Live Blogging The Robert Shiller Press Conference

Are We Headed for Another Financial Crisis?
Robert J. Shiller
Economist and Nobel Laureate
Foreign Correspondents' Club of Japan
11:00~12:00
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11:06 Shiller presentation: Of course there is going to be a crisis, the history of the last 800 years is a cascade of crises.

11:08 My view is that financial crisis is a crisis of human emotions, the loss of confidence, a psychological effect.

11:09 In 2005, the new edition of Irrational Exhuberrence focused on the housing market, rather than the stock market (first edition focus)

11:10 The weakness/source of concern now is bond markets, where prices of bonds seem way out of line.

11:11 So talk today is about stock markets, housing markets and then some observations of  world bond markets, where the yields are startingly low.

11:15 Cyclically adjusted price earnings (CAPE) in U.S. markets are at their third highest marks in history, second only to the 2000 millenium boom and the 1929 Roaring Twenties.

11:16 Japanese CAPE ratios were astronomical in the EARLY 1980s but now shrunk to global norms.

11:18 Japanese confidence in rising share prices remains aberrantly positive.

11:20 U.S. economy is now in deflation.

11:21 Trend in yields in U.S. bonds in relentless downward, and downward at an almost constant rate for the last 30 years.

11:24 Psychologically, loss of confidence, less of a sense of security, from 1) capitalist ideology (everyone for himself/herself)

11:22 Trends in bond yield declines are a global phenomenon, somewhat irrespective of the particular actions of central banks.

11:24 2) computer technology,

11:25 The result is excess savings and the bidding up of the prices of existing businesses and governments.  The lack of security is thus leading people to cut back spending and/or starting their own businesses.

11:27 Entrepreneurial and development successes are receding, leading to weakness in confidence that is often called secular stagnation.

11:29 Q: How much can politics can change economic psychology? (Abe reference)

11:31 The "Three Arrows" are actually concrete proposals, not an attempt to talk up the economy. That is what makes the proposals worthwhile, as just cheerleading has a poor record of success.

11:33 Shiller - NASDAQ high yesterday, adjusted by CPI inflation, is not at historic highs. So not so significant.

11:34 Japanese confidence bled into world markets, distorting international flows toward Japan, in the same way that overconfidence in tech magic led to NASDAQ historic highs.

11:37 Shiller - I had a conversation with Prime Minister Abe a year ago - unfortunately I (Shiller) did most of the talking so I have little so say about Mr. Abe's thinking about Abenomics.

11:38 (Says an interesting thing about labor force security - MTC here). Shiller sees the easier firing of Japanese workers as a good thing for efficiency. Intriguing...really?

11:42 In the U.S., there is a socialist economy in the housing markets.

11:44 Schiller - Decision to create the euro was politically an act of genius and not an act of genius economically. Euro is important as a symbolic act, but one with too many economic consequences. Symbolism is good.

11:47 Income inequality - Piketty, capital accummulation; Shiller, technological inequality.

11:48 Shiller quotes Norbert Wiener on whether the nuclear weapon or the computer is more dangerous. Worries about robots replacing human labor.

11:50 Abe advisor and fellow Yale economics professor Hamada Koichi is offering commentary on the presentation.


Hamada Koichi
FCCJ press conference of Robert Shiller on 3 March 2015

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11:51 Hamada: "There is a rosy future for the Japanese economy."

11:52 Hamada: "Mr. Abe is holding back, allowing the figures to speak."

"Oil prices are a positive. A million workers have entered the labor force. Wage are increasing. But Abe must do reforms, overcoming obstacles."

11:54 Hamada+Shiller  - Womenomics is important. Shiller: it is inspiring. Hamada: numbers are returning (???) to the job market.

[Nota bene: the % of women in the Japanese workforce is higher than the participation rate for U.S. women - MTC)

11:57 Q: with true declines in populations and aging of populations, is not there no exit out of slowing or contracting economies?

Shiller: government policy to combine career and family is an important step to reversing or slowing decay in confidence.

11:59 If you want to end inequality, you should have career insurance -- takes care of the insecurity of life planning. Governments must have a plan to tax the wealthy and subsidize work, do it now for the future rather than try to deal with inequality (worsening?) in 20 year's time.

Labor = Capital *

Looking at Japan's perennially and perniciously weak consumer spending, the marriage rates of those not in permanent employment versus those who are, the decades-long reign of "public servant" at the top of "What I want my child to be when he/she grows up" rankings (for example, Bandai - J or Kuraray - J) the speed at the checkout stands at Ozeki supermarkets (I was wrong, Ozeki does employ part-timers -- but only high school students it seems) I am beginning to think that the fundamental divisions of economic factors of production into Land + Labor + Capital are unhelpful and possibly harmful. Indeed, in light of the rise of the glaring social downsides of the increasing fraction of non-permanent workers in the workforce, it may not be hyperbolic to say that looking to the economists of Anglo-Saxon economies for advice on reforms of the Japanese labor market is much like asking anarchists for advice on reform of the banking system.

Yes, I will elaborate.


* Offer geographically restricted. Not available in some countries and territories.

Het Was Erg Aardig Van Hem Om Dit Te Doen #34

Daniel Leussink of Het Financieele Dagblad and I had a conversation recently. An excerpt of some of what I said, translated into the Dutch, can be found here:

http://fd.nl/economie-politiek/967371/abenomics-levert-japanse-winkeliers-wisselend-resultaat-op

I wish I could say that I am the original author of the metaphor that the first two arrows of the Three Arrows of Abenomics were anesthetic for the Japanese economy, administered in advance of the surgery of the third arrow, structural reform. I think the first person to suggest this metaphor was Richard Katz of The Oriental Economist.

