Cross-posted from New Deal 2.0.
I'm turning Japanese
I think I'm turning Japanese
I really think so
~~The Vapors
The American obsession with the Japanese is nothing new. We marvel at their meteoric trains and mouth-watering cuisine. We once spoke of their economic prowess in hushed awe. But reading the New York Times last Sunday, I realized that our fixation was taking a new, dangerous turn. Japanophilia is morphing into Japanophobia -- a fear that the U.S. economic outlook will somehow mimic the Land of the Rising Sun if we don't heed the fiscal hawks. In truth, we are in danger of learning all the wrong lessons from the Japanese. A shame, because they have much of value to teach us.
Martin Fackler's "Japan Goes From Dynamic to Disheartened" presented a fear-inspiring narrative that does little more than perpetuate myths that benefit the rich. His story: the Japanese economy is in the shitter because of too much "wasteful spending" by the government. Fackler breezily suggests a consensus on this point among economists:
Japanese leaders at first denied the severity of their nation's problems and then spent heavily on job-creating public works projects that only postponed painful but necessary structural changes, economists say.
Oh, really? Creating jobs that put people back to work is about denial? Funny, but I know some economists who say otherwise. My Roosevelt Institute colleague Thomas Ferguson dismisses the false choice implied by the author. "You don't have to choose between working to keep full employment and making structural changes," Ferguson wrote to me in an email. "The issue is whether you just let unemployment go up, which drives people to desperation and widens the gulf between the rich and the rest of us, or whether you keep people employed while you make the structural changes you think are needed. The latter way is much easier to do and far more productive for society."
Fackler draws his analogy between the U.S. and Japan beginning with the Japanese bubbles that burst in the 80s and 90s. According to him, the country "fell into a slow but relentless decline" that could not be reversed, alas, even by "enormous budget deficits" or "a flood of easy money". Then comes the ominous warning:
Now as the United States and other Western nations struggle to recover from a debt and property bubble of their own, a growing number of economists are pointing to Japan as a dark vision of the future.
Memo to Fackler: If you look closely at the history of the Japanese economy, you'll see the exact opposite. Government spending didn't cause the Japanese economy to stagnate. It was the fitful confusion of stop-start fiscal spending that seesawed the economy between hopeful improvement on the one hand, and wrenching cut-backs and consumption taxes urged by austerity-preaching deficit hawks on the other. Bipolar fiscal policy during a time when the private sector is trying to deleverage and repair its balance sheets is a recipe for disaster. The "flood of easy money" Fackler references, also known by the wonky term "quantitative easing," was the wrong approach by the Japanese government, which should have maintained the focus on jump-starting a weak economy by putting people back to work. That's the smart, productive way to get things moving. Unfortunately, a failure of nerve and political will crippled Godzilla. And the dismal vision Fackler outlines will emerge in the U.S. if we buy into his false narrative. Ironically, reports like Fackler's are creating the very reality they purport to warn against.
My colleague Marshall Auerback provides some facts that Fackler-the-Feckless would do well to master. In a mini-history of the Japanese response to economic crisis, he observes:
In 1997, just as Japan was beginning to emerge from recession, the government introduced a 40% increase in the consumption tax, which promptly threw the country back into the throes of recession. Then you had the Asian financial crisis, which obliterated the export sector. Then you had the Koizumi Administration attempting "fiscal consolidation" throughout the early 2000s, which actually caused economic growth to slow and the budget deficit to rise. This, despite the fact that the Bank of Japan started to do "quantitative easing" in March 2001. It wasn't until September 2003, when the Koizumi government finally stopped the crazy fiscal austerity fetishism, when, lo and behold, the economy began to grow steadily again and the budget deficits began to go down. That's what was happening until the financial crisis of 2008. (Also see Auerback's "What Ever Happened to Japan?")
Contrary to Fackler's story, Japan's deficits show the dangers of what happens when you stop spending proactively and productively during a crisis: you get larger deficits as automatic stabilizers kick in and tax revenues decline. To avoid this fate, we have to deploy our fiscal resources to generate greater economic activity. Put plainly, we need to create jobs. It would be great if the private sector were creating all the jobs we need. But it isn't. And that's where government can step in.
But meanwhile, we have to combat the Facklers who whip up Japanophobia and freeze our political will. As Rebecca Wilder points out at the News N Economics blog, cherry picking anecdotes about down-and-out Japanese people crushed by deflation as Fackler does is not a substitute for responsible analysis. Contrary to what he implies, the Japanese standard of living has actually grown over the last two decades. And as for the country's unemployment numbers, they ought to make Americans blush: They're around 5%. The Japanese may be wary of the future after the bubble-fueled economic euphoria of past decades. But most of them have jobs. And as to what they enjoy in the public sphere, well, let's just say that if you take a train out of Tokyo and compare that to a train ride from New York City, you will quickly discover just how well our fiscal austerity is working for us. Go ahead. Use the toilet if you dare.
But the big question is this: Why does America continue to put up with high unemployment when we can directly create jobs, just as FDR did through the Works Progress Administration? Is it because big corporate interests want to keep wages down by keeping large numbers of Americans out of work? Is it because the rich become more powerful when ordinary people have less? These are the dark visions we should be worried about. History shows that when times are tough, the government can create jobs and find plenty of useful things for laid-off folks to do. Like repairing roads and rebuilding decrepit schools. Where there's a will, there's a way. Political will is what stands between millions Americans and a more prosperous future. That, and reporters who don't do their homework.
No matter which country is being discussed.
