What I Am Clicking On - Re The Economy On Monday, November 17

- Paul Krugman on the apparent decision to delay the October 2015 imposition of a 10% consumption tax rate ((Link). He clarifies that in a deflationary world, an independent monetary authority can be a curse.

- The Diplomat 's interview with Dr. Martin Schulz -- because one should see what the other side is arguing. (Link)

Yes, I too find off-putting Dr. Schulz's characterizations of those who are not with the program as being narrow-minded, short-term fixated and demanding of a large-scale story the media can mediate.

- Tobias Harris on the reality Abe Shinzo does not want to face -- that the greatest menaces to the success of Abenomics are the executives of Japan's corporations (a.k.a. his New Best Friends Forever) and their deflation-honed parsimonious ways (Link). Key here is the understanding that these are not evil individuals (well, some of them are, but for reasons other than parsimony). It is just that their accumulated virtues of thrift become the black hole into which the nation's generate surplus disappears, never to be seen again. The government of Japan has an obligation to yank some of the 300 trillion yen in inert savings back into the economy in the same way the government has an obligation to step in with increased spending when private consumption falters.


The all-important-until-last-week-when-the-Diet-dissolution-story-stomped-over-everything-else preliminary third quarter GDP figures are today. Prime Minister Abe Shinzo is rushing back from the G20 in Brisbane, Australia to meet them.

What Could Really Kill Abenomics

My admiration for Yale University professor Hamada Ko'ichi, the acknowledged intellectual father of the first two arrows of Abenomics (Link), has been, for the most part, non-existent.

Until today. (Link)

And yes, my newfound appreciation is based in his seeing the data the same way I do, as unsupportive of a declaration of victory.

By contrast, thanks to reporting by the same financial news service, my faith in the economic reasoning at major financial institutions has plummeted. In a survey of 32 economists at financial giants like JPMorgan Chase & Co and Nomura Securities, 22 thought that Japanese stock markets would suffer a significant fall if Prime Minister Abe Shinzo decides next month to delay or cancel the April 2014 rise in the consumption tax from 5% to 8%. (Link)

Because...

1) It would diminish the capacity of the Bank of Japan to buy government bonds (What???)

2) Because it would reduce the credibility of the reforms in Abenomics growth package (What???)

Unless the 22 economists with a negative view can offer a mechanism that would cause the relative value of owning shares to fall vis-a-vis other investment opportunities -- which would have to be opportunities outside of Japan as the value of the main domestic alternative, Japan government bonds, will likely be crushed by any hint the government will not even attempt to keep its promises on finding a way of repaying the debt -- then those economists should not answer the phone the next time Bloomberg calls.

As for the so-called Abenomics growth strategy (which is not a strategy since strategy involves choice and sacrifice), its vacuity, not a failure to raise taxes, seems the most imminent and likely cause of a crushing of investor sentiment. In response to a massive letdown after the official Third Arrow announcement in June (Link), the government and its advisors seemingly have chosen the paths of least, or possibly no, effort:

a) Canvassing the public for ideas as to what policy changes should be in the growth strategy (Link) -- as if a grab bag of a hundred little ideas, all of which would require regulatory or legal changes, could even be implemented, much less coalesce into coherent programs, and

b) Doubling down on the announced plans, assigning to the Abe government brain trust the task of making the June proposals seem more than what they are (Link - J) -- the infamous recommendation of the "Plan B is to make Plan A work" school of management.

Oh, fabulous...

The Rootless - A Decidedly Minor Meditation

The loveliness of Paris
Is somehow sadly gay
The glory that was Rome
Is of another day
I've been terribly alone and forgotten in Manhattan...

- Cory & Cross, "I Left My Heart in San Francisco" (1953)

The Financial Times has published an opinion piece on the concentration of the world's wealth and power...and now the world's wealthiest and most powerful, into a top tier of what it calls global cities:

Priced out of Paris
by Simon Kuper

[snip]

Global cities are turning into vast gated communities where the one per cent reproduces itself. Elite members don’t live there for their jobs. They work virtually anyway. Rather, global cities are where they network with each other, and put their kids through their country's best schools. The elite talks about its cities in ostensibly innocent language, says Sassen: "a good education for my child," "my neighbourhood and its shops". But the truth is exclusion.

When one-per-centers travel, they meet peers from other global cities. A triangular elite circuit now links London, Paris and Brussels, notes Michael Keith, anthropology professor at Oxford. Elite New Yorkers visit London, not Buffalo.

Sassen says: ...These new geographies of centrality cut across many older divides – north-south, east-west, democracies versus dictator regimes. So top-level corporate and professional sectors of São Paulo begin to have more in common with peers in Paris, Hong Kong et cetera than with the rest of their own societies."

First, those who read the FT are almost all either in the 1%, are aspirants to being in the 1% or have fallen out of the 1% through lassitude or ill-luck. How many of the readers have turned to the mirror after reading the piece and said, "This is an essay about me and what people like me are doing to the world. How do I stop myself?"

Second, the Tokyo Metropolitan District and Japan in general have for the most part opted out of participating in the crafting of a global superelite -- or if they are participating, they are doing so in an idiosyncratic way. Tokyo is an expensive place to live, a center of global finance and head-and-shoulders above the rest of Japan in terms of density of talent and wealth. The disportionality in international stature of Tokyo as compared to other Japanese cities indeed fuels a politics of resentment, the most obvious manifestation being the rise in the Osaka area of the Ishin no Kai.

