Thursday, October 23, 2008

The world's easiest job

Looking to change careers? Take the following short quiz, to see if you have the right stuff.
Are you...

(a) beyond stupid, or

(b) the economics editor of The Asahi Shimbun?

If you answered (a) -- then you must be the economics editor of The Asahi Shimbun.
If you answered (b) -- then you must be beyond stupid.

Honestly, where do they find these people?

EDITORIAL: Funding tax cuts
The Asahi Shimbun

Let's assume that a passbook for a bank account with 1 million yen unexpectedly turns up in the drawer of a family that is 50 million yen in debt. Using that money to pay back part of the debt would lower the balance owed, slightly easing the repayment burden. That would be the smart thing to do. But rising commodity prices have cut into the family's daily budget, making it tough to make ends meet. Why not forego the payback plan and use the cash to shore up living expenses?

This analogy helps explain the plan by the government and the ruling coalition parties to use money stashed in special accounts to fund envisioned fixed-amount tax cuts totaling 2 trillion yen.

Corresponding to the passbook's deposit, the reserve for interest rate fluctuations is set aside in the special account for the government's fiscal investment and loan program, under which it lends money to its affiliated institutions and independent administrative agencies. This reserve was created to cover possible losses the government may suffer from "negative spread." This occurs when interest rates at which the government lends money drop below those at which it procures the funds by issuing fiscal investment and loan bonds.

Surpluses in reserves and other deposits held in such special accounts are nicknamed maizokin (buried treasures).

The basic requirement, dictated by law, is that surpluses in these reserves and deposits cannot be used in the annual budget. Instead, they must be used to redeem government bonds. In the example of family finances, this makes perfect sense.

Yet, the ruling parties aim to use these surpluses to finance tax cuts and other fiscal stimulus measures. The thinking, apparently, is that this approach will not harm the nation's fiscal health because it does not rely on floating new government bonds. The main opposition Minshuto (Democratic Party of Japan) also plans to use maizokin.

There is no difference, however, between diverting maizokin for tax cuts and issuing additional government bonds. Both options just delay the inevitable payback scenario. Whether the government appropriates surplus reserves to lower taxes or issues new bonds for tax cuts after it redeems its national bonds with the surplus reserves, the government debt balance remains the same...
So what are you arguing about then?

If there is "no difference" between "diverting maizokin for tax cuts and issuing additional government bonds" then why are you opposing of the diversion of the maizokin? As long as some kind of stimulus not adding to the debt burden is enacted, does it matter how that stimulus is packaged?

But it gets worse:

Given the current global financial crisis, effective measures are needed now. But thinly spread, across-the-board tax reductions would be sheer folly, especially when there is no telling how far the economy will sink.
Soooo...because the situation could become serious, we should not rush into doing something minor, immediate and might distract us from enacting more dramatic economic proposals at a later date?


All right, bring us home.

This nation's fiscal standing is the worst among leading industrialized nations. The government needs to implement economic stimulus measures while rebuilding the social security system so that it covers future generations. Japan must go down this steep and narrow path.

With a Lower House election expected soon, Prime Minister Taro Aso repeatedly says that it will take three years for the nation's economy to recover. Flying in the face of such math, however, is his apparent intent to forge ahead without resolving the critical issue of how to bankroll that revival.
O.K. here there is a a translation problem. The final sentence in the original is:

Pulling out the parenthetical from the last sentence and stapling it to the thought it is completing, the passage reads:

"The healing of the Japanese economy will take three years," is the special phrase Prime Minister Asō has been using. Faced with a general election, it looks as though he is trying to take a detour around the national's problematic fiscal situation.
O.K., that takes care the Sirius Cybernetics* problem with the passage. As for the fundamental design flaws, what the heck does the author think the "steep and narrow path" could be?

There must be fiscal stimulus, yes.

The social welfare system has to be reformed so that it will still be standing in the future, yes.

However, in the face of a severe downturn in the global economy and Japan's economy there is no "steep and narrow path" or any path at all that tackles both problems at once.

The whole point is that someone has to make a difficult and unpleasant choice -- between fiscal stimulus now, with the concurrent worsening of the nation's longterm debt position, or retrenchment, with an inevitable shrinkage of the economy and the possible reemergence of deflation.

Both are bad. Leaders in government have to decide which is worse.

I remember during the mid 1990s when Nobel laureate Paul Krugman was arguing almost daily that the Japanese government should embark on unreasonable and untried monetary measures, anything to prevent the emergence of deflation and continued shrinkage of the economy. The Asahi Shimbun opposed Krugman's ideas on the grounds that quantitative easing, as it would later be called, would make individuals and companies less eager to leave their money in sitting in savings accounts -- because it would not be worth their while.

Really? Because that was the point of Krugman's suggestion!

[Eventually the Bank of Japan under Governor Fukui Toshihiko did what Krugman had suggested. Six years too late...]

Writer of economics editorials for The Asahi Shimbun: the world's easiest job.

* That is to say, where "the fundamental design flaws are completely hidden by the superficial design flaws." For more information on the Sirius Cybernetics Corporation and its products, visit the Wikipedia entry.

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