In Japan’s Slow Economy, Rare Price Rise Prompts Surplus of Remorse
nytimes.com
nytimes.com
Europe is already half-way there, america is stalling it due to immigration, China is going to be there once it hits the demographic cliff.
America can thank its dollar as world reserve currency. Billions it spends on military bases around the world and foreign aids is part of its effort to keep its reserve currency status. But at some point, the party is going to be over. American labor force is already very uncompetitive and overpaid compared to its European and Asian counterparts. Yet we enjoy one of the highest standards of living. That gravy train won't last forever.
The only thing that will get the developed countries out of their impending doldrums is 10/100x energy and technological breakthrough.
Until then, we'll get our own version of 60 yen Garagari-kun.
And don't think deflation hasn't been happening already in the U.S. The only difference is, unlike Japan, unscrupulous U.S. food companies have been cutting ingredient quality and content size, rather than raising price for the past 10 years.
Check out Breyer's fake ice cream, Haagen Daaz, McCormick pepper content size, Mars shrinking chocolate bar sizes.
https://consumerist.com/category/grocery-shrink-ray/
http://www.dailymail.co.uk/femail/article-3037688/Shrinkflat...
You seem to have gotten confused between inflation and deflation. With deflation, prices decrease, not increase.
25 year of unchanged nominal price is symptom of deflationary environment. The reluctance by the Japanese company to raise price even when costs were going up speaks volume about the strong downward pricing pressure in the Japanese market.
Though not to the same degree, similar environment has been brewing here in the U.S. for awhile. Companies don't want to raise prices, and only do so as a last resort.
If economy was better, they would do so without fear that their competitors would not follow suit.
Downward pricing is what one would expect in any stable market, given that price optimization is the primary market mechanic. Technology is getting ever-better, so it takes ever-larger efforts to erase its gains and create the artificial inflation prescribed by the central banksters.
There are two other major problems in parts of the U.S. and Europe (in particular) that're underrated: 1. insane land-use control laws that make it illegal to build reasonably price housing (see Matt Yglesias's The Rent is Too Damn High for more: http://www.amazon.com/TheRent-Too-Damn-High-Matters-ebook/dp...) and 2. transfer payments to older people that were originally conceived and executed when the number of workers to retirees was much different than it is now.
The first is important because it impedes family formation and innovation. The second is important because it makes not having children easier, because other people's children will be forced to support you through their contribution to transfer payment programs. Yet neither issue gets much play in the press.
Land value tax would also allows us to untax labour and capital, thus reducing deadweight losses in the economy.
See http://masongaffney.org/blog/index.php/2012/08/the-hidden-ta...
Houston has no zoning regulations, and its one of the fastest growing metros in the US.
You can also chose to have one child or 4 children. Just depends: do you get more happiness from 1 pampered child, or 4 modestly raised children.
Seriously, get rid of the sweets (<3) and sweet-like items from the store. What's left? It's usually about 1/4 of the store or less.
Food inflation in quality and quantity is a serious problem and it's damaging our health and wallets.
Relatedly; freddo frogs are becoming an extravagance.
https://www.reddit.com/r/britishproblems/comments/18yx14/the...
At least British and Irish schoolchildren will have no trouble comprehending the idea of inflation in economics and accounting classes.
The US ranks 16th on the Where-to-be-born Index.[1]
https://en.wikipedia.org/wiki/List_of_countries_by_Human_Dev...
They then tried to make it more relevant in 2010 and also created an income inequality-adjusted version. This new index uses GNI instead of GDP and uses years of schooling rather than literacy rate (which is basically 99-100% for all developed countries) which makes it bit better, but it still doesn't figure in life satisfaction or other relevant measures into standard of living which is why it's still mainly a way to rank developing countries. The income inequality-adjusted version is slightly better, but still doesn't measure any psychological well-being.
This whole situation is completely avoidable if someone would just have the courage to stop coddling elites and big business.