Abe Shinzo's Arcadian Economic Idyll

Terraced rice paddies and lights of fishing boats offshore
Yuya Township, Nagato City, Yamaguchi Prefecture
Source URL: Link

Yesterday the Abe Shinzo government and the Bank of Japan under the leadership of Kuroda Haruhiko, whom Abe Shinzo had appointed to the position of Governor of the Bank, moved decisively to block economic headwinds from slowing down the growth of the economy and the rise of CPI inflation to 2%. (Link)

The new monetary bazooka (one commenter on Twitter feed likened the change in policy to Kuroda's tossing aside his cash bazooka in favor of a B-52 bomber) blew the yen-dollar exchange rate right past the 110 range which political noisemakers were last week declaring a line in the sand, at least until after the April 2015 Unified Local Elections.

My hometown paper, the Tokyo Shimbun, reacted, from a look at its headline, in an entirely predictable, populist way to the news.


Click on image to open in a larger format.

Strange, no celebration for the increased chance the BOJ will reach it goal of 2% inflation in a reasonable span of time. Or for the increased profits Japan's large multinationals will get to book again this year due to the certain decline in the value of the yen vis-a-vis other currencies.

With the actions by the BOJ collapsing the floor underneath the yen -- together with the rises in equity prices the BOJ's additional easing and the Government Pension Investment Fund's portfolio reallocations will engineer -- the major corporates have a second chance (not that they deserve one) to deliver on what the Abe Administration must have thought is the implicit Abenomics bargain:

"We the Abe Administration and compliant governors of the Bank of Japan will goose your equities prices and turbocharge your profits. You corporates will dramatically raise salaries and hiring of your permanent employees, and not just double bonuses, creating a positive inflation expectations loop from which all of society can benefit...oh and no wanking around with further increased hiring of temporary workers to replace permanent workers! We're watching you."

In the last year's hiring and this year's spring Labor Offensive (shunto) the executive suites of Japan's corporates utterly failed to return the favor Abe and Company had done for them.

So having been burned once by the executives, why is the Abe Administration willing to double its bets on the capacity of the executives of the multinationals to pitch in, behaving in a patriotic, sharing way?

Perhaps it is because Abe Shinzo believes that to do so is in the marrows of the executives, their very DNA itself.

Consider if you will the below passage from the Mizuho no Kuni ("the land lush with rice plants") chapter from Abe Shinzo's 2013 book, Atarashii Kuni e (unofficial English title: Toward a New Country). At the end of the chapter Abe describes his faith in the existence of a fundamental, essential and frankly beautiful Japanese economy:

The Capitalism of the Mizuho no Kuni
[...]

From ancient times unto the present, this country called "Nippon" has been a place where one rises early in the morning and cultivates one's fields and rice paddies, sweat streaming. When the Autumn comes, together, with the Imperial Family at the center, we pray at the Festival of the Five Grains. This is the "Mizuho no Kuni." It is based upon self-reliance and self-help. If by some ill-chance a person should fall ill, all of the inhabitants of the village would help [the ill person]. This from ancient times unto the present has been the social welfare system of "Nippon." It is bound up in the DNA of the Japanese people.

I believe there is a capitalism of a Mizuho no Kuni that is appropriate for a Mizuho no Kuni. However, while having an emphasis on an economy where there is free competition, it is not the capitalism that takes, as its motive force, greed, the type that has emerged out of Wall Street to take the world by storm. Emphasizing ethics and rules (dogi) and with a sense of what real wealth (makoto no yutakasa) is -- a form of market-based ideology in the Mizuho no Kuni that is appropriate for the Mizuho no Kuni.

The Abe family has its roots in Nagato City, from long ago the township of Yuya. There are terraced rice paddies there. They face the Sea of Japan and when they are filled with water, in each one there is a reflection of the Moon, the reflections of the lights of the distant fishing boats. It is so beautiful as to take one’s breath away.

The labour productivity of terraced rice paddies is low. From the point of view of economic rationality they are nonsense, perhaps. But precisely because there are these terraced rice paddies, this is my ancestral home. Furthermore, because we have these rural vistas, is this not why a graceful and lovely Nippon exists? Amid a market-based ideology, tradition, culture and regional difference can still be emphasized. I want to go forward thinking about the means to an economy appropriate to a Mizuho no Kuni.

[Unofficial Translation by M. T. Cucek]

But wait, wait, the historians are crying, this is the romanticized, a-historic vision of the moral village, the pure agrarian life the young officers and fanatics of the pre-war era pledged to defend --- and in the 1920s and 1930s those guys would ASSASSINATE the capitalists!

Well, yes. But then, we already knew the PM does have a kind of funny vision of pre-1945 Japan, which, because it is inherited -- like Shiozaki Yasuhisa's shareholdings -- is nothing to worry about

As for pushing today's capitalists to get with the program on behalf of their fellow Japanese and not just themselves, can one think of anything more convincing than a reminder from Abe of a glorious and clearly more beautiful past? One that says in the very simple and vivid terms, "Be Generous"?

And yes, it is the most incredible, delicious and sweet coincidence that the one major financial group which has set itself apart by declaring it will raise wages a second time this year, in addition to the shunto raise of April, is...Mizuho Financial Group. (Link)

A Brief Note On Japanese Political Vocabulary

I have completed a few more orbits of the Sun than I want to acknowledge. I have made a rather larger number of those orbits whilst standing upon Japanese soil.

