China derangement syndrome: once again, an economic yellow peril is exaggerated.

• Author: Bailey, Ronald
• Position: Columns - Column

THE 1979 BOOK Japan as Number One: Lessons for America, by East Asia scholar Ezra Vogel, stoked fears that the United States was about to be outcompeted by the land of the rising sun. And why not? The U.S. had just suffered through a decade of stagflation and was about to enter what was then the worst recession since the Great Depression. By the late 1980s, the case seemed ironclad. "I don't mean to be an alarmist, but I get the uneasy feeling that America is history," wrote Robert Kuttner, then the economics correspondent for The New Republic, in the Los Angeles Times in May 1988. Evidence for this decline and fall? "The total value of stocks listed on the Tokyo stock exchange is now $3.54 trillion dollars, compared to $2.34 trillion for the New York Stock Exchange."

In his 1988 book Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It, former Reagan administration trade negotiator Clyde Prestowitz warned, "The power behind the Japanese juggernaut is much greater than most Americans suspect, and the juggernaut cannot stop of its own volition, for Japan has created a kind of automatic wealth machine, perhaps the first since King Midas."

Two decades later, we know that the panic over Japanese economic competition was greatly exaggerated. Today the total value of the New York Stock Exchange is nearly three times that of Tokyo's. Japan is not Number One. In fact, as of last year it became Number Three, behind China.

Twenty-five years ago, Japanophobes (or should they be called Japanophiles?) were fretting about the differential economic growth rates of the United States and Japan. At times in the 1980s, Japan's gross domestic product (GDP) was growing at nearly 10 percent per year, whereas American GDP was increasing at a merely respectable 4 percent. (All figures are unadjusted for inflation.) Had the growth rates continued at those levels after 1988, Japan's overall economy would have caught up to ours within 10 years.

Instead, the Japanese financial bubble burst. In 2011 the country's GDP in current dollars is $5.5 trillion, compared to the American total of nearly $15 trillion. Per capita GDP (adjusted for purchasing power, a measure of what it costs to purchase similar baskets of goods and services among countries) for Japan is $34,000, compared to $46,000 for Americans. Japan has suffered through two decades of stagflation, and you no longer hear anyone recommending that the U.S. adopt Japanese-style top-down...