(I know you can come up with some relation, of course everything is related, but again, it is not straightforward, and you shouldn't just assume that saying a bunch of buzzywords and stating some facts stands out as an explanation)
Pairing population to production optimally is a synchronization problem. Cybernetics I suppose, not usually how economists think.
Economic growth and recession could be modulated if there were enough people when we needed them, and there were not, when we did not. Recessions won't go away but they wouldn't be compounded by demographic issues.
Currently this is solved in a haphazard way e.g. using illegal immigration of people like fruit pickers (deporting them when inconvenient) or by green belt zoning and class siloing. That can't be efficient. It couldn't possibly make humans happier. Most actually adopted solutions appear to be quite damaging to humans. How much of this is consciously orchestrated is also hard to ascertain. I suspect it is mostly Scott Alexander's Moloch at work. Every central banker ought to read that poetry because it's quite recognizable.
Since it is unethical to force children to exist (Ceausescu) and also wrong to murder people or prevent them having offspring when demographic issues arise, we need a plausible solution to allow for a world in which people have a realistic chance of having sustenance and purpose in their lives.
Most people really don't like this topic! It is understandable. We prefer not to think of ourselves as elements of production and supply. Of course we are, we're just a special case of it.
All of the problems are ultimately rectified by markets, or failing them, mother Nature. You know what they say about Nature being a mother. My point is that we don't necessarily need to let it get to market corrections if we think ahead.
Suppose you were a Communist official in charge of the One Child policy who anticipated the female infanticide rate. You'd have solved for a good deal of human suffering decades later on with perhaps an afternoon's work. Right place, right time.
Monetary policy tools work on a similar lever principal to this which is a large part of the reason I'm talking about them in the same vein. I'm not confident I know what to do, only that it is a factor. And now; tell me how I'm wrong!
My hypothesis is that in the economy the growth rate in humans does not relate directly to economic growth. There could exist a religion that promotes large families for example; that's why I said mother nature would ultimately take care of business if things got out of hand.
Sometimes we need more humans but there is a lag time before they appear. Sometimes we need less humans but they stick around absorbing dwindling resources and leaving their children with higher prices later. Both of these outcomes sabotage future growth prospects.
How this relates to economics is that central bankers use interest rates changes in an attempt to produce stable growing economies. As I understand it the mechanism is a kind of lever, by modifying the trajectory of money supply you can slightly influence the larger flow. Central banks then spend their time compiling statistics to anticipate the future.
If one can do that with money then you can do it with humans too by finely tuning the probability of them being able to give birth. Then as long as you can anticipate the amount of workers required you can provide that many at the correct time. Demographic hiccups become a thing of the past.
I leave a lot unsaid here. Evidently controlling one part of the economy causes you to require as you say 'very exacting control' over other parts. As you can see there is nothing controversial here.
I want to point out that the actions of governments tend to support a belief (that they believe) in something of this sort and that changing human production rates is some kind of corollary to changing interest rates. After all the humans use the money. They're the ones incorporating information into prices with their decisions.
This whole topic has the feeling of an 'Ugh field' about it. I understand if I'm downvoted into oblivion but it's an important idea. If I'm totally wrong then great, tell me how.
Who is that `we' that needs more or fewer humans? Ie economists usually take the supply of humans as an exogenous variable, and try to figure out what they do to maximize their welfare. (And very often also: what they could be doing better.)
Taking humans as an endogenous variables is possible. (I've seen one analysis where they started talking about slaves as capital vs free workers. The reveal was that the author actually wanted to talk about the economics of robots (and other automation) as capital vs free workers---but without triggering people's preconceived notion of what automation can and cannot do to macroeconomics.)
I've always been fascinated by Malthus. Without Malthus I don't think you have a Darwin. I know he gets typed as the doomsayer but there has always been something very elemental about his idea. I think it was the first time I encountered a simple concept that explained deeper patterns and so it stuck with me.