It has not been until this autumn, however, that I have come to understand the functions of two nouns -- one a common noun and the other a proper noun -- in Japanese political discourse. The usage of these two nouns has always caused my ears to tingle and my breath to halt. However, until this fall's Potemkin debate on the raising of the consumption tax and the lurching, blood-spewing path the execrable* Official Secrets Bill (my latest read: the ruling coalition will pass the bill amid chaos on Friday, giving the public the reason it has been seeking to hate the Liberal Democratic Party all over again) has taken toward passage, I could not put my finger on why.

Now I can.

Here are the two nouns whose political meanings I have come to understand:

Taisaku- 対策

The dictionary defines taisaku as "countermeasures" - the changes you have to make to your operations in order to cope with a new situation. In Japanese political speech, however, taisaku has a more limited meaning. Rather than being "countermeasures" in a general sense, the taisaku drawn up by bureaucrats and politicians should be understood as "dubious government actions intended to countermand the entirely predictable deleterious side effects of earlier and equally dubious government actions, primarily in the sphere of economics."

The escalating rounds of countermeasures leading up to the decision to go forward with the rise in the consumption tax illustrates this special meaning of taisaku. First we had the bungled Bank of Japan response to the Plaza Accords, which led to asset price bubble. After the piercing of the bubble and the consequent collapse of economic activity, elected officials responded with fiscal stimulus package after fiscal stimulus package, each one too puny to halt economic contraction because of Finance Ministry fears of jacking up the national debt. The too puny fiscal stimulus packages and tentative monetary easings of the 1990s, coupled with Japa'’s long-recognized aging, created an unsustainable level of national debt via-a-vis the nation's pension/health care obligations. Meeting these obligations requires more revenues, which means higher taxes. Higher taxes, especially regressive taxes like the consumption tax, decreases economic activity. So the government has to cobble together a stimulus packages, either cutting back on tax receipts from other areas or borrowing money, which further increases the debt burden, which means the creation of expectations of further tax increases in the future, which diminishes the desire to spend, which...

The main reason why Japan's bureaucrats, politicians and even its big businessman have not ever thought of stepping off the ascending spiral staircase of taisaku is that halting the process would force members of the Establishment say, out loud:

"You know, we screwed up. We pretended to be omniscient, transcendent higher beings when what we were really was cowards and frauds. Sorry."

Which establishments never say. Ever.

Except, of course, when they say, "Taisaku."


Yokota Megumi - 横田めぐみ

Yokota Megumi was a 13 year-old girl, walking home from a badminton practice at her middle school in the heart of Niigata City, Niigata Prefecture on November 15, 1977. On the way, she seems to have crossed the path of North Korean agents. For reasons that will likely never be explained, the agents took her as a captive and spirited her away to North Korea, where she grew up a prisoner, employed as a trainer for North Korean spies hoping to pass as Japanese citizens. She purportedly committed suicide in 1994, and is survived by a former husband and a daughter, both of whom are prisoners of the DPRK regime.

While tragic, Ms. Yokota's story is not unique. A couple dozen other Japanese nationals, hundreds of South Korean nationals and a smattering of citizens of other nations have all been kidnapped and held captive by the irretrievably evil government of the DPRK. Ms. Yokota's story and that of Soga Hitomi, a young woman whose was kidnapped from Sado Island in 1978, indicate that her gender and youth were factors in her survival. They also indicate that the kidnapping of Japanese citizens to become teachers of Japanese mores and culture -- Megumi's eventual role in North Korean society -- was an ad hoc justification for what was a fairly pointless and marginal facet of North Korea's ever-evolving program of extortion through random acts of terror.

In Japanese political diction, however, mention of "Yokota Megumi" is the refuge of the intellectually unsound. Like references to Hitler in English-language discussions of politics, the brandishing of "Yokota Megumi" is supposed to stun the listener into silence. Why does Japan need a national security council? "Yokota Megumi." Why does Japan need such a draconian new official secrets law? "Yokota Megumi." Why does Japan have to revise Article 9 of the 1947 Constitution? "Yokota Megumi." Why does Japan have to …“SHUT UP! SHUT UP! I CAN’T HEAR YOU! YOU SEE MY FINGERS IN MY EARS, YOU CHINA-LOVING, DPRK-CODDLING DUPE? I HAVE NO RATIONAL REASON FOR CURTAILING CIVIL LIBERTIES, TURNING A BLIND EYE TOWARD XENOPHOBIA AND RAISING JAPAN’S MILITARY POSTURE SO YOKOTA MEGUMI, YOKOTA MEGUMI, YOKOTA MEGUMI!!!"

Here is prime example of Yokota Megumi being dragged in in order to supposedly prove a point, drawn from a major political tract by a famous author:

After the Dhaka Incident of September 1977, Kume Yutaka of Ishikawa Prefecture was kidnapped and taken to the Democratic Republic of North Korea. The police authorities of the time arrested the perpetrator. However, knowing that the perpetrator was involved in a covert operations organization of the Democratic People's Republic of Korea, the police let him go out of fear of a dispute arising with 'peace-loving peoples of the world.'

Because of this, what occurred? Two months later, in November, Yokota Megumi was kidnapped from the seaside of Niigata Prefecture. Had the Government of Japan at the time [of the Kume disappearance] chosen the path of confronting the Government of the DPRK, would not Megumi-san still be living her life in Japan?"

