only when foreign news sources began to ridicule him that Japan paid attention to their pathetic finance minister. Japan has always been extremely sensitive to shame, particularly losing face to foreigners. I suggest that it is shame that has driven Japan's past manic periods, the humiliation they experienced when Commodore Perry proved to them that the world had past them by as they slept in isolation, and the subsequent humiliation after the United States defeated them in World War II. If the Japanese people finally become not simply harmed by their ailing economy and incompetent leaders but ashamed of them, they may at long last demand the change that they've been waiting for.

Update: I messed up the numbers, comparing the 3.3 quarterly contraction in Japan to the 3.8 annualized contraction in the U.S. So things are even worse for Japan than I had realized. I have amended the numbers above. Thanks to our friend quinn the eskimo for pointing out the error.

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Cross posted at dagblog.com, where the Deadman-DF stimulus debate rages on.