> Who is that `we' that needs more or fewer humans?
I'm trying with some difficulty to avoid value judgments e.g. we should or should not interfere in human reproduction patterns so that's a reasonable question.
I think that 'We' is the information network. I don't mean the Internet or the price system. It's a broader idea that probably fits into ecology, something like the Noosphere. The premise is that there exists a lot of different states the network could be in. It could be in an optimal state or in a sub-optimal one. I'd guess that it's governed by something like Cybernetics but I'm confident we won't know most of the rules and certainly not the emergent consequences of the rules.
To be less handwavy - the 'We' can be the union of the Economy and Ecology sets. It would take humans as being endogenous variables. I'm sure other people have thought of all this before, but it seems difficult to avoid metaphors that could suggest latent policy prescriptions e.g. Spaceship Earth (limited resources) or World System (global government).
About your ethical problems: you could just go purely formal, and try to present your thoughts without any value judgement. Any prescription would be purely conditional like:
- if you want to maximize this variable, you should do that.
Lemin Wu has some great thoughts and simulations that round out Malthus. He's also interested in why ancient authors, especially Chinese, decry commerce and any economic activity that's not food producing:
> For example, during the Warring Period of China (476-221BC), restraint on luxury was the theme of a series of political and economic reforms. In the face of constant nomadic harassment, King Wu-Ling of Zhao (340-295 BC) commanded his subordinates to take off their wide sleeves and long robes and switch to nomadic uniform—pants, belts and boots— in order to fight as cavalry. Half a century before King Wu-Ling, Shang Yang’s reform swept another kingdom, Qin. The reformer punished commerce, rewarded cultivation, forbade migration and restricted entertainment. In a word, he cut down luxury and directed as many resources as possible to subsistence. The subjects were deprived, but the Qin kingdom defeated all of the six rival kingdoms and united China for the first time in history. A contemporary philosopher commented, “Qin is different from all the other kingdoms. The people are poor and the government is cruel. Whoever hopes for a better life can do nothing but fight hard. This makes the Qin army the strongest of all."
(from http://wulemin.weebly.com/uploads/1/4/6/2/14620598/jmp1110.p... available via http://wulemin.weebly.com/)
https://marketmonetarist.com/category/says-law/
Though, I think your time will be better spend reading https://en.wikipedia.org/wiki/Henry_George_theorem and especially http://www.masongaffney.org/publications/G2009-Hidden_Taxabl...
Back on planet earth, a smaller population is almost always better than a larger one. The only real difference is that a smaller population has more natural resources per person.
I'm not going to pretend to know what the future will look like, but presumably some political change involving multiple planetary systems will succeed the US and do something with the debt.
In any case, human population will peak and then start reducing at some point in the not too distant future (unless we expand to other planets). I wonder what happens if the holders of the debt themselves were to perish.
When you have more people wanting stuff, prices rise and jobs create themselves to meet this need. With a declining population, you have fewer people wanting stuff, so prices go down.
Interest rates can adapt to pricing variations expectations, you know that because it works in inflationary environments.
That's the thought experiment, but it doesn't pan out in reality. The US economy experienced long stretches of high growth and low deflation in the 19th century. People still have physical needs even if the currency is deflating.
Certainly I would buy a house if I know that next year it will be cheaper. I need somewhere to live and don't want to have to move over and over again. Nothing about a deflationary environment would prevent lenders from providing mortgage financing. Mortgages were obviously still available to qualified borrowers during the worst of the housing market crash.
We'd be better off if houses weren't treated as investments but rather as shelter; see eg SF/peninsula for what happens when people start winning the housing lottery. ie everyone who owns a home is a millionaire.
People will blame other things of course. Things like MENA immigration, climate patterns, crop failures, these are second order affects of stagnation.
The peripheral fails before the center. Never forget that.
