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Japan's Government Encourages Unemployment
I don't mean to keep picking on Japan. But, they are the textbook case of why Keynesian economics doesn't work. Actually, now that I think about it, they are the textbook case of why Austrian free market economics works. I have set them up as the poster child for bad policies. They have had one of the worst economies of the major economic powers in the world (they are the No. 2 economic power, after the U.S.).
I'm just reading the numbers that are coming out for Japan.
Dec. 8 (Bloomberg) -- The Japanese government unveiled a 7.2 trillion yen ($81 billion) economic stimulus package amid signs the recovery and Prime Minister Yukio Hatoyama’s popularity are waning.
Hatoyama’s first stimulus plan includes 3.5 trillion yen to help regions, 600 billion yen for employment and 800 billion yen on environmental initiatives, the Cabinet said today in a statement in Tokyo. The measures had been delayed because of haggling within the coalition government.
The Democratic Party of Japan, which took office in September pledging to support households battered by two decades of economic stagnation, is grappling with a slide in prices and a surging yen. The government will say third-quarter economic growth was slower than initially reported in revised figures tomorrow, according to economists surveyed by Bloomberg News.
“It’s a necessary step,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “Without another stimulus package, it’s very likely that the economy will fall back into recession. The government simply can’t risk this right now.”
They also say:
Japan has the world’s largest public debt, with liabilities that are approaching twice the size of the economy.
Finance Minister Hirohisa Fujii said bond sales for the current fiscal year will exceed tax revenue for the first time in the postwar period. The government will sell 53.5 trillion yen [$588,200,000] in bonds, more than the 44 trillion yen budgeted in April, he said. Tax revenue will slump to 36.9 trillion yen, less than the 46 trillion yen projected.
Yikes! Maybe that's why their economy has averaged 0.6% growth over that last 20 years.
The new and old government have been doing the sames thing Japan has always done: increase government spending as "fiscal stimulus," reduce their "Fed Funds" rate to 0.1%., borrow the money to finance the programs, spend the money on wasteful projects, and generally discourage failed companies from going under. They've been doing this stuff for the past 19 years and it always yields the same results: sluggish economy, high de facto unemployment ("window sitters"), deflation, and high debt.
Let's face it, they are the quintessential mercantilist state. You've heard of Japan, Inc. It's true. The big zaibatsus and the interlocking keiretsus get treated with kid gloves and had a nice cooperative arrangement with MITI, the government agency that used to determine who does what (formerly a very powerful agency but now folded into a larger agency, METI ). These policies are inherent in the Japanese system and have existed in some fashion since they emerged as a world power in the early 2oth C. I don't really think I'm exaggerating here, but I'm sure my mistakes will be pointed out by my Japanese readers.
But here's the latest foolish policy. They are talking about enacting legislation that will actually raise unemployment. Heres the story from Bloomberg:
Japan may ban manufacturers from hiring temporary workers, Health and Labor Minister Akira Nagatsuma said, as Prime Minister Yukio Hatoyama seeks to fulfill a campaign pledge to shift more employment to full time.
The government is preparing legislation “that will stop manufacturing firms from employing temps and encourage them to hire full-timers,” Nagatsuma said yesterday on a business program broadcast by public network NHK.
Japanese companies have cut jobs to remain profitable in an economy struggling with deflation and as a strengthening currency erodes export earnings.
Unemployment rose to a postwar high 5.7 percent in July, while the yen has gained 2.8 percent against the dollar in the past three months.
“Manufacturers have drastically slashed labor costs, but those expenditures are still dragging down profits,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management in Tokyo. “We’ve seen some improvement in the jobless rate the past three months, but it’s too early to expect any shift in the trend.”
Companies started replacing retirees with temporary workers after deregulation in 2004, creating a two-tiered labor market in which mostly younger workers enjoy less security and fewer benefits. The jobless rate, which unexpectedly fell to 5.1 percent in October, has stayed at 5 percent or more since April. ...
