Employees working themselves to death for little pay is only aggravating the problem, rather than solving it.
This, plus Japan's anti-immigration policy and rapidly ageing population, spells a pretty bleak future for Japan. They need some really radical reforms, not just economic policies that devalue their citizen's purchasing power and then get cancelled out by a huge raise to the consumption tax less than a few years later.
What Japan really needs is a major reform of their overbloated corporate and banking infrastructure, combined with less-xenophobic immigration policies and improved workforce participation by women, but I'm not holding my breath.
Increased sales taxes which was an especially dumb thing to do. The folks that spend the largest percentage of their income are hardest hit by sales taxes.
I don't think it was a comparison between austerity and QE that was on display. If anything, it's more a comparison between a Keynesian approach and austerity (even given the relatively anemic Keynesian implementation on which we settled). But, even that is not a fully valid comparison.
More to the point, austerity just seemed an insanely bad choice, and I am not sure that it is illustrative of QE being a good choice.
QE was more a boon to the stock market than anything.
Likewise (and ironically), the record profits that companies are realizing is due to automation and increased productivity--two things that are largely responsible for the stubborn unemployment that has actually dogged a broader recovery.
To my mind, the jury is still out on QE and, for that matter, on the sustainability of this "recovery" in the long run.
You cannot isolate variables in two separate economies; any conclusions assuming you can are bogus.
That leaves us with untested partisan theories pushed by ideologues.
I mean, how can it be that all the American conservative economists that have been predicting massive inflation since 2008 have not changed their theories at all?
Agreed.
> That leaves us with untested partisan theories pushed by ideologues.
The theory I responded to was not "tested" either. What double-blind study did the citizens of the U.S. and Europe take part in?
I live in Japan for many years and I have never seen such thing as deflation here. Prices have remained stable for most items or have increased a little bit. The idea that stuff becomes cheaper as you wait is ludicrous in Japan.
See e.g. the curve for 1995-2013: http://www.tradingeconomics.com/japan/consumer-price-index-c... or the "index of all items" here http://www.e-stat.go.jp/SG1/estat/ListE.do?bid=000001033700&...
Back in reality, Japan hasn't suffered any real deflation in 25 years. Which is why their prices are among the highest for pretty much everything.
The deflation argument is a fraud cover for the failed Keynesian experiment. It's meant to give them the ability to endlessly print to debase the debt that the failed experiment took on. That's why the US Fed pretends to worry non-stop about deflation, while they massively expand the monetary base and hold rates at zero; it's a lie to provide cover for the massive inflation programs.
A serious economist is able to differentiate between goods that can (and will) be delayed an a consumable like a can of soda. Cars are an example of a consumer good where consumption observably is affected by deflation.
A new 150,000/month condo in Tokyo in 2014 has much better facilities than a then-new 150,000/month condo in Tokyo in 1994. Indeed, the latter is probably struggling to achieve rents of half that today.
On top of that, buying a new apartment has nowhere got cheaper than it was 10 years ago. Prices have been pretty much stable until they pumped up the tax recently.
The employment-to-population ratio has't recovered and is near the 30 years low.
The Japanese government needs to cut deep in spending, and that's what they have NOT been doing for the past 20 years. As long as they don't try to fix the debt problem, nothing else is going to work in the long term.
In fact, spending as a % of GDP has increased.
http://www.cato.org/blog/where-are-european-spending-cuts
There has been almost zero spending reduction in Europe. They're calling a slow-down in spending expansion, austerity, when in fact there has been no austerity.
>In fact, spending as a % of GDP has increased.
Because e.g. in Greece, GDP shrank over 30% in the last 5 years. Have you ever looked at the things a country spends its taxes on? How should it out-save it shrinkage without destroying the very infrastructure it's economy needs to flourish?
> cato.org
Cato is good PR agency, but you should not take them seriously on anything economics-related. Just look who works there, I wasn't able to find a single phd in economics there, only public relations staff (people who studied politics, sociology etc, practically no one who actually did research in any field before working there).