Tokyo super-elites tend, however, to be just that: Tokyo super-elites. Only the tiniest sliver, and not an influential one, of its members can truly be said to be international or internationalized. A person famous and successful in Japan cannot and frequently does not aspire to fame and success on a global stage.　

[An aside, but one of the chief reasons famous Japanese choose to reside overseas is for the anonymity it affords them.]

Even in terms of wealth, power and influence, Tokyo and Japan remain parochial. Except in terms of design, Japanese influence on the rest of the world tends to be muted. Few Japanese are in positions of international power, fewer still take part in the global elite conversation. Ask a member of the global elite the name of a famous Japanese author or thinker and you will draw a blank, or if they do name someone it will be Murakami Haruki, who is as much a marketing phenomenon as a writer.

Most Japanese lack a portable reputation, such as is possessed by members of the international elite Kuper describes. In life, after corporate or keiretsu identity comes Japaneseness, followed in some cases by religious affiliation, then education, then class.

The relative unimportance of class may be a significant reason why life in Japan and even in Tokyo remains basically decent for all. Japan does have a high and increasing Gini coefficient (Link). However, public transportation remains affordable and available in the remotest communities where it has no business being. Public housing is still being built (or nowadays being rebuilt) right next door to the toniest private residences, with the many economic strata represented shopping at the same supermarket, getting their shoes repaired by the same leather shop, grabbing a ramen and beer at the same hole-in-the-wall and receiving home delivery of the same newspaper.

Elites in Tokyo may grumble about subsidies and tax breaks their poorer neighbors may receive but they are still neighbors. The upper crust and the lower depths still mingle. Contrast the everyday life of Tokyo elites with the totalizing and totalized world of elite education, personal safety, health and wealth of the globalized meritocracy -- and I do know about you but I will take the Tokyo model, thank you very much.

So when I have seen op-eds about the declining number of Japanese undergraduates studying in the world's top universities (graduate studies is another matter) or the inability of Japan to attract highly skilled immigrants, my quiet pleasure has been to say to myself, "And thank goodness for it! Society is already stratified horizontally into good livelihoods and bad ones, and divided vertically into family lineages. The last thing the country needs is a super-strata of fluttering, mobile talent perched on top." When I see Third Arrow proposals for special deregulated zones where non-Japanese can live and do unfettered business, with international schools operating under special circumstances and non-Japanese doctors treating patients outside of domestic controls, I want to take the plan, attach it to brick and drop it off a pier.

Globalization, meritocracy, freedom to immigrate and emigrate -- these all open wonderful opportunities for the betterment of the lives of ordinary citizens...the trick, of course, is making sure that ordinary citizens receive the benefit.

House of Councillors Election 2010 - Buying Votes Where One Can

A glance at this morning's top news stories reveals a ruling party working its control of the dispensing of goverment goodies to either nail down or tamp down constituencies possibly crucial to the outcome of this summer's House of Councillors election.

In a move guaranteed to make believers in fundamental structural reform gag, Democratic Party of Japan Secretary-General Ozawa Ichiro and People's New Party leader Kamei Shizuka made grand appearances at the convention of the National Postmasters Association (Zentoku) in Nagoya on Sunday. Ozawa promised the assembled that the Diet would approve the government's proposed amendments to the postal reform law in the current Diet session. The Kamei-drafted amendments, which halt the privatization of the postal savings bank and breakup of the postal services into separate business units, is now in committee in the House of Representatives. Presentation of a bill halting postal reform is having international repercussions and is portrayed in the media as the PNP tail wagging the DPJ dog. Nevertheless, Ozawa seemed quite pleased with his welcome.

Japan has around 20,000 postmasters, spread evenly over the entire country. As such they would hardly seem worth Ozawa's and the DPJ's time. However, pandering to the postmasters is seen as the key to securing the votes of Post Office's large unionized workforce, their family members and the hundreds of thousands of largely elderly voters in rural areas dependent upon the Post Office for their banking, insurance and delivery needs. Winning the support of the postmasters is thought to represent the securing of up to a million votes nationwide -- which gives the postmasters significant leverage in an election featuring a deeply unpopular ruling party and a plethora of political rivals vying for the public's favor.

A few stops down on the Tokaido Shinkansen Line, National Policy Unit deputy minister Furukawa Motohisa visited Osaka to discuss with Osaka Governor Hashimoto Toru the possibility of establishing a special low corporate tax international business zone within the prefecture -- a pet project of the governor's. That Governor Hashimoto has recently established the Ishin no Kai, a political organization the governor hopes to transform into a full-fledged political party -- and that a candidate of the Ishin no Kai yesterday overcame candidates support by the DPJ, the Liberal Democratic Party and the Communists in a local election in Osaka Prefecture , are not likely to be unrelated -- particularly because of the candidates supported by political parties, the DPJ's candidate finished dead last.

That a national government gasping for revenues would actually be considering the establishment of low corporate tax zones in Hashimoto's bailiwick on the theory that a lower corporate tax rate would entice businesses to set up shop in Osaka (or elsewhere) despite the high costs for everything else (land, labor, energy...) is a belief that taxes the imagination.