The Grand Illusion

Dr. Noah Smith has been one of the great defenders of Abenomics, that amorphous mass of Keynesian stimulus, Friedmanesque monetary policy and Nice Words About Structural Reform, particularly changes in work-life balance allowing women greater access to executive and management positions.

Dr. Smith, however, seems to have undergone a change of heart about the economics of the prime minister. Either that or he has a particular onus against one particular recent seemingly huge announcement: a 28 trillion yen stimulus package, the details of which will be examined in the Diet this Fall (the overal plan received Cabinet approval this week).

Japan's New Stimulus Is Just the Same Old Thing
Bloomberg

Japanese growth is still sluggish. Consumers aren't consuming much, and businesses aren't investing. The government doesn't have many options to remedy this, and the Bank of Japan, which has sent both long-term and short-term interest rates into negative territory, has basically no more room to maneuver.

The dreaded Zero Lower Bound is starting to bite. The BOJ is buying more stocks, but this too has its limits -- eventually companies become de facto nationalized, as the government becomes the majority shareholder. That's scary both because it would affect corporate governance, and because it would be politically unpopular. It's also unclear how much of an economic boost the stock-purchasing program has given the country anyway. The BOJ could resort to policies like a higher inflation target or the much-discussed "helicopter money" approach, but so far it has been afraid to take these steps.

With the BOJ seemingly out of the game, demand-side macroeconomic policy is up to the parliament. So this week the government of Prime Minister Shinzo Abe proposed a new fiscal stimulus package. It is moderately sized: about $45 billion in U.S. dollars this year, and about $60 billion in low-interest loans, to be followed by slightly less next year.

That move might win a few halfhearted cheers from Japan's battered consumers, but it's unlikely to have much of an effect...

(Click here to read more)

Later today (inshallah) Langley Esquire will be posting to YouTube a conversation Timothy Langley and I had yesterday on exactly the same subject.

(For the Langley Esquire YouTube channel, click here)

What should be setting everyone's teeth on edge about both the stimulus package and Abe's recent Cabinet picks, aside from the knowledge that both are in-your-face I-got-mine-suckers giveaways to cronies, is that with majorities in both houses of the Diet, a prostrate opposition, an emasculated bureaucracy, a totally compromised bond market, increasingly compromised equities markets and no rival power centers within the ruling Liberal Democratic Party, the Abe government has failed to pass a single fundamental structural reform of consequence. No other G7 or OECD leader enjoys the freedom and dominance of Abe Shinzo and his LDP. Abe & Friends nevertheless remain timid and/or clueless.

Amaterasu Omikami, save this blessed land from these poseurs and legacy turkeys.

Reality, What A Concept

Reuters takes a look at the Abe promises regarding fiscal stimulus through public works, a big par of the first arros of the "Three Arrows" of Abenomics. (Link)

The argument regarding the Yamba Dam is weak. Then again, an explanation of the Yamba Dam project and the difficulties folks have had in killing it requires an tour through the relationship between the central government and the prefectural governments.

It is also refreshing someone giving the Democratic Party of Japan -- at least the pre-Noda Yoshihiko premiership version of the DPJ -- some credit in trying to put a leash on Japan's love affair with concrete.

Excuse Me, But What The [Expletive Deleted] Does That Mean?

We were talking about Liberal Democratic Party President Tanigaki Sadakazu and his huge problem: that in 2 and 1/2 years as LDP president, he has taken the party virtually nowhere in terms of its popularity.*

It seems that certain members of the party have been aware of this problem for some time now. Indeed, in the fall of last year, the party established an advisory committee to help Tanigaki develop a more appropriately conservative doctrine and image for the LDP.

The members of this council of advisors?

Former Prime Minister Mori Yoshiro
Former Prime Minister Abe Shinzo
Former Prime Minister Fukuda Yasuo
Former Prime Minister Aso Taro

I know what you are thinking: "Wise men...and winners...each and every one."

Put aside for a moment the comedic possibilities of having these four elder statespersons offering adobaisu (just quoting the Japanese text here) on how to make the LDP a more vital party and Tanigaki a more inspiring leader.

You're right, I can't do it either.

Be it as it may, the first public meeting of the group took place on Monday. Well, actually, not. There was a meeting but only Abe and Aso showed up. Mori and Fukuda had better other things to do.