In the end, Japan's postwar system, as symbolized by the Constitution of Japan, could not safeguard the life of a 13 year-old girl. And for us, even now, this problem remains [unresolved].

A flimsy free association of various humiliations of Japan occurring in the autumn of 1977, including the purported Kume kidnapping, which has never been acknowledged by the DPRK, if Kume's disappearance was even a kidnapping. The spinelessness of the Fukuda government toward the Dhaka hijackers leads to the disappearance of Kume in Ishikawa which leads to the release of the police's top person of interest in the Kume disappearance which leads to kidnapping of "Megumi-san" two months later in Niigata City.

Indubitably.

The passage includes a sarcastic quotation from the preamble of the Constitution ("We, the Japanese people, desire peace for all time and are deeply conscious of the high ideals controlling human relationship, and we have determined to preserve our security and existence, trusting in the justice and faith of the peace-loving peoples of the world"). The quote seems a demonstration of an adolescent desire for applause for cleverness. While feeling contempt toward Constitution and its naïve faith in the good intentions of peace-loving peoples of the world is a valid emotional reaction, this contempt should be expressed openly, not hinted at by the snide use of quotation marks.

So why should I or anyone else be give a damn about this snarky connect-the-dots bit of weirdness reminiscent of the histrionic performances of American embarrassment Glenn Beck, one culminating in the author's making a maudlin appeal to sympathy for Ms. Yokota in an absurd bit of speculative history? Because you will find it on page 252 of Toward a New Country (Atarashii kuni e) -- a book published earlier this year by a certain Mr. Abe Shinzo, prime minister of Japan.

Now I understand what my body has been telling me all these years: when in an argument with someone over the appropriateness of the Japanese government's taking a new position as regards security, or its plans to adopt an unprecedented new mode of operation, at the very first utterance of "Yokota Megumi" I should relax, smile and go prepare to go home.

The argument is over. Indeed, there was never any argument on the other side at all.

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* On November 8, the Tokyo Shimbun reprinted the entire working text of the official secrets bill, highlighting the 36 times the lazy authors of the bill had ended their sentences with "and so on and so forth, et cetera" (sono ta).

Two Presentations Of Great Importance On Abenomics

There are two must-not-miss presentations at Temple University, Japan this month -- neither of which, paradoxically, I can attend.

But you, dear reader, possibly can.

- The one tonight (Link) has Richard Smethurst speaking about the man whose face should be on the 10,000 yen bill (pax, Fukuzawa Yukichi admirers). I have heard on the authority of one of the best lecturers I know that Dr. Smethurst is a solid speaker. As for Takahashi Korekiyo, about whom Dr. Smethurst wrote the book, his brilliance, humanity and death haunt me. That the government of Abe Shinzo has sought to align itself and its economic policies on the side of the angels by linking Abenomics to Takahashi is both thrilling and disquieting.

- On November 29, Naomi Fink, CEO of Europacifica Consulting, will be speaking on Abenomics and the wealth gap. (Link)

Why you should go, even if the subject matter or time slot are outside your comfort zone?

Simple: wherever the room and whatever its size, Ms. Fink is almost certainly the smartest person in it.

You will learn about this blessed land.

Worthwhile Reads For October 16, 2013

You Can't Touch This - Ayako Mie in The Japan Times on the really spiny legislation up for debate and a vote in the brief 52 days left before the end of the Extraordinary Diet Session (Link - J) --  bills so potentially explosive Prime Minister Abe Shinzo failed to mention them in his Diet Policy Address (Link - J). The omission of even a hint about the Official Secrets bill, which surrogates like Liberal Democratic Party Secretary-General Ishiba Shigeru have been touting as a package deal with the establishment of a national security council, shows how fraught the outlook is.

Reform My Sweet Watusi - Sawa Takamitsu can be all over the map in his commentaries (a trait shared by a certain yours truly) but he hits the mark in an essay, also in the JT, accusing the Abe administration of reversing the reform legacy of not just the Koizumi administration, but the Nakasone administration as well. His sharpest characterization? That the peculiar attempt to browbeat big business into delivering wage hikes -- rather than, for example, creating incentives for more hiring of permanent workers or higher wages for workers already hired -- is nothing more than an attempt to establish a form of state capitalism. (Link)

As for Abe's numerous public declarations of wanting to earn the title of "Japan's #1 Salesman" it is strange that the promise has not stimulated journalists and commentators to recall French president Charles De Gaulle's famous description of Prime Minister Ikeda Hayato as a vulgar little transistors merchant.

They Made The Bed. You Have To Lie In It - Robert Dujarric, writing for The Diplomat, tells it like it is regarding the so-called East Asian history problem: Japan's engagement with historical issues is compared to West Germany's and likely always will be. Yes, the Japanese right is right: it is unfair. Incredibly so. Jiminy never told you, Fate is unkind sometimes, too. (Link)

Can You See The Real Me? Walter Lohman, John Fleming and Olivia Enos of the Heritage Foundation have produced a series of beautifully edited graphics pages providing the visual starting points for many a discussion of Asian security and economic issues. Pretty, pretty, pretty. (Link)

Suggested Exhibition #2

If you find yourself in the vicinity of Ogikubo Station on the Chuo Line and have a few minutes to spare, you might want to walk up to the Suginami Historical Museum's Amanuma Branch Museum (Suginami kuritsu kyodo hakubutsukan bunkan) for a tiny exhibit of mass-produced toys and toy making in the period prior to, during and immediately after the Occupation.

