Sam recently wrote that he's optimistic about the US economy. It's a fun position to take. I'll take the opposite side of the bet, and I'm bringing with me knowledge that Japan is actually an economic forbear to everything the US has experienced.
So, I'll take on Sam's points, one by one, and extrapolate where Japan implies we're actually going:
1. Real growth is low, and trending lower, and will stay that way for the foreseeable future.
Japan is on its third Lost Decade of zero growth. There, a real estate bubble burst that produced systemic shocks like permanently increased structural unemployment, underemployment of youth, and permanently flagging demand.
The only exceptions to these times are fiscal or monetary stimulus. Japan has tried a lot of stimulation over the years and generally nothing worked - thus, there were no easy policy answers when the global financial crisis hit. There's finally been a change with Japan's most recent QE (monetary stimulus) on an unprecedented scale. With that and a foreign currency intervention (not an option to the USA), Japan's markets had a banner year in 2013.
However, the jury's out on the effects - it's just too soon to tell. The bulls may win it when Japan gets away with structural reform, as The Economist predicted last week. Or the bears may win it when it triggers a sovereign debt crisis, as economists like Takatoshi Ito have predicted. Personally, I think both of these will happen on much smaller scales: some reforms will pass, most will fail, and Japan will be left with an ever-growing debt pile.
2. Government debt is high, and we will slowly boil like frogs as it grows ever higher
Remember the euro zone crisis? That feels so long ago in Internet Time, but it was really a serious sovereign debt crisis triggered when countries' debts exceeded 100% of GDP.
Japan's debt is well over 200% of GDP and climbing. Reports from WSJ's Japan Real Time blog in 2013, citing Japan's Ministry of Finance, predicted 227% in spring 2014 and 250% to close out the year.
It was thought that Japan could withstand a higher percentage thanks to a higher savings rate than the US and that Japanese retail investors pretty commonly buy Japanese domestic debt. Japan has finally issued a government bond that wasn't eagerly snapped up early this year.
But there doesn't seem to be consensus on the ceiling that triggers rapid inflation or a sovereign debt crisis. If there were, Japan would avoid that number like the plague.
3. Government spending is high and will remain so for as long as the US is a democracy
Government spending in the US is a function of demography. Entitlements are the bulk of the spending, and the two big entitlements are Social Security and Medicare. Both apply virtually only to senior citizens.
Senior citizens are reliable voters, which means no legislator can cut into those entitlements. Demography means that we'll have more and more senior citizens, thus producing even more political pressure to preserve and even bolster entitlement benefits.
There is no meaningful reform to entitlements that is consistent with modern electoral practice.
Japan is ahead of us on the demographic rollercoaster, and even with the benefit of cheaper health care they can't control their entitlements either. It doesn't help that pensions start at age 60 and Japan has one of the world's highest life expectancies.
4. Interest rates are low and will remain so for the foreseeable future.
This really goes hand-in-hand with point 1 - a Keynesian economist (and I do side with Keynes) would lower the interest rate to stoke any sort of activity. Japan hit zero a long, long time ago and already set a "target" of 2% inflation back when I was in school. Sound familiar?
Also: remember that Japanese government bond that didn't sell? It didn't trigger a panic or even the inflation that Japan openly wants. The American inflation bears might take note of that.
5. Personal savings rates are low and will trend toward zero as individuals' wages stay at or below subsistence levels.
The US's savings rate peaked above 10%, but the Japanese savings rate peaked at over 25% as the economy reached its advanced stages in the early 1980s. It stayed above 10% through the 90s and finally plummeted to low single digits at the start of the century, matching that of the US.
The US is just now seeing research coming out stating that those who come of age in recessions never catch up with other generations in earnings, basically creating a population cohort that is chronically unable to maintain the living standards of their predecessors or successors.
Japan started that whole trend with its first Lost Generation in the 90s. Since then, Japan has added another Lost Generation or two and its Gini coefficient has crept upward. We've just unleashed our first Lost Generation on the world, laden with tens of thousands of dollars of debt and degrees in Sociology, and that generation will fail to earn and buy property, creating a further cycle of inequality linked to lower savings.
What will save us
Sam believes that technology and innovation will save us. Japan has created technology in the last three decades, and it hasn't exactly saved them. Countless innovations in miniaturization, optics, lasers, chemicals, textiles, and batteries have kept the country afloat without creating talk of a New Japan or a Japan That Saved Itself.
Hybrid cars? Japan. Full HTTP over cellular connections? Japan. Nuclear power plants that can survive a 9.0 earthquake? Japan. (It was the apocalyptic tsunami that got it.)
Japan itself? Still not saved; still treading water at 200% debt-to-GDP, zero interest and zero growth; still obsessed with agriculture, and still attending status meetings 16 hours a day.
Japan's technology and innovation are actually interesting and significant in their impact. But even those aren't macro enough to change things enough to say Japan is Saved.
What will? I think Sam's themes in his recent Request for Startups - energy, food-and-water, health care, education and improved productivity - fit the bill very well. Anything less stands to be mocked on Silicon Valley.