Monday, December 1, 2008

Glad I don't live in Japan

Stubborn! That is what I call policy makers in Japan. It is unfathomable that Japanese policy makers have not learned any lessons - whatsoever - from Japan's era of deflation, where the average inflation rate spanning the years 1999-2005 was -0.5%.

I was impressed to hear of Japan's proposed $51 billion stimulus package, but then to read about the Minister for economic policy Kaoru Yosano saying, "We are already deep in debt, so to create effective demand for instant pleasure would not be wise." “We are not that stupid. We are not that desperate",? well, I am just happy that policy makers in the U.S. are not as delusional as he is. Poor Japan, unless some economic footing emerges - which is unlikely - the economy is likely to suffer greatly without further help from the government.

A slightly crazy Japanese policymaker from the Financial Times:
Kaoru Yosano, Japan’s minister for economic policy, has attacked calls for higher public spending.

He said Japan could not afford to add to its gross public debt, already about 180 per cent of national output, the highest in the advanced world.

Mr Yosano told the Financial Times in an interview: “We are already deep in debt, so to create effective demand for instant pleasure would not be wise.”

The minister said the government was unlikely to find many worthy targets for stimulative funding.

Constructing more public buildings – a favoured economy-boosting method in the past – would be “stupid” since maintenance costs would be a long-term burden, he said.

Faster expansion of the national Shinkansen high-speed rail network looked like a decent option, the economy minister said.

But policymakers in the ruling LDP party are not keen.

“We don’t have very good public works any more,” Mr Yosano said.

Some may disagree. The government has been attacked for cutting incentives for private spending in technologies such as solar power that would help protect the environment and reduce greenhouse gas emissions.

Direct government investment could, for example, play a vital role in building the recharging infrastructure needed to make electric vehicles more commercially viable. Mr Yosano did urge more spending on unemployment benefit, saying the government could mitigate the social effects of recession by, for example, doubling to a year the period that benefits could be paid.

Conditions were unlikely to become as bad as 1929. “These difficulties are not impossible,” he said.

Teizo Taya, special counsellor to the Daiwa Research Institute, said Japan had learnt that deficit spending was dangerous, and western economies would find that running big deficits could lead to uncontrollable inflation.

“We are not that stupid. We are not that desperate in Japan,” he said.

However, Shijuro Ogata, a former Bank of Japan official, attacked what he said was Japan’s overly passive response.

“These people are so fatalistic. They are always talking about the world’s impact on Japan, not Japan’s impact on the world."

He said Japan could not be a locomotive for the global economy but it could take bolder emergency fiscal measures and try to stimulate personal consumption in the medium term.
Rebecca Wilder


  1. Same old Japan - was is ever thus... It is going to take concerted action from all the world's leading nations to get this under control and that includes Japan. The isolationism of 1850's is still there.

  2. I'm not an economist so perhaps you can help me on this issue: fiscal stimulus. I don't understand how this will help unfreeze the economy and get people to spend. I try to follow this stuff, but ... If the government spends on infra-structure, it has to either borrow the money or tax it. I assume they won't tax us right now. So, they borrow the money. Maybe they just print the money? Then they pay it to contractors,who spend it on their employees and materiel, then these recipients are supposed to spend more? If people are feeling broke and their credit lines have dried up, and their assets are devaluing, why wouldn't they just save? Has this been tried before? Has it worked?

  3. Well, How are the Japanese stupid?

    My son has lived in Japan for a year and is planning to go back.

    His experience is:

    There is almost no crime, except drunk well-dressed business people falling asleep in the street and groping in the trains.

    It is very cheap to live there (If one learns the language, one does not need to pay "gaijin prices"!).

    People are very polite - when one speaks the language, except old people who are always rude because it is their earned right.

    It is easy to earn cash money - since the interest rates are so lousy a lot of the economy goes around the banks!!

    It is easy to start a business, commercial property (outside Tokyo) is cheap and the Japanese have money to spend too.

    Healthcare is excellent, abundant and free; If the doctor suspects cancer they will do an MMR scan and have the tumour out in 24 hours!!

    For the Japanese people life without "growth" is not bad at all!

    What I see here in Denmark is Growing Crime, Growing waiting list for health care, Growing health care costs, Food and Energy prices increasing, Growing Taxes, e.t.c. We have to work harder for less & less!!

    What's with this growth fixation?

  4. Yosano is famous as a deficit hawk in Japan. However, according to FT article you cited, it is Teizo Taya who said “We are not that stupid. We are not that desperate," not Yoasano.

  5. I agree that growth fixation is one primary cause of the current problem. Fiscal stimulus will not solve it, it just delays but finally prolongs the pain. Goverment has never been and most likely will never be efficient in the allocation of money to create sustainable growth. Either we pay the bill now by adjusting our live styles to a sustainable level or we (and out childern) pay an even bigger bill later on by "hyper"inflation, destroing the worth of our pension an social security fonds. To worry about deflation risks looks stupid to me.
    Just see it the other way, a world with less growth, less people, less consumption, less pollution,- back to a sustainable level. Whould that be such a desaster?