Sunday, September 01, 2013

If You Asked Sixty Persons The Government Finds Acceptable A Question

I frequently give The Yomiuri Shimbun a hard time. It is not difficult to do so, the editorial staff being charged with but a single directive: worship every thought issuing from the current Liberal Democratic Party Prime Minister (and, if an opposition party is in power, scream "Betrayal!").

Since Prime Minister Abe Shinzo has given no indication on whether he intends to approve the scheduled rise in the consumption tax from 5% to 8% next April, or delay or modify the rise, the Yomiuri’s editors have been forced to do something unfamiliar: think for themselves.

Their conclusion: going forward with raising the consumption tax rise as planned is a bad idea. (Link)

The editorial is not without its faults. It contains, unsurprisingly, some half-baked miracle suggestions to make up for the revenue shortfalls resulting from the cancellation of the tax rise. The propositions to issue zero coupon bonds exempt from the inheritance tax and curtailing non-urgent spending sound responsible until spends a few moments thinking through the implications. The first proposal would give politicians guilt-free pocket money without any strictures on what kind of return the government should be expecting on investment (assuming that the extra money is used wisely and not just spent, period). The other would reduce the size of the economy -- which, last time I looked, is not exactly the best way to support economic growth.

Nevertheless the Yomiuri's editors at least try proceed from the government's stated fundamental goals:

1) Japan must escape from deflation

2) Japan's economy must show significant and sustained nominal growth before attempting fiscal consolidation

The result arrived at by the editors -- can the tax for now, do it when the economy can take the strain (which, given Japan’s demographics and other structural impediments may be never) -- may sound populist and irresponsible. However, the result at least has the virtue of being consistent with the supposed principles underlying the Abe government’s monetary and fiscal policies.

By contrast the Abe government seems ready to ride roughshod over any semblance of logical consistency as regards the tax rise. Consider the government’s handling of Hamada Ko'ichi, the emeritus professor previously known as “Abe’s brain” on economic policy:

Hamada on The Effects Of Expanding The Bank Of Japan's Balance Sheet: he is one of the world’s experts in monetary policy and not without reason!

Hamada on The Effects Of Continued Fiscal Expansion: he is a super genius -- stability in the Japan Government Bond market proves it!!!

Hamada on The Serious Constriction Of Consumer Spending From A Consumption Tax Rise Next April: he is entitled to his opinion.

Hamada and 59 other experts -- the definition of expert being left up to the government -- were given a chance to present their views on the consumption tax rise this week (Link). Of the sixty called up to testify forty-four came out in favor of the scheduled rise from the current 5% to 8% in April 2014. Eleven of the speakers favored a delay (Hamada's suggestion) or a more gradual imposition of the tax rise. Two speakers could not say whether they support or oppose the tax rise (thank you for your lack of an opinion and please do not show up again). Only three speakers opposed the tax rise outright. (Link - J)

Hamada and Honda Etsuro (another purported father of Abenomics who advocates a rise of the tax in smaller 1%-2% increments), must have felt mighty strange sitting at the same table as Banzai Akira, the chairman of the Japan agricultural cooperatives or Kishi Hiroshi, the head of the fisherman's cooperatives (they luckily did not have to sit at the same table at the same time -- Hamada testifying on Tuesday, Banzai and Kishi on Thursday and Honda yesterday). One can imagine Hamada and Honda thinking, "I love democracy as much as the next guy -- but how in the name of all that is decent did these moochers of taxpayer money ever get on an economics advisory panel?"

While the convening of the week of presentations for and against the planned consumption tax rise did represent a triumph of democracy, it was democracy of a crabbed, backward-looking and ceremonial sort. Members of The Establishment held most of the spots on the panels, despite the obvious contradiction in between the ostensible goal -- open debate -- and the inherent wish of members of The Establishment to suppress serious discussion of how, despite their supposed expertise and intelligence, Japan finds itself still in a rut 23 years after the burst of The Bubble. That 70% of the invited came to the conclusion "With wise management, we can handle this" should surprise nobody.

Which makes the Yomiuri's stance all the more surprising and admirable. The Yomiuri is telling The Establishment, "Stop kidding yourselves. You can't handle it. The current consumer data is lousy (Link) and your track record on predicting the behavior of the macroeconomy leaves a lot to be desired. And Abe-san, if you listen to these folks, you are nuts."

Later - The Wall Street Journal checks in with a long report on the week of hearings, coming up with a different set of numbers as regards those in favor, those asking for changes, those opinionless and those opposed. (Link)

The WSJ highlights the Friday lunch the PM had with Professors Hamada and Honda (Link - J). I find that têtes–à–tête most intriguing, possibly even more than the meet-and-greet the PM had 45 minutes later with Center for Strategic and International Studies President John Hamre and Carnegie Institution of Science President Richard Meserve, with JR Central Japan CEO Kasai Noriyuki (Link) acting as the chaperone for the two Americans.

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