Monday, August 12, 2013

Any Signs Of Abenomics' Working Yet? A Rant's Worth

As a huge fan of the writings of Princeton's Paul Krugman, I have been hoping that today's GDP release today would provide some evidence of Abenomics actually changing spending habits.

Maybe there is.

If mortgage rates are going to rise dramatically, one should see desperate buying in the interest-rate sensitive sectors. Lo and behold, looking at the nominal increase figures one finds a year-on-year quarterly rise of 9.4% (correct me if I am wrong, but when annualized, this is 44%) in private residential investment. Over that same span private consumption overall rose only 1.2%, or 4.9% annualized. (Link).

Some of this rush into housing, though, must result from the prospect of a sudden jump in costs taking place at the stroke of midnight on 31 March 2013. With the new fiscal year comes the rise of the consumption tax from 5% to 8% -- a huge price increase for consumers to swallow.

Either excuse -- rising interest rates or a big, bad new tax on transactions -- would be reason enough to get cracking on buying that piece of land, home or condo.

If consumers had fear of the new tax but only a weak fear of inflation, one should see weak or negative growth in big ticket items not bought on credit, i.e. - where borrowing rates do not enter into the equation. Consumers considering these big purchases would be right to oscillate between the temptation to buy now so as to to beat out the imposition of the tax and the fear of cheating oneself by failing to enjoy the new features of the latest generation of products becoming available in the new year -- items one still can buy before the March 31 tax tax rise kicks in.

Looking at the purchases of durable goods, we do find a -5.4% drop year-on-year (-23% when annualized) in the second quarter. This continues the shrinkage that began in the fourth quarter of 2013. The rate of decline is decelerating but the year-on-year figures for durables remain in the red, unlike the numbers for semi-durable and non-durable items. (Link).

Consumers should be worried about the price rises manufacturers are going to try to impose. Nevertheless, that fear has not manifested itself. Either that or consumers are not going on to go on a buying spree until the last few weeks of this year, when distributors and retailers slash prices to clear the way for new merchandise.

So in the aggregate consumers are spending more, but none of the extra spending may have anything to do with Abenomics creating inflationary expectations or expectations of robust (kencho na - borrowing the adjectival used this morning by Minister of Economics, Trade and Industry Amari Akira - Link - J) growth.

Where Abenomics has been successful is, of course, in the dumb stuff: government spending, exports and national income.

- Increase public spending, replicating the temporary burst the Democratic Party of Japan-led government deployed to prevent the triple disaster of 3/11 from engulfing the economy -- but this time without any disaster other than the continuing catastrophe at Fukushima Daiichi nuclear power station to counter, and yep, you can get nominal GDP back to where it was at its post-disaster stimulus height.

- Have the Cabinet and the Bank of Japan swear to debase the yen expand the BOJ's balance sheet indefinitely. Calculate one's export earnings and the income from overseas investments in the newly debased currency's units. Look like a sales and investment genius, despite having done diddly (exports and income from abroad are up 4.7% and 16.6%, respectively, from the second quarter 2012 - Link)

Does the dumb stuff count? Sure...but the DPJ would be doing itself a great favor if one of its officers would just stand up and declaim:

"Borrow money and spend it? We could have done that. But we had a sense of responsibility toward the future, to not further deepen Japan's debt hole at the expense of future taxpayers. Actively attack the yen's value, telling folks to better get rid of their yen because we are going to fritter away the currency's relatively worth? We could have done that. Since we care about small businesses and consumers losing their domestic purchasing power, rather than the profits of the large exporters, we didn't. We didn't because we cared ...and even if we had not cared, nobody -- the media, the opposition parties of the time, the voters -- would have allowed us to behave so irresponsibly.

But the Liberal Democratic Party, coming in, manipulating the currency, increasing the deficit, stiffing consumers and savers? That, that is OK. In fact it is not just OK, you all are cheering it on!

The DPJ is in disarray, a loser because it does not know what it stands for? Ii kagen ni seyo!"

I know such a speech is not on anyone's daily schedule. Instead, likely as not those clining to the shell of a party will just keep carping about "wasteful public works spending" as if the voters know how do differentiate what is wasteful from what is necessary in a depressed economy.

However, that something will not happen does not keep me from smiling at the thought of what the reaction would be if it did.

As for my hopes that reality-based economists like Krugmam, Joseph Stiglitz, Brad DeLong and Noah Smith are right about the effects of ferocious quantitative easing and big fiscal stimulus packages -- they remain only that, hopes.


For the full press release on the preliminary estimates for Q2 2013 GDP: (Link - J)

Later -Thanks to all those who responded to the request for a correction.


Troy said...

>one should see desperate buying in the interest-rate sensitive sectors

yes, this is human nature I suppose, but my stupid ideology (Georgism) tells me that housing is generally priced at what the buyer can afford, not a yen more and not a yen less.

This is because the cost of production of housing has a significant land value component (depending on the housing density), and this land value is no way a producer cost but rather an economic rent pocketed by the seller.

Theoretically, the lower interest rates of BOJ's ZIRP pushed home prices up (or reduced further falls), so higher interest rates will push home prices down (or militate against rising valuations). Theoretically.

As a thought experiment, if all wage earners in Japan were subject to the Scandinavian tax burdens that are required to bring Japan's government finances into balance, I would expect to see residential real estate values (and monthly rents) completely eviscerated.

A prominent Georgist called this the "All Taxes Come Out of Rents" thesis.

Nobody really gets this, but I think it's a pretty powerful dynamic at play.

Complicating Japan's real estate picture is the disappearing young people. Taking the age 30-39 demographic as prime homebuying years, this population peaked at 23M right around 1980, has already fallen 25% to 17M this year, and will fall another 35% from that to 11M by 2040.

These are numbers baked into the cake, and are no way inflationary for housing!

Which is a good thing, since housing is a primary mechanism for how what I call the "paycheck economy" impoverishes itself.

See the late 1980s for how that worked in Japan!

What a disaster. The people running things are either crooked and/or incompetent. Probably both.

Unknown said...

"Hegel on Abenomics"

"Burt Lancaster on Abenomics"

"Morrissey on Abenomics"

"Nietzsche on Abenomics"

"Churchill on Abenomics"

Autolycus said...

I am a great admirer of Shisakau but you are surely making a mistake in your calculation of housing growth. The 9.4% nominal growth figure for private residential investment is a YoY figure - it is therefore not legitimate to annualise it by approximately multiplying by four. The annualise QoQ nominal growth figure is 3.8%

Anonymous said...

interesting article :)