Sounds like a good thing to me.
"Putting a fresh coat of paint on a house" also stimulates the economy. You have chosen some strange metaphors for criticizing an economic program.
If your point is that Japan needs more production and less consumption (you did not say this, but you were not clear about what you were looking for) then it is worth noting that lower interest rates also allow businesses to borrow and invest at lower rates.
Since QE increases the value of the stock market at the expense of a currency's value, it is actually eating away at the wealth and savings of individuals and redistributing it to stockholders. These stockholders tend to already be quite wealthy themselves.
Herein lies the problem. Very wealthy individuals tend to spend a much smaller fraction of their accumulated wealth than members of the middle class. Take that as you may, but at some point these massive stockpiles of capital grow so large that they can't possibly be entirely spent. As the stockpile languishes, it becomes wasted capital: money that has essentially fallen out of circulation within the economy.
Another way to think of it is that one person can only do so many things at once, which means there is an upper limit to how much capital a single person can put to good use. When you go from many people with moderate amounts of wealth, to a few people with lots of wealth, you severely limit the amount of creative work that capital can be used for.
...or at least that's my armchair understanding of things.
Thanks to our central banks, any deflation pressure is seen as a license to print more money, which is a tax on non-circulating savings. To avoid this, holders of cash do their best to invest as much as possible.
Investment is emphatically not economically equivalent to spending. It's a lot like spinning your cash around in place so everyone knows you can still spend it. It does not create jobs or help the middle class; only actual spending does that.
This is a little strong, isn't it? Investment can certainly lead to job creation for the middle and working classes, if that investment is going into enterprises that need more labor and have the potential for growth. Whether there is much potential for growth after decades of regressive tax policies and hoarding by the upper and ruling classes, with everyone else living paycheck to paycheck, is quite debatable (my money is on 'no'), as is how much new labor is actually needed in the first place. But private investment can certainly create jobs and economic growth.
You're wrong in your theory that accumulated wealth does nothing. In a QE world, the very rich don't sit on cash - that would mean losing money through currency decreases.
There is no such thing as 'wasted capital' - rich people store their wealth in a variety of vehicles - whether in banks (where it is re-lent out for many uses), public stock ( where it is used for company investment and operations), and private investment, such as investing in pre-IPOD start ups and private equity.
Even Apples massive cash hoard is put to good use, somewhere.
What there is a shortage of, is productive investments where lots of capital can be deployed to get a healthy return. This is a function of multiple problems, of which uncertainty is one.
It's a very cartoonish model to imagine a daddy warbucks with a big pile of cash saying 'I just don't have time to spend this'. In actual fact, there would be a team of investment managers saying 'we can't find any good places to invest, so we're letting the bank invest it for us, for the time being'.
The answer to Japan's problems is cutting government spending and debt. This has always been the answer, this will always be the answer, whether you're an individual with 20k in debt or a country with 200b in debt. The key is to realise that there is no magic Keynes multiplier.
Correct, but they still don't spend money. The very wealthy are known to hoard money, it doesn't matter in which "vehicle" they store their money in.
>There is no such thing as 'wasted capital' - rich people store their wealth in a variety of vehicles - whether in banks (where it is re-lent out for many uses), public stock ( where it is used for company investment and operations), and private investment, such as investing in pre-IPOD start ups and private equity.
It's not wasted capital, but it doesn't stimulate the economy either. They are not contributing to investment, in the real economic sense.
>Even Apples massive cash hoard is put to good use, somewhere.
Wrong.
>It's a very cartoonish model to imagine a daddy warbucks with a big pile of cash saying 'I just don't have time to spend this'. In actual fact, there would be a team of investment managers saying 'we can't find any good places to invest, so we're letting the bank invest it for us, for the time being'.
It's still not real investment. I think you don't understand what the "I" component in GDP is. [0]
[0] http://en.wikipedia.org/wiki/Gross_private_domestic_investme...
