“Japan Buries Our Most-Cherished Economic Ideas” (Bloomberg) is kind of interesting for folks who’ve taken Macroeconomics and then watched various world economies over the decades. Excerpts:
Japan is the graveyard of economic theories. The country has had ultralow interest rates and run huge government deficits for decades, with no sign of the inflation that many economists assume would be the natural result.
Some economists think more fiscal deficits could help raise inflation. That’s consistent with a theory called the “fiscal theory of the price level,” or FTPL. But a quick look at Japan’s recent history should make us skeptical of that theory — even as government debt has steadily climbed, inflation has stumbled along at close to 0 percent:
Japan’s persistently low inflation comes even though essentially everyone in Japan who wants a job has one.
Basic econ theory says that as the labor market gets tighter, competition should push up wages, which will then boost consumer prices via increased demand and higher costs. In Japan, nothing of the sort has happened — wages and prices show little sign of rising despite the disappearance of unemployment. So much for the Phillips Curve.
is Japan’s lack of inflation really such a bad thing? The country’s per capita growth is pretty low, but that’s just because of population aging. Measured in terms of real gross domestic product per employed person, the country has been growing in recent years: [chart shows GDP per employed person, in 2011 dollars, growing from $64,000/year in 2000 to $73,000/year in 2016]
In other words, despite a near-total lack of inflation, Japan has managed to grow and increase employment. That means Japan is in the midst of that rarest of situations — a disinflationary boom.
Related:
The shape of disinflationary boom is not rare per se. Inflation was non-existent in XIX and early XX century US, all while US experienced overall high rates of growth. SO was the case in many other societies. In Japan, there are no looting CEOs, although they tried. Pay scale is not steep and slanted towards experienced workers who generate value, and income is limited by what other, often foreign customers are willing to pay for Hondas and Toyotas and such. Most of modern wireless technologies were developed in Japan, but no Facebook or Google. Easily explainable.
Japan continues to slide closer and closer to fiscal crisis. It’s the case of the man thinking “So far so good!” as he flies past the 10th story window. Their national debt and central bank balance sheets are inevitably going to go blow up and crash the yen. It’s a matter of years, not decades.
I would argue that Japan is mix of classic case of American capitalism + again America inspired corporatism minus looting + strong societal bonds, and it can run forever just adding zeroes to their central bank balance sheet.
Only economists, speculators, and financiers think inflation is a good thing. Everyone who has to work for a living in the real world knows that increasing prices are a bad thing that hurts savers.
Economists with power over policy are merely priests.
In economy all laws of preservation are not working:
For example, an electric plant looses energy to lift water to upper reservoir during off-peak hours an then release it down on turbines to produce electricity during peak hours, thus making more money. So as long as Japanese are ethical, smart, competent and hard working and work in economic system that rewards value creation, such as capitalism, Japan should be fine. Incidentally, an American economist helped to design Japanese economy, so sometimes real macro-economics can be useful.
The Bloomberg article does not say anything about Japan’s aging population and shrinking youth.
I’m not an economist, but I can understand why “essentially everyone in Japan who wants a job has one”. Isn’t this because the population is shrinking?
I also understand “Japan’s persistently low inflation”, because isn’t this related tot he fact that they export more than they import?
They work long hours and will continue doing so for as long as their population is shrinking and still have this hard work ethic. This cycles back into:
1) essentially everyone will have a job, and
2) their export will out pass their import.
At some point, this will not be sustainable and something will give in.
I can’t figure out why everyone just accepts that devaluing the currency is somehow desirable.
Yet it seems to be treated as absolute bedrock truth by virtually every boob who picks up a pen to write a newspaper article.
I read (on this blog!) that japan’s debt is mostly Japanese owned. How does that affect the picture?
Vast majority of USA debt is USA held, as well. If you can stiff foreign creditors that’s actually better. What an unserviceable domestically held debt means is that when fiscal crisis hits the central banks will inevitably nuke the currency with helicopter money to avoid a deflationary collapse. Instead you get a inflationary collapse.