I have to congratulate Peter Thiel. He has managed to see a lot of this ahead of almost anybody else I can think of and this is despite being at the heart of the cozy bubble that is Silicon Valley. One of his expressions is that you can have instances of success in an ocean of general failure or something to that effect.
Even on HN a few hours ago I saw a WSJ article proclaiming that everything is smashingly good these days, that three/four decade wage stagnation is a mere blip on the radar. Though I agreed with the substance of the historical facts she stated I also think this is an utterly clueless point of view on human nature that is shared by huge swathes of the middle class. I didn't live in 1850 and I cannot be expected to appreciate the good fortune of the years since then! If you live in a downcycle then that's all you know.
You see the contradictions at their most dire with the pension funds. They require either massive hikes in funding or 6-7 real percent per year. Wages will have to rise suddenly and dramatically and/or else we need massive massive technological changes.
Somehow I see Larry Summers getting called back into Court. Whether monetary policy is enough, that is another question.
[1]: http://www.tradingeconomics.com/united-states/wage-growth
[2]: https://www.researchgate.net/profile/Melissa_Kearney2/public...
World becomes more zero sum when growth plateaus. Only now it is proposed that everybody and their dog get PhDs in god only knows what.
Diminishing returns are exactly stagnation. I know blue collar workers making more money than people who took extensive study and got 'good' jobs. This is despite the fact those workers haven't actually had wage increases themselves! They're just working long hours for more pay. We're stuck in a rut. It could be the case that technological stagnation is created by technology itself. A hairy subject!
If I remember rightly wage increases for the higher percentile aren't that great either. I mean they are better than zero but not as great as they used to be. Makes sense since their market of consumers is drying up as everybody becomes cash poor except for those making toys for the actual rich.
See nominal GDP level targeting: http://www.economist.com/blogs/freeexchange/2011/10/monetary...
which rolls neatly into all the recent talk being floated about basic income. see there is this other neat trick with BI. Governments could roll this out as a means to put money into the hands of consumers to spend. Now if you did it short term to jump start an economy it probably would work, just the idea its happening would loosen up money supplies.
Crawled back into my 350Z still drooling :-)
> Japanese policy makers have long identified
> deflation as enemy No. 1 for the economy.
As the chart with the article notes, these price increases are now at -0.1% per year.
If market forecasts are below target, do QE (= print money), if above, slow or stop the creation of extra money.
(One can target the market forecast of ngpd in a years time or two, instead of current ngdp.)
Announcing the target and that the central bank will do whatever it takes, makes the market help with achieving the target--because any difference between a target that will eventually achieved and current reality is an opportunity for arbitrage.
Secondly, policy makers should manage monetary policy in conjugation with fiscal policy. But fiscal policy can a much harder political fight or have different groups/ideologies controlling it. So monetary policy often runs as a solus activity making its effectiveness limited.
See http://www.themoneyillusion.com/?p=6197
Monetary policy can always produce inflation, if the central banks wants it badly enough.
You are right that better fiscal policy can be useful for the economy, too. (I'd like to see Georgism given an honest try again. Funny enough, that's a very orthodox economic suggestion. Just like free trade and free movement of labour.)
The `no free lunch' theorem only applies when you are already at the efficiency frontier. If someone is still banging their head against the wall, they can stop doing that for a very quick and `free' win.
Initially, deflation is a symptom as you suggest. The problem is that deflation is a stable state within the economic system.
Once in deflation, people say "I could invest this $100, and in the long run I'll get back $98. Or I could stick it in a mattress and get back $100 in the long run." Investment ceases. If a manufacturing line needs to be refurbished, the owners will lay off workers and quit rather than pouring in money they will never get back.
This is why the Fed in the US panicked so hard when during the last recession: we were approaching the stable state and they were willing to do anything to prevent that from happening.
Manufacturing capacity which was keeping up with demand suddenly has too much capacity. Factories shut down. People get laid off. New jobs aren't created.
How do you make a profit in a world where people won't buy a new thing because they think it'll be cheaper in a few years? And you can't compete in the market for old things because there is already too much excess capacity.
