A few days ago, in comments, I told a reader that it is perilous to think about the United States through the lens of Japan.
I was thinking at the time about Matthew Yglesias' article in Slate on Liberal Democratic Party president Abe Shinzo's plan to spark consumption by sparking inflation by flooding the financial markets with cash (Link). The article, in which a compulsion to link may have supplanted a need to think, is actually about the U.S. Federal Reserve, with references to a theoretical Abe Shinzo living in an equally theoretical Japan.
I have problems with economics articles offering simple answers to knotty problems without a single reference to work by a person versed in the behavior of the economic actors of the country in question.
Without a reference to a set of statistics or a graph supporting the contentions.
And without a mention as to what the tradeoffs are.
Because there are always tradeoffs.
A tip of the hat to Ourmani Nabiko for the the link.
Later - Stephen Harner discusses probably the most disruptive result of inflation. (Link)
Key problem with Abe's idea: there is already plenty of cash in the financial system. Banks are not lending money and choosing to buy JGBs instead. More of this will simply be more of this.
ReplyDeleteI saw a recent presentation by a high-ranking BOJ dude (which he gave some time in November 2012). It was about population demographics -- sort of a throw back at critics that it isn't doing enough.
The BoJ seems pretty realistic with what it can and cannot do. Politicians much less so. My guess is the BoJ wins this skirmish.
[A few days ago, in comments, I told a reader that it is perilous to think about the United States through the lens of Japan.]
ReplyDeleteThank you for further clarification. But I am still not clear what you are trying to say. ^^;
I happen to believe in the importance of independence for central banks. I do think that putting political pressure on these institutions is a politician's prerogative and, at times, duty. But I also think the politician must not be allowed to dictate the will of the bank. Nevertheless, independence has actual merit only when the institution takes technically well-considered actions. And I am under the impression that not only Bernanke himself, but you, too, MTC, think that well-meaning actions taken by the BOJ these last two decades have resulted in great harms and risks to the Japanese people.
Under such a case, I cannot help but think that a Krugmanian computer would have done a far superior job to these technocrats.
At any rate, I think you are misstating your point somewhere. It is quite obvious that it is far from "perilous to think about the United States through the lens of Japan." On the contrary, it is a necessity. Anxiety over becoming the next Japan is wisely a decisive factor in thinking for all American Keynesians nowadays, including Yglesias, and is likely the motivating factor for indefinite QE3.
So, did you misspeak? Are you actually just saying that Americans err by trying to think about solutions to Japan's problems without knowing much about the underlying decision making structure and culture of Japan. Or are you indeed warning that at our peril do Americans try to learn from the Japanese experience.
Of course, economists like Krugman and Bernanke were writing about Japan in the 90s--long before Lehman--because they believed that the mere existence of Japan-style "depression" proved that the US must be vulnerable to same. I believe you are aware of this point.
Or are you instead saying that the Japanese circumstance today is different enough from that of Japan 2001-2006 such that "unlimited" QE--as opposed to the "normal" QE the BOJ implements nowadays--would now pose unbearable risks without sufficient gains.
Well, reading over your post again, I guess it makes sense. You were just annoyed that Yglesias made one of his "Tweet-posts" like he often does. He makes some assertions and then leaves it at that. Except, this time, he made a post on a subject very important to you and which you have thought a great deal about.
ReplyDeleteXD
From the Fortune link:
ReplyDelete"Of this, JPY 28.7 trillion (31.1 percent) is expenditure for old age social security programs, and JPY 21.5 trillion (around 25 percent) is debt service. A doubling of interest rates would double debt service costs to 50 percent of budget. Is this feasible? Obviously not."
"Obviously" not?
Thing is, that 56% of the budget going to social welfare spending and interest is going STRAIGHT Japanese into the economy!
People can't just look at numbers and graphs, they need to MODEL the economy on a flows level -- who's getting money and what are they doing with it.
Now, I don't know what's going to happen to Japan this decade and next in the slightest. But I think that holds for everyone, from the MOF/BOJ to business writers in the US.
Denmark spends and taxes 55% of GDP. That's what Japan needs to do, but Japan's current central gov't outgo is only about 1/3 the size of Denmark's in per-capita terms.
Japan is running a pretty tight ship, it's just that the tax levels have been way too low.
But taxes, borrowing, and savings are all the same when you're dealing with a nation's currency. All that matters for Japan is that the Japanese people produce at least as much wealth as they consume.
I think they can do that.