The impact of the march to war upon the toys children play with is not something that often comes to mind when one considers the social history of the Meiji, Taisho and early Showa periods. Big changes came not just the permissible and suggested themes of play but in the materials as well, with metal disappearing from toy making very early during Japan's adventure on the continent, the tin and iron sucked up into industrial production for the war. By the very end, toy makers were reduced to making toys out of celluloid and thin strips of bamboo.

Particularly fascinating are the pair of Occupation era propaganda films on the postwar birth of a workshop toy making industry. Waste (empty tin cans) from the U.S. military's canteens and clubs became the raw material for an almost entirely hand-powered process producing toy cars for export.

A whole world of asides ("And into tin toys beat our trash/nations shall learn war no more"; "Japanese were exporting cars only a few years after the surrender, only these were made of tin"; "Yeah, and that must have been the last time an American bigshot could be smiling at a display of Japanese cars ready for export"...) come to mind as one watches the films, which are showing in a continuous loop on the video monitor next to the staircase.

Lovers of historical irony will probably like the jellied alcohol-fueled model nuclear power station in the later postwar section of the exhibit, as well as toys of the 1930s proclaiming Japan's military might.

The exhibit runs through December 1. There are special programs on the 20th of this month and on November 3.

Information on the bunkan (Japanese only) can be found here.

Not Even With Free Money May This Land Be Healed

Where macroeconomic policy making meets psychology, unhappily: Kathleen Chu's and Katsuko Kuwako's look at Japan's brain bursting housing and land markets. (Link)

Hint to world: after a housing bubble bursts, destroying the equity and/or the virtual savings of everyday folk, be not surprised if weird, interest-rate and market-clearing-mechanism-defying resistance should move in...and never leave. Even in the most densely populated environs on the planet.

Hoarding is what Chu & Kuwako describe...but the hoarding of a vacuum, the lost value of land and buildings owners never had a chance to hold in their hands.

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Image: Conjunction of Venus, Jupiter and the Moon above the Kanda River on 30 November 2008.
Image courtesy: MTC

Abenomics -- A Tragi-comedy In A Series Of Desperate Acts

Jesper Koll will be at the Foreign Correspondents Club in Tokyo on Monday. Koll is an engaging and effusive speaker, his main fault being a Teutonic tendency to shout.

Unfortunately, he will be on a panel speaking on the topics of "Abenomics: A Story of Success or Failure?" (Link)

[Odd...when I was typing that phrase just now, the fingers went astray, typing out: "Abenomics: A Story of the Success of Failure"]

I would go to witness the latest iteration of the Koll spiel (We all remember his TED talk from last year, bullish back even before Abenomics started slapping us around, yes? -- Link- YouTube ) but "Dogpile on Koll" is tired even as a silly party game.

I hope the attendees leave him alone. He's a narrator, not a playright, after all.

There have been a lot of debates on Abenomics. There will be a lot more. The one I want to hear will explain how a government and a central bank of an advanced industrialized democracy with a shrinking population creates inflation in the real economy (the capacity to create asset inflation is proven) without going through the actual physical procedure of printing currency and leaving it out on the street for folks to pick up.

The enthusiasts have never explained that one.

Martin Wolf Drops The Other Shoe...

...and it lands on Paul Krugman's head.

This is one of my posts on Abenomics.

If your daily bowl of rice depends on your organization's convincing trusting savers to invest their money in shabby assets, you might want to click off.

Two months ago I expressed relief that Dr. Krugman took a moment to explain his support for Abenomics -- or at least the deliberately irresponsible monetary and fiscal policies that are all we are likely see of the three arrows of Abenomics, welcome party speeches notwithstanding.　(Link)

The explanation that Krugman provided in February was that the Japanese economy, even at zero nominal interest rates, fails to generate a demand for investment capable of consuming all available savings (Link). By creating inflation and inflationary expectations, the government and the central bank drive real interest rates into negative territory, bringing savings and investment into line.

There was always a bit of legerdemain in the Krugman treatment, failing as it does to provide the bridge in between interest rates and investment. "Invest in what?" is the question that always came to ignorant, non-arithmetic minds minds like mine. "What is this investing by Japan's consumers and corporations that current real interest rates have been preventing?" *

Martin Wolf, in his column for the Financial Times last week, provided what should have been a sobering answer: no such investment exists. According to Wolf's argument, stagnation in the Japanese economy is not the result of failure to reach an equilibrium in between investment and savings. Instead, it is the product of the double whammy of high rates of retained earnings and idiotically low returns on existing investment. In Wolf's view, unless there are reforms creating huge disincentives for corporate savings – an extremely unlikely event, in light of the multi-year effort of the Japan Business Federation (Nippon Keidanren) to justify a lowering of corporate income tax rates – the boost from the debasing of the currency will be temporary, at best. (Link)

Wolf and Krugman are not in opposing ideological camps. They are both interventionists, seeing actions by governments and central banks as crucial to altering the contours of economic events.

However, as regards Abenomics, either Wolf or Krugman is right. Of the two columnists, Wolf presents the more convincing story.

The problem is that the success of the Abe government's program is predicated on Martin Wolf being wrong. Abenomics works only if Krugman's right...or if inflation's soaking up of excess savings is not the engine, then some other inflation-induced growth mechanism kicks in increasing consumer spending and lowering the dependence on government debt-fueled economic activity.

