Tuesday, January 15, 2013

Japan Is Still The Future

It's been a while since I wrote Is Japan The Future? In it I noted that the difficulties that the western world is now experiencing were forshadowed by Japan twenty years ago. Much of what we've been wrigning our hands about is old news in Japan: a burst real estate bubble, shrinking birthrates, a stagnant economy, lowered consumption, deflation , etc. I posited that Japan provides a reasonably good model of how to deal with world of shrinking opportunity at the government and individual levels, rather than looking for some sort of magical "growth" or "innovation" like a modern-day cargo cult. Here a few recent articles with similar conclusions:
But just as America is not the Second Republic, Japan is not its political regime.  If we look out to longer horizons Japan has a bright future. Japan might have the formula for success in the 21st century:

1.A highly educated and hard-working people with a high-savings rate (the foundation for economic success),
2.a homogeneous population with strong social cohesion (avoiding the internal turbulence possible in multi-ethnic societies), and
3.a shrinking population.

The latter is usually considered a negative, especially compared with exceptional America with its large numbers of families that breed like bunnies. Some economists believe a falling population means economic decline, pointing to formulas that show more people = more national income. That’s mad for an over-crowded island like Japan.  And it is probably wrong about the nature of national prosperity in the 21st century.
They add:
The next wave of automation already looms ahead, with massive job losses from machines having rudimentary senses and processing capabilities. In the future beyond that lie semi-intelligent machines. The result will be massive structural unemployment, shifting the shares of national income decisively from labor to capital. Look around to see it happening now, slowly accelerating.  Unusually high unemployment, rising levels of income inequality (both have other drivers as well, of course).

The process of sharing these vast gains among the different classes might become a — or perhaps the — major social issue of the 21st century. A highly educated but shrinking population like that of Japan is well-suited for this new era. They will have lower unemployment, thus reducing the inevitable social stress of this technological transition, and facilitate adoption of this world-changing technology. The obvious contrast is with America, and its growing population of increasingly poorly educated people.
Japan can again become the land of the rising sun. We should watch and learn from them. (Fabius Maximus)

Japan has not ratcheted back it's government spending like much of the rest of world, causing Paul Krugman to praise them in the New York Times. I'm not sure if this is safe to say, but it seems as though if anyplace in the world is utilizing MMT ideas, it's Japan:
That said, Japan never had the kind of employment and human disaster we’ve experienced since 2008. Indeed, our policy response has been so inadequate that I’ve suggested that American economists who used to be very harsh in their condemnations of Japanese policy, a group that includes Ben Bernanke and, well, me, visit Tokyo to apologize to the emperor. We have, after all, done even worse.

And there’s another lesson in Japan’s experience: While getting out of a prolonged slump turns out to be very difficult, that’s mainly because it’s hard getting policy makers to accept the need for bold action. That is, the problem is mainly political and intellectual, rather than strictly economic. For the risks of action are much smaller than the Very Serious People want you to believe.

Consider, in particular, the alleged dangers of debt and deficits. Here in America, we are constantly warned that we must slash spending now now now or we’ll turn into Greece, Greece I tell you. But Greece, a country without a currency, doesn’t look much like the United States; surely Japan offers a more relevant model. And while doomsayers keep predicting a fiscal crisis in Japan, hyping each uptick in interest rates as a sign of the imminent apocalypse, it keeps not happening: Japan’s government can still borrow long term at a rate of less than 1 percent.

Enter Mr. Abe, who has been pressuring the Bank of Japan into seeking higher inflation — in effect, helping to inflate away part of the government’s debt — and has also just announced a large new program of fiscal stimulus.
Japan Steps Out (New York Times)

This article from The Economist also discusses Japan's stimulus from a more neutral view:
FOR 35 years the steel bolts holding up the ceiling of Sasago Tunnel, on a busy toll road west of Tokyo, were never checked. On December 2nd more than 600 of them had worked themselves so loose that a 130-metre stretch of the roof collapsed, crushing nine motorists.

The disaster played into the hands of Shinzo Abe, who two days later launched his successful campaign to become prime minister partly on a promise of renovating Japan’s rusting infrastructure. As promised, on January 10th Mr Abe approved a massive public-spending bonanza, expected to exceed ¥13 trillion ($150 billion)—more than was spent in emergency measures after the 2011 earthquake, and about 2.6% of GDP.

Much of the cash will go towards making tunnels, railway lines and other infrastructure safer. Those are the sort of public-works projects that Mr Abe’s Liberal Democratic Party (LDP) was famous for during much of post-war Japan’s history. His supporters believe it will help jolt the economy out of recession. Critics argue that it is a rehash of the concrete-slathering policies that helped saddle Japan with the biggest public debt in the world.