The media's only response to how wrong it was about Japan is to turn harshly to the other side of the argument. However, they are still perpetuating an unjust, irrational fear, only this by way of Japan's weakness rather than its strength. The American punditry could benefit immensely from some proverbial Valium for its hyperventilation over Asia's booms and busts.
I think I'm turning Japanese
I really think so
~~The Vapors
That was not a Fear Of Japan Song Lyric....
It was about...... Pleasuring One's Self... alone..... OFTEN !
I think the idea some people have formed is that if the media here keeps saying that Japan is sinking in a quagmire, then maybe the Japanese will fall for this ruse, and this will magically help the US economy.
That is dead on. Throw in rampant cronyism, corruption scandals that lead to frequent administrative changes and thus denies the country any sense of continuity or consistency in economic planning, factional infighting that often renders new administrations dead in the water from the get go as well as the general risk averse nature of the Japanese in general and boom, you have 20 years of stagnation and a fear of a "karyuu shakai" (a word that depicts the degradation of economic expectations for Japan's once proud middle class).
However, you have it wrong on Japan's unemployment figures because those numbers are worthless. If you worked one hour total digging a ditch or handing out flyers over the course of an entire month you would be considered employed in Japan. You can pretty much double anything the Japanese government quotes on unemployment.
Also, the Yakuza controls most of the free construction labor in Japan, so those construction projects kept Japan's organized crime in a far better fettle than it would ordinarily be in during these down times. Even so, the Yakuza have been laying off henchmen.
"Economy Finally Hits Bottom." (Asahi Shimbun headline: spring, 1993).
deflation is not necessarily a bad thing unless you are in debt or issue debt. as was noted, it's difficult to see how the living standards of the average japanese person has been diminished over the last 20 years. this has been a function of the high savings rate and the low debt levels of the japanese people.
the usa problem is much different than the japanese problems with the exception of allowing the banks to ignore all the bad debt on their books. there has already been a significant shift in the demand curve of consumers and the standard of living has taken a significant hit as a result. if end demand is not turned around the danger of an accelerated downward spiral is imminent.
the current quantitative easing and exportation of inflation plan in place will not work fast enough or do enough to create jobs and a ramp up in .gov stimulus spending may not be enough to take up the slack unless the stimulus is extraordinarily large, several trillions of dollars large.
its going to be a bumpy ride. watch out for the cliff.
I also feel compelled to break down exactly what the Tea Party is all about. First, they are not trying to "save the dollar". They want no national currency. Their dream is to have state issued currency (most likely gold/silver) and have competing currencies. This would weaken this country to a point few seldom contemplate. They are calling for a Constitutional Convention not to "restore" the Constitution, but to destroy it. There are several different websites that have their proposed "new" Constitution. Read it for yourself and I think you will understand why they are not more open about what it contains. It's not exactly democratic. The people I read here who blindly follow this nonsense have obviously never done any research into the Tea Party's supposed "solutions". There is a reason they will not debate and have reporters arrested.
We are in a liquidity trap, as was Japan. The money supply DOUBLED in 90's Japan and there was little inflation. Liquidity traps are terms real economists use and not the Austrian types, who hold no position of influence or authority anywhere in the world. There is a reason for that. The Tea Party is who are aiming to "destroy" America and their supporters should get ready for the backlash.
It is hard to see the hidden discrimination in Japan but it is there and IMO, it will not change until the older generations have died away. Younger Japanese are very different but they still have to live in a world of "salarymen" in blue suits unless they are fortunate enough to be employed in today's high technology software industry.
The major differences are the extent of it's population pyramid and it's use of the Keiretsu system.
Other than that, Japan is just another bubble gone bust...just like the rest of the developed world.
Check out these slides by Dylan Grice on currency debasement, equity valuations, deflation, Japan, Chinese hard landing, government insolvency, gold
http://www.planbeconomics.com/2010/10/23/dylan-grice-currency-debasement-equity-valuations-deflation-japan-chinese-hard-landing-government-insolvency-gold/
We do have the benefit of immigration to lower the population age (which Japan avoided) but social security reform becomes more and more difficult the longer its postponed because it becomes less capable of making gradual adjustments the closer we get to the cliff.
China will also face the same problem 50 years from now when their 1 child policy works through and more people are in retirement than being born, but they have a lot longer to adjust and an easier political environment to make decisions (not saying that i'd prefer their system, i don't)
We need to adjust our immigration policies but building walls on the borders is not an answer. The first thing that needs to be done is to re-examine the way we willy-nilly issue H-1B visas and what impact it has on education and training for jobs in new industries.
and then let's give appropriate credit ( no pun internded) to hyponational capital fleeing around the globe at near lightspeed capturing the next 1/000% of arbitrage and spending millions in concealed anonymized campaigns to reduce their taxes to effective rates below what middle class and working class folks pay, with the abject submission ( not even as indepedent as whoring) of one major political party, and the tacit acceptance of the other - even if it is being stiffed on payoffs.
The easiest solution (in theory) is to start over - offer a flatter structure (maybe 20% rates for every dollar after the first 20,000 of income) but eliminate all of the writeoffs so that it is enforced fairly. We should keep loss carryforwards, but everything else goes - no preference for oil or green tech or whatever else a given party gets money from.
We all know politicians will eventually go back to their old ways and give more writeoffs, but this would take us back and slow that process down a decade or so.
Furthermore, having people pay SOMETHING at least gets them involved in the debate - not "raise taxes on him but lower mine".
And supposedly recovery is not around the corner. Many say the US is headed the same way.