The keys to sparking economic growth (and here I am exposed to the slings and arrows of those who truly do know better, like Alexander Kinmont and Peter Tasker**) have always been structural reforms -- and not the ones the Trans Pacific Partnership is promising. What are necessary -- for both in terms of political viability and fairness -- are counterbalanced reforms, one example of which would be the removal of restrictions on the firing of workers (a recommendation of members of the Industrial Competitiveness Council - Link) paired with a ferocious enforcement of limits on working hours.

Unfortunately, given the almost purely political and not-just-seemingly-but-actually irresponsible nature of the changes being instigated under the banner of Abenomics, the outlook for real reform and thus durable increased economic return is poor.

As for Professor Krugman, he is in the United States, which is the actual subject of his Japan postings. His recent virtual victory lap (Link) is a bit unseemly, given the uncertainty (check out the number of times Wolf uses "might" and "could" in his article) of a positive outcome from the Abe government's policies.


Later - For a worthwhile defense of Abenomics, read Okumura Jun's posted crib sheet for a panel discussion on Chinese state radio.

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* I have a similar problem with the "part of what Japan's economy needs is greater participation of women in the workforce" statements. My impertinent response is, "Doing what, exactly? What safe, rewarding, decently remunerated jobs are left begging for workers?"

** My suspicion is that Chris White is the smartest of this incredibly smart group -- for the very simple reason that he has to my knowledge never written about investment.

Blegging You Please

- I want to listen to speeches at The University of British Columbia symposium of 23 January 2013 on the results of the 16 December 2012 election and the outlook for the Abe Cabinet. However, every time I try to access the site:

http://mediasitemob1.mediagroup.ubc.ca/Mediasite/Play/ce434facbb64415aa8cd5c2ef4a17d2e1d

the video feed crashes about two seconds after start up.

I have contacted the folks at UBC and they find nothing wrong at their end.

Does anyone have a guess as to what could be causing the crashing?


- Listening to Dr. Ed Lincoln's 2011 (?) Temple University Institute of Contemporary Asia Studies (ICAS) talk on Tokyo as an international financial hub (Link) I realized:

a) Though I have heard the "at one time in the late 1980s the assessed value of the land under the Imperial Palace was greater than the assessed value of all the real estate in California" statement dozens of times, I have no idea whether or not it is true.

Does anyone know of the ultimate origins of this anecdote? What organization, if any, did the assessment of the Imperial Palace's land value -- and on what basis?

I am tired of hearing this chestnut without knowing its origin.

b) Dr. Lincoln is fine up until he gets to the "this is why things are the way they are" part of the presentation. Then he hits the rocks.

I dare not listen to his recommendations, as I might try to loft something into low-earth orbit.

Of course, if not for Ed Lincoln's and Clyde Prestowitz's Asian Wall Street Journal op-ed encouraging Koizumi Jun'ichiro to not just resign as prime minister and call elections but to leave the LDP -- published on the 344th of what was to be Koizumi's 1980 days as prime minister -- Shisaku would not exist.

I leave it to the readers to decide whether the annoyance I felt at that op-ed has had a constructive result.

ICAS is the host and sponsor of my 28 February 2013 talk on the Abe Administration. Email icas@tuj.temple.edu for details.


Later - Thank you for all the suggestions regarding viewing the UBC conference. I found it runs on Explorer but freezes up when I use Chrome.

How And If Debt Will Change Anything

The Economist's Free Exchange blog has been looking at attempts to inject the behavior of financial intermediaries into macroeconomic modeling. A recent post introduces a paper by Markus K. Brunnermeier and Yuliy Sannikov (Link) which takes a hard look at the tale the post-Bubble Japanese economy has to tell about treating the financial sector as a afterthought or as a fundamental element.

I am trying to wrap my head around two items in the paper.

The first is the statement "Of course, aggregate total debt in a closed economy is zero." This is both obvious and salient for an economy such as Japan's where so much of all forms of debt are held domestically.

The second is this pair of graphs of the aggregate debt levels in the economies of the United States (left) and Japan (right).

What the right hand graph shows is that total debt in Japan is over 600% of GDP whereas in the United States the figure is less than 300%. The right hand graph also shows a massive shift in the creation of debt from the non-financial corporate sector (deepest blue) to the government (lightest blue) after 1991.

No surprises here either.

What I am trying to understand is where is the ceiling -- the point where the various actors inside a largely closed economy say to each other, "We cannot go on borrowing like this from each other anymore"?

Put another way, with Japan having zero incentive to foreclose upon itself, is there a percentage of GDP where the total aggregate liability becomes significant, save as a psychologically depressing factor?

Later - Reader MK points me to the long, graph-rich look at Japan's economy published by John Makin of the American Enterprise Institute (Link). While Makin tries, as most Americans writing on Japan's economy do, to influence ongoing fiscal and monetary policy battles in Washington, the paper gives a comprehensive, if pessimistic view of the likelihood of Abenomics changing Japan's overall economic situation.

One question: how is it that an economist who argues so strongly for the importance of large-scale, inevitably deficit-enlarging government spending, holds a chair at the American Enterprise Institute?


Image courtesy: Brunnermeier and Sannikov (2012)

Since 1974

Lifted from comments -

Following up on my post casting doubt on some of the assertions made in Jesper Koll's "I'm The Last Japan Optimist" TED presentation, commenter Troy has produced a graph of the the population data and populations projections for persons in their earnings upswing years in both Japan and the United States. (Link)

Pretty sobering is it not?

Japan, on the way down (gently) since 1974.