It is being accompanied by pressure on the Bank of Japan (BoJ) to print more money to weaken the yen and help exporters, such as Japan’s carmakers and electronics firms. The architect of that policy is Koichi Hamada, a Yale University professor and cabinet adviser who is a former mentor (and recently tormentor) of Masaaki Shirakawa, the governor of the BoJ. The government’s supporters have christened the fiscal and monetary strategy “Abenomics”. But it appears to be ripped largely from John Maynard Keynes.

Keynes, trains and automobiles (The Economist). I find it interesting that whenever a government spends money on helping its own people, it's referred to as "waste", whereas things like money to bankers or military contractors is not. Presumably the millions bankers spend on fine art, vacations to Dubai, birthday parties for their offspring and flying into space are "efficient."
And as this article points out, Japan is still a pretty decent place to live compared to the dysfunctional hellscapes of the west:
I am struggling to come to terms with the possibility that Japan may economically be the “new normal”.

 By “new normal” I mean a situation where the economy is in recession for prolonged periods of time, seeing only fleeting periods of growth. My struggle relates to the fact that conventional wisdom would suggest that after two decades of recessionary tendencies, Japan should be an economic and societal wreck. But quite the opposite is the case. In many respects Japan seems to be doing fine.

Now what leads me to this latter conclusion? I was struck in particular by the findings of the 2012 Inclusive Wealth Report from the International Human Dimensions Programme on Global Environmental Change (IHDP).  Set up as an alternative to gross domestic product (GDP), the Inclusive Wealth Index reflects the state of natural resources, the economy and ecological conditions, the population’s health and productive capacity, and measures whether or not national policies are sustainable.

In the report, the authors looked at various indicators in 20 countries, including Japan, over the period from 1990 to 2008, and I was surprised to read the following:

“Japan depicts the most favorable situation, as it is experiencing wealth accumulation while at the same time increasing its natural capital stocks. This has been achieved primarily through investment in the forest sector. This position is also explained by a slower population growth rate in relation to other nations. This is to a large extent supported by the recent assessment of Japan’s ecosystem services…”

We should recognize that the Inclusive Wealth Index is still in development and, for those who wish to learn more, there will be an event on the topic at United Nations University in Tokyo on 7 January 2013.
The point I am trying to make here is that if we look at Japan through our conventional lens, that is GDP growth, we end up concluding that the past two decades were effectively stagnant, but from this new perspective things look very different.
Japan as the new normal: Living in a constrained economy (Our World 2.0)

A good update to what I wrote two years ago. I'll leave the last word to this, the second most popular comment to Krugman's article (emphasis mine):
Japan stepped out a long time ago.

Since 2000, the official Japanese employment rate has ranged from 4 to 5.5% (the post-2008 meltdown peak) while the US has ranged from 4% to 10%.

Japan is a society...the United States is just a collection of individuals and egomaniacs...big difference.
The Japanese not only care about their fellow man, but they recognize that government plays a valuable role in making sure all members of society have a chance to maintain personal dignity by maintaining public policies that facilitate near full employment, a reasonable wage, universal healthcare (Japan has the lowest per capita health care costs among advanced nations of the world and its population is THE healthiest). The Japanese also have a world-class mass transit system, real bullet trains, real customer service, and the food is much fresher and tastier than the food here.

I visit Japan once a year for business, and the attitude and demeanor of the people are completely refreshing, but the reason the society shines is that it is a truly egalitarian society that believes and acts with respect for others. The average compensation of a Japanese CEO is less than one-sixth that of their American CEO counterpart and it is only 16 times more than the average Japanese worker, while the average American sociopathic CEO:worker pay ratio is 300:1 .

The Austerians are merely fronts for Pete Peterson and the 1% Economic Vultures club. Austerity is just a way for the rich to hate the poor.
Sadly, America is just a "society" where everybody preys upon everybody else, and the rich play the poor against one other. Not very encouraging in a world facing scarcity.

UPDATE: via Marginal Revolution: The unemployment rate is 4.1 percent. In recent discussions of Japanese fiscal stimulus, this point could use a little more…emphasis.

1 comment:

  1. It's interesting to note that the Japanese language has dozens of different pronouns that are used depending on the social relationship between the speaker and listener. Compare this to American English, whose only notable characteristic is that it has, as Morris Berman pointed out, a large number of words all meaning "to swindle."

    Japan has a society; a sense of "we're all in this together." America, on the other hand, has an anti-society of individual atoms who are, from the moment they leave home, thrown overboard into shark-infested waters and told "You're on your own, sink or swim!" I think we know which country is to going to better weather the coming storm.

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