At the meeting the pair representing the collective wisdom of the foursome presented nine proposals. These nine proposals were so salient and pertinent that not a single news organization has published them in their entirety. They furthermore cannot be found on the LDP's, Abe's, Aso's or Mori's websites. It is possible Fukuda would post them on his website, if he had one.

The Tokyo Shimbun, whether out of duty or pity, reproduced two of these proposals in its article on the meeting. (J)

The first suggestion is that rather than focusing on improving the efficiency of fiscal policies and reforms of the tax system, the party should emphasize fiscal reconstruction and not passing on a burden to future generations.

If you can tell how those two ideas are different in a significant way, or how doing the one precludes doing the other, please send me an email.

[Ed. - See Comment #Alex]

The second suggestion is even better than the first. It is -- and I am not making this up:

"Reform of the Constitution and the establishment of a Japan that is more like Japan."

Now this particular suggestion has Abe Shinzo's paw prints all over it. It was Abe who declared that one of the primary goals of his term in office (which turned out to be far briefer than he imagined it would be) would be the promulgation of a constitution "written by our own hands." It seems that the current constitution, drafted in English and in haste by an ad hoc team of SCAP staff members in 1946, suffers from a lack of legitimacy and sensitivity to Japan's spiritual identity.

Tossing away the context -- the faith in Japan's right wing that the U.S. Occupation Forces-drafted Constitution condemns Japanese to an eternal self-flagelatory inferiority complex and domination by left-wing teachers unions -- just what exactly, in an absolute sense, is "a Japan that is more like Japan?" I do not think that the four former prime ministers could come up with a single answer, much less 126 million Japanese citizens. I do not think that Abe and Aso, who managed to both agree to make time in their schedules to show up at this meeting, could come up with a single answer.

To whit, a huge cartoon of a grinning Aso overlooks the maid cafes, electronics bazaars, game figurine emporia and various shrines to AKB 48 and its spin offs in Akihabara. The image of the manga-fan former PM declares his love of all he surveys, the epicenter of Japan's post-post modernist otaku cultural earthquake.

Would Aso classify the seething, transmogrifying mass of Akihabara's simultaneously infantilist, hypersexualized, exhibitionist and alienated sub-cultures as part of Japan that is truly Japan? Judging from what is written in his book, you bet.

By contrast, I do not for one second believe Abe Shinzo has ever spent any amount of time in Akihabara...and if he were ever to spend any time there, I am sure, from what it is in his book, he would not like it.

Not one little bit.

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* The very most recent polls have had some encouraging news for Tanigaki. When subjects were asked which party they would likely vote for on the proportional ballot in the next House of Representatives election, around 23% have said they would vote for the LDP and only around 14% have said they would vote for the ruling Democratic Party of Japan (one example - J).

These figures are far more promising for the party than the absolute party support numbers, which have the LDP and the DPJ in a near statistical tie in their unpopularity.

Growth Neither Nominal Nor Real

Over the last few days I have had the chance to fulfill a longtime wish: to read Aurelia Mulgan George's Power and Pork: A Japanese Political Life (2006).

It is sobering to read the book six years on, in light of all that has happened since.

At the time of the study's going to print, Matsuoka Toshikatsu, the subject of the study, achieved his life's goal of being named Minister of Agriculture, Forestry and Fisheries, requiring that Dr. George hurriedly insert a few paragraphs on his nomination into the last pages of her manuscript – all which was all to come to naught a few months later when Matsuoka committed suicide, this in order to avoid further Diet inquiry into just the sort of sordid accounting and fund-raising shenanigans Dr. George documents.

"A Political Life" turned out to be a grimly prophetic subtitle.

But it is not only Matsuoka's suicide that provides a somber coda to the work. Nakagawa Sho'ichi, Matsuoka’s predecessor at MAFF and a lifelong antagonist was himself to die at a young age (56) under circumstances that suspiciously looked like suicide, after his untreated alcoholism undid his life's dream of becoming prime minister. If Nakagawa's death was indeed suicide (the investigation into the actual cause of death was willfully unenthusiastic) it was repeat of the death of his father Ichiro, who committed suicide in 1983.