Sure, you can put in a lot of robots to make up for the decline in available workers -- but those robots are really lousy consumers.

Blog On Economics With A Strong Japan Component

Okumura Jun has linked to Dr. Noah Smith's blog Noahpinion and it is a worthwhile read (Link). Dr. Smith is a rare Japan hand in the high stakes economics blogosphere, having lived in this blessed land for a number of years. Dr. Smith has some admirers in Japan, notably noted economics blogger Ikeda Nobuo, who has allowed Dr. Smith to post on his Agora site. (Link)

In his latest post on Japan's economy, "Should Japan Reflate?" Dr. Smith wonders whether it matters much if the monetary and fiscal policies of the Abe Cabinet trigger high levels of inflation or even hyperinflation. In his judgment, it would not. (Link)

I hesitate to agree with his conclusion.

While I have to agree with the self-evident statement that inflation destroys debt, which would be good for the economy, it would also destroy the value of bonds, which would be bad. Dr. Smith refers to such value destruction as a "tax" on elderly bondholders -- which it is in terms of outcomes. However, high or hyper-inflation would be dishonest taxation, one not vetted by an electoral test.

Inadvertently Dr. Smith's post highlights, rather than dismisses, the danger posed by the Abe government's enthusiasm for inflation. Dr. Smith claims that previous global incidences of hyperinflation have not been terribly damaging, at least from an economics standpoint (his use of Weimar Germany's hyperinflation as an example of a benign result tests my patience. As I remember, the collapse of faith in the Weimar government had a decidedly negative political outcome). As is often noted, almost all of Japan's debt is held by Japanese investors and institutions. What this means is that if inflation takes off, Japanese creditors get torched. This is completely different from the Latin American hyperinflations, where economic irresponsibility burned overseas bondholders as much as domestic ones (Argentina defaults and Italian pensioners are ruined, in the most recent example). High or hyper-inflation in this latter case is like lighting a stick of dynamite, throwing it, getting knocked down by the shockwave, then picking oneself up grinning, saying, "Whew, that was fun!" In the Japanese case, with Japanese on both sides of the creditor-debtor divide, inflation is like lighting a stick of dynamite, then holding on to it.

Not so fun.


Later - Dr. Smith replies in Comments.

They Got There First

The theme, structure and pace of my post of last Friday, "The Aristocrats," seems to have been pipped by Kishore Mahbubani (Link). However Mahbubani, as is his wont, starts off in one direction and ends up somewhere he seemingly did not intend to go.

The observation of a trend toward political dynasties in Asia is not new, having been made decades ago as regards the rise of female leaders in South Asian countries, starting with Sirimavo Bandaranaike of Sri Lanka. What is jolting is that the wave has swept east and north, with every country in this region now run by a descendant of a head of state or top leader.

If were are all resigning ourselves to dynastic and aristocratic rule, can we have all the lives back that were wasted in the 19th and 20th century wrenching power from out of the hands of hereditary rulers?

As for my post on Abenomics, the new government's announced policies and the current movements in the equities and currency markets have Laocoons wailing warnings. In a piece published in the Financial Times on the 4th, the author performs her duty to the cause of the intellectual honesty, noting that history indicates the only sane strategy is to surf the Japanese markets. The author then lets the bulls make their case for at least a short-term commitment to the current market manias. (Link)

Just a quibble...but if one writes an article for non-specialists where one first quotes Jesper Koll and then Kathy Matsui of Goldman Sachs, should one mention that the pair are husband and wife?

Meanwhile and a propos of nothing, Davos Man continues his sad use of an imaginary Japan as a springboard for talking to Americans about America.

Random Thoughts On The U.S. Election And The Chinese Leadership Changeover

Half a world away, about half of the voting age population of the United States is participating in the great experiment that is democracy. One wishes that the voter turnouts were higher, as decisions and the bases for making them grow stronger as the number of participants increases. Unfortunately Americans, while great proselytizers for democracy, are not particularly strict practitioners of it -- much like the pastors who raise the roof with exhortations of the wonders of morality, only to be discovered later to have been sorry sinners.

In Beijing, the National Congress of the Chinese Communist Party will begins its meetings later this week. The culmination will be the unveiling of a new Politburo Standing Committee. While completely unlike the fol-de-rol now coming a merciful close on the North American continent and in President Barack Obama's home state of Hawaii (where Fukushima-born Mazie Hirono is about to become the first U.S. Senator to have been born in Asia) the Chinese leadership selection is also democratic, with the prejudices and aspirations of millions of individual Chinese Communist Party cadres being collected and spliced together into vast coalitions backing the candidatures of a small circle of potential leaders.

Here in Tokyo, while there is a façade of interest in the two leadership contests, the reality has sunk in that no matter who comes out on top in the U.S. and in China, the outcome for Japan is largely the same. Showing interest in the results of the U.S. elections or the switchover of the CCP Politburo seems an anachronism -- a habit, not a necessity.

This was not always the case. Up until about Koizumi era, interest in U.S. elections was intense, particularly among the elite members of the politico-economic world. Trade with the United States and the U.S. military umbrella were of immense importance to the elite, who needed both to carry out their twin feats of legerdemain: providing economic prosperity and security without sacrifice. As long as the doors of the U.S. remained open to Japanese goods and large numbers of U.S. troops remained on Japanese soil, the elites in business and government never had to make choices – everyone could be rewarded for trying to achieve something, no matter how unimportant or even destructive their behaviors.