It's a giant snowball of bad for everyone involved: both business and for the everyday working guy.
People as a whole need water, food, shelter, and clothing. Even under deferred purchase, other infrastructure eventually wears out and needs replacing.
In this circumstance, particularly with lower levels of income falling below living wages, a simple transfer payment from rich to poor will increase trade markedly.
If your real rate of return remains negative, that's another problem, but a somewhat tractable one at modest scales.
I don't know, but this isn't the world we live in. For this to work, deflation should be at least 10% (for consumers).
Would postpone buying a smartphone for 5 years, because it will be 5% cheaper then?
I don't think I have ever once said to myself "i should hurry up and buy X before inflation makes it more expensive." It doesn't seem like people will reason like this unless the price changes are observable from day to day, or maybe week to week.
And people already spend so irrationally. Is a little bit of extra delayed gratification is incentive enough to change spending patterns that much?
Businesses can do this through warehousing or futures contracts -- going long or short on a commodity (price rise or fall respectively). Especially fuels (Southwest Airlines has famously done this to good effect repeatedly during oil price spikes).
I also think that this may affect business investment more than consumer spending. I remain hazy on this element of economics.
That argument -- that people would defer consumption forever -- is the craziest thing in the world, and every economist and wannabe economist seem to take it without question.
My question, one to which I have not been able to find an answer, is:
Is this questionable premise (I'm not quite willing to call it crazy,
but it is non-obvious) the entire basis for all of monetary policy?
Niall Ferguson's The Ascent of Money is a well-received popular work on money, trade, and exchange.
(NB: I'm not particularly well-disposed toward either Friedman or Ferguson.)
Is it a continual decrease in money? That's easy enough to solve through a central bank. You can even solve the problem with specie currency by devaluing that (you'll find historical evidence of this in the Roman denarius and in Adam Smith's discussions of currency).
If the problem is that the real rate of return has fallen, then again, deflation isn't the cause but the symptom of a larger problem.
I'm not sure what the solution in this case is, though a tax on excess retained wealth might be one approach. This is what negative interest rates are aimed at curing.
The Chinese accomplished this on paper currency through requiring bills to be regularly stamped, for, you guessed it, a stamp fee. Effectively a tax on retained monetary savings. (We're talking ancient China, I'd have to look up the specific dates.) This could be accomplished by other means, including re-issuing currency and retiring old bills (again, for a fee).
Possibly others as well.
(I should note this is quite different from the situation in Japan where even house prices are declining, especially outside Tokyo)
The problem is that you never know when they are going to burst and what the fallout will be. But my guess is this scenario (if I'm right, you have to quote me later...): At some point there will be a collapse of the pound (possibly due to shenanigans around short term consumer debt). To bolster the currency, interests rates will go up slightly. However, for people who are already incredibly stretched on their mortgages, they will be foreclosed when their term needs to be renegotiated. This will put houses on the market at fire sale prices and put the market into free fall.
Essentially the same thing happened in 91 or 92 (can't remember) when Britain linked their currency to the Deutsche mark which pushed interest rates up. It was only rescued by the Japanese who purchased up all the real estate. The problem is that this time I'm not sure there will be anyone around to mop up.
But on another note, I live in rural Japan and was considering buying a house. My neighbour said, "Look at the age of all the people in this neighbourhood. Everyone is over 60. Soon every house will be for sale." So... it probably pays to wait. Deflation indeed...
Give me a date.
At least from a normal household point of view living in Tokyo, I see rising prices all around - rent getting more expensive, the same type of fish (as an example) I've been buying in supermarket getting more expensive.
Recently I was shopping for a bicycle bag. I saw some blog reviews from 2 years ago stating the price was around 5000 yen; But I see all the shops are now selling it for over 7000 yen!
Won't that just flatten out wages even more? There's no money to give out raises if nobody's making any money.