>The answer to Japan's problems is cutting government spending and debt. This has always been the answer, this will always be the answer, whether you're an individual with 20k in debt or a country with 200b in debt. The key is to realise that there is no magic Keynes multiplier.
Wrong again. Greece cut their government spending a lot, they don't seem to be in great shape. The reality of the matter (while counterintuitive) is that deficit spending helps stimulate the economy. As long as Japan wants to devalue their currency, government spending is the last option left to stimulate their economy.
If they store it in a bank, it boosts the lending capabilities of that bank.
If they buy stocks, it provides financing for public companies.
Even if the rich hide their cash under a mattress for a long time, they provide a purchasing power boost to other consumers by reducing the freely available supply of currency.
Saying that the parent is wrong about Apple's cash, does not actually prove they're wrong. "Wrong." is not an argument.
There's practically nothing a rich person can do with their hoard to harm the economy, other than to take that capital out of the domestic economy or invest into a ponzi scheme or asset bubble.
Interest rates have been low -- very close to zero -- for a long time now (two decades?). Real interest rates have been negative over the same time period. Interest rates can't really be lowered in any way that is meaningful to the middle class.
If you talk to "regular" people, overall economic confidence is extremely low. People with super-secure jobs (e.g., with the government) are rat-holing their money away while it earns little interest and negative real interest. Many folks don't consume even within their means due to the desire not to appear to be a conspicuous consumer to their peers and/or irrational economic fears (e.g., losing their unlosable job).
Said another way, the velocity of money in Japan is extremely low, and it doesn't show any signs of recovering.
> If your point is that Japan needs more production and less consumption
I don't want to speak for the OP, but the reality is exactly the opposite -- they need to consume more, and there is tons of excess capacity right now.
> lower interest rates also allow businesses to borrow and invest at lower rates.
So few businesses are borrowing money compared to those in a healthy economy. Investment is often put off until (or past) the time it is needed due to the perception of economic uncertainty. Any investment in a business that can be delayed or done cheaply (i.e., penny-wise pound-foolish) is delayed or done cheaply... no amount of low-interest money can incentivize them more. They need to see real signs of a long-term strengthening of the economy before they are willing to take the long-term approach that Japan is so famous for.
The one potential "good" outcome for QE is that the yen will weaken (e.g., I fully expect ~180 yen per dollar or more to happen) and this will make Japanese manufacturing extremely competitive internationally. The problem is that this weakening of the yen creates other forms of turmoil and uncertainty in the rest of the economy.
That said, I'm not seeing 180 yen to the dollar any time soon, by most measures the yen is already undervalued. (With the glaring exception of yen vs national debt, but that particular ticking time bomb is not showing imminent signs of explosion.)
Here's another imperfect analogy: Movie marketing. My rule of thumb is: If a motion picture is marketed with more intensity than the average picture it is almost certainly bad. Let's equate the marketing to QE. While marketing is in place lots of people go to see the movie. Artificially. Once it stops, the foundation is so weak (the movie is so bad) that viewer traffic pretty much evaporates.
This is not intended to be an accurate analogy. Please don't waste any time tearing it apart with minutiae arguments because it is flawed in a million ways. The point is to make an attempt to illustrate that an artificially stimulated market is exactly that, an artificially stimulated market that might not be able to remain healthy on it's own
So, people buy homes because interest rates are low yet their station in life, their salary, their income, their savings don't improve one iota and when QE stops, interest rates come in and inflation follows and quite a few of these people simply can't afford what they bought. This, of course, isn't a new concept.
So now you have underpaid people creating a housing bubble in Tokyo and going into debt. This does succeed in kicking the can down the road for a few years. But when the music stops in this game of musical chairs, the crisis is actually worse.
Which happened in 1989. Japan never came back fully from that. See "https://en.wikipedia.org/wiki/Japanese_asset_price_bubble"