It should not be surprising that elites would obsess over whether those who would be dealing with Japan would be pro-Japan or not. The elites kept a cocked ear, and encouraged all citizens of this blessed land to keep their ears cocked as well, to every whisper and grumble in the U.S. Congress and the White House and on the campaign trail.

However, during the premiership of Abe Shinzo it became clear that all the attention paid to the United States, all the yen that had been invested in alliance managers of both of the main U.S. parties, could not assure the Japanese government's ability to control its own destiny vis-à-vis the relationship. This point was hammered home this year when The Quartet (Richard Armitage, Stephen Handley Hadley, Joseph Nye and James Steinberg) told Tokyo audiences to stop provoking Beijing and instead learn to embrace their new Chinese overlords. (Link)

As for the China-Japan relationship, the disconnect appeared earlier, in 2005, with the anti-Japanese riots. Stripped away were the China Lobby's pretensions that the Sino-Japanese relationship could be managed. All the banquets, all the Overseas Development Assistance, all the Japanese corporate investment meant diddly in how Chinese citizens and the Chinese government could behave toward Japan. That Japanese businessmen and politicians have kept trying, in the intervening years, to get Beijing to understand just how innocuous Japan is, represents the triumph of hope over memory.

The Chinese escalation of the Senkakus sovereignty question (Link) and the Noda Government's decision to hold firm on a return to the status quo ante have exacted huge costs upon Japanese businesses, particularly Japan's automobile manufacturers. However, the costly fight over what are nearly worthless islets and not particularly hydrocarbon- or fish-rich waters has a silver lining: detachment from China, which would has been resisted by business lobbies, has been accelerated.

I have over the last few days had the privelege of holding a ringside seat at a high-level and high stakes debate oveer U.S. policy toward Japan and China. The intellectual firepower of the participants is blinding.

The debate is bizarre, however, as ruminations on how to accommodate China's continued rise are predicated on just that: China's continued rise. Despite the glaring examples of the collapse of the Bubble in 1989 and the Great Recession (2008 – continuing), policy wonks are failing to check to see if indeed there is a floor beneath them, relying on an axiomatic faith in China's not hitting a wall.

China's investment-as-a-percentage-of-GDP ratio of 50% is unsustainable, however. In order to preserve the illusion of prosperity in the face a global recession and a once-in-a-decade leadership handover, the government of China has greenlighted an immense extension in credit. The bills will come due, sooner than most big thinkers are willing to admit.

When the Great Reckoning comes for the People's Republic, the governments and economies with the fewest strong ties to China will be the lucky ones.

Catching Up

Even though it is now November, it was only yesterday that I took the time to listen to the 8 March 2012 Temple University talk by Kenneth Cukier, the former Japan economics and business correspondent for The Economist. In the YouTube video of the talk, Cukier denies he is anything of an expert on Japan, even after five years on the job. He remains baffled by the contradictions he has seen. Nevertheless Cukier leads the viewer/listener (Cukier speaks without slides, so there is nothing to watch) on a worthwhile tour of the various lenses through which one can view the Japanese economy and Japanese corporations. (Link)

At the end of his presentation, Cukier praises the work of the author Spike of the blog Spike Japan. Spike has produced some of the best writing ever on the down-at-the-heels side of Japan, in long essays laced with humor, affection and a heavy dose of statistics. The magazine is dead, which is sad, for Spike's travelogues, such as his latest on what he saw whilst on a trek through "the wettest, boggiest, squelchiest bits of Hokkaido" would certainly be gracing the pages of a thick and glossy publication. (Link)

Finally, I do not know whether the reporters of the Tokyo Shimbun read The Japan Times blog YenForLiving or whether blog authors Philip Brasor and Tsukuba Masako merely captured the zeitgeist (Link) but today's top story in the print edition of the Tokyo Metropolitan District's hometown newspaper is on the hurdle created by the kyotakukin, this blessed land's world-beatingly high and often non-refundable deposit required for a run for a Diet seat -- though, as frequent Shisaku commenter Troy has pointed out, the amount required for a run at a Diet district seat represents a one thousand yen contribution from three thousand supporters.

He Always Has Something Interesting To Say

The Nihon Keizai Shimbun at one point chose Peter Tasker as the best equities analyst in Japan for five years running. That is not the best foreign analyst of equities. The best analyst of Japanese equities markets, period.

In an essay for the Financial Times, he proposes a very, very long-term solution to Japan's debt and stagnation crises.

Always a worthwhile read.

Why I (Don't) Love Conservative Think Tanks

The below are links to two papers on Japan's economic policies, one from the American Enterprise Institute and the other from the Heritage Foundation.

AEI - Is Japan set to boom?
by John H. Makin
(Link)

Heritage - Japan's National Budget: Time to Give Up on Keynesianism
by Derek Scissors and Kumi Yokoe
(Link)

Two papers, each offering a completely different set policy prescriptions for Japan to follow to grow again.

Both wrong.

For critiques of the AEI paper (no one has bothered touching the Heritage paper, yet) see the NBR Japan Forum posts by:

Arthur Alexander

Richard Katz

and

Mike Smitka

(Full disclosure: I have had communications with Mr. Alexander several times and two years ago had dinner with Mr. Katz and Dr. Smitka at an Asian fusion restaurant where the food was...indescribably bad.)

Why link to papers that offer bad advice? Because the intense focus of Japan's elites on the goings on in Washington can result in these damn things confusing the policy debate in Japan.


Later - Troy supplies a wonderful comment. Please click on the link.