Ichiro's political secretary Suzuki Muneo, who comes across as the sleazeball mentor of Matsuoka, was sent to prison for his funding escapades, but is now rehabilitated as the leader of a regional political movement and a member of the House of Representatives allied with the ruling Democratic Party of Japan – a political marriage of convenience Suzuki parlayed into the chairmanship of the House of Representatives Committee on Foreign Affairs – the committee overseeing and investigating the activities of the Ministry of Foreign Affairs, the ministry Suzuki had so thoroughly and extensively perverted through intimidation and interference during the years covered in the study.

As for the misuse and misallocation of government funds perfected by Matsuoka and Suzuki during the "Lost Decades" that burned a hole in the Japanese government’s pocket, wasting trillions of yen on makework projects whose operations and maintenance costs far exceed any societal benefit derived from the support they gave temporarily to Japan’s GDP figures, "bad" economic stimulus that has left the country in an Alice in Wonderland state where the government has a net debt greater than 100% of GDP, funds half its budget through bond sales rather than revenues, deflation devours debtors and risk taking, government bond yields are but a shade above 1% despite massive debts and deficits and the current government's policy response – which it labels reform – is to cut spending and raise the consumption tax, despite ironclad economic laws mandating that such actions will shrink the size of the economy, thereby further reducing tax revenues, requiring greater bond issuance to fund the same size national government budget...while the reforms of the Prime Minister's Office's powers to determine policy have evaporated away, leaving Prime Minister Noda Yoshihiko buffeted back and forth, a feather in the gale.

It leaves one crying, like the poor father at the end of Coup de Foudre/Entre Nous:

"Quel gâchis! Quel gâchis!"

Don't Count On the Dead

I was talking with an investment professional a while back about capital accumulation. At one point in the conversation, the investment professional insisted that Japan's inheritance laws prevented the accumulation of family wealth, with serious adverse consequences on the rate of new company formation -- the assumption being that you need a wealthy class of risk takers, either family members or angel investors, to provide the capital entrepreneurs need to start new businesses. I cannot remember whether the investment professional was criticizing the requirement of equal division of the property of the deceased (surviving spouses get 50% - otherwise legitimate heirs get equal portions of the property) or whether he was complaining that the level of the inheritance tax was too high.

Anyway, the purported stupidity of the inheritance laws was a big deal.

The memory of this conversation got me to thinking about inheritance taxes and what effect they might be having on the state's fiscal balances. The number of persons is increasing, surpassing the number of those being born first in 2005 and unstoppably from 2007 on. In between 1984 and 2009, the number of those dying annually has increased by 54%. It seemed to stand to reason that the state's total take from the estates of Japan's deceased must be increasing year-by-year, largely line with the increases in the number of deaths.

Data source: http://www.mhlw.go.jp/toukei/saikin/hw/jinkou/suikei09/index.html

"Surely," thought I, "though the total take from personal income has been decreasing from lower bonuses, less overtime, greater use of lower-temporary workers and a decreasing workforce -- at least the ever increasing cohort of those running down the curtain in a given year will be doing their share to make up for losses elsewhere. Yes, the fall in the values of most classes of assets post-Bubble and in the Lost Two Decades since will have seriously eroded the inheritance take...but with the increasing number of the deceased, the state should be enjoying at least a mild, if ghastly, increase in revenues from the dearly departed."

Not so. Not by a long shot.


Source: http://www.mof.go.jp/jouhou/syuzei/siryou/141.htm

The light blue bars are the total inheritance tax collected by the state, according to the Ministry of Finance. Inheritance revenues peaked in Heisei 5 (1993) at a little under 2.94 trillion yen. They have fallen precipitously and consistently since then.　Last year (2009 - Heisei 21 - not on the graph) the state collected 1.52 trillion yen in inheritance taxes. Revenues have thus fallen 48% since 1993 even as the numbers of those "paying into the system" have risen 30%.

So despite their rapidly increasing ranks, not even the dead have been of much help in the Japanese state's search for a way to put its fiscal house in order. At some point the downward trend in inheritance revenues should reverse itself, probably sharply, as the immediate postwar generation begins passing into the Great Beyond, leaving behind their hoards, or whatever may be left of such after the postwar generation's having lived for so very long, for the state to plunder tax.

It ain't happened yet, though.