Boosting employment is a priority of the stimulus package Hatoyama is to unveil this week to protect the economy’s rebound from its worst post war recession. Third-quarter profits at manufacturers including auto and electronics makers decreased 69.3 percent from a year earlier while sales fell 21.2 percent, a Finance Ministry survey showed last week.
Younger people aren’t reaping the benefits of the improved labor market. The proportion of college students with job offers tumbled 7.4 percentage points from a year earlier to 62.4 percent, an Education Ministry report showed last month, the steepest drop since the survey started in 1996.
There are two possibilities here. One is that they will continue with subsidies to employers to keep full-time workers on the job. If the economy is tumbling, then we'll have an increase of window sitters, employees who apparently have nothing to do all day but look out the window.
Actually their economy is tumbling. The fake boost from stimulus is wearing off (again). If profits have fallen almost 70% in the leading industries, you can guess at the outcome here. It is just an expensive form of unemployment insurance. The resulting increase in national debt to pay for it will just further dampen the economy as taxpayer have to pay for it.
The other outcome is more frightening. This kind of reminds me of what Herbert Hoover did after the 1929 Crash. He thought that the way to prosperity was to keep wages high so that workers would have money to spend and thus boost the economy. The result was massive unemployment as companies kept on workers at high wages. Companies went bust trying this out and it was one of the policies that caused the Great Depression.
If the Japanese government puts some or all of the burden on employers to pay for this, then why would companies hire anyone? With declining output and deflation, they really need to shed employees, not keep on workers who have nothing to do.
Whatever the details of the policy are, the result will just be more de facto or de jure unemployment and economic stagnation. Perhaps very serious unemployment and stagnation.
Maybe next they'll raise the minimum wage.
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Another thing Japan is doing to "address unemployment" is to import cheap labor from poor SEAsian countries, and I don't just mean upping the numbers of "entertainment worker visas" issued to Thai and Filipina women.
Factories and farms in Japan are importing laborers from China and Burma to lower the cost of production. This is a whole step cheaper than even Japanese "temporary" workers (who do not receive medical and pension benefits).
One area where Japan might want to import even more Chinese workers is in the area of government statistics, since the Chinese are not only faster in compiling and collating data such as GDP figures (on at least one occasion reporting BEFORE quarter end), but have never even once had to adjust the final figure downward.
"Government" encouraging unemployment? That
is so sirree! Heeheeheeheeheeheeheeheeheehee heeheeheeheeheeheeheeheeheeheeheeheehee
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heeheeheeheeheeheeheeheeheeheeheeheehee
heeheeheeheeheeheeheeheeheeheeheeheehee!
the soviet politburo lives on in tokyo and washington. who won the cold war? the ussr and its "capitalist" sponsors.
Now hang on a minnie.
Have we properly contextualised Japan's performance
So Japan's GDP is only rising a palty 0.6% - in the context of a declining and ageing population - what would that figure equate to if adjusted against, say, the US with an increasing population ?
Y'know what I'm saying
If my countries GDP was falling 2% but my population was declining 5% - thats a pretty good result - it means more wealth per capita, right ?
Can we actually say 'KEYNES - BAD - FREIDMAN - GOOD' without factoring this in ?
Now hang on a minnie.
Have we properly contextualised Japan's performance
So Japan's GDP is only rising a palty 0.6% - in the context of a declining and ageing population - what would that figure equate to if adjusted against, say, the US with an increasing population ?
Y'know what I'm saying ?
If my countries GDP was falling average 2% per year, but my population was declining 10% per year - that's actually a pretty good performance, yea? that would mena avergage wealth per capita would still be increasing, not decreasing
sure Japan hasnt handled its economy well in some respects, but I just don't think you can outright declare 'Keynes BAD Frreidman GOOD' without accounting for this
Their GDP growth is very small but their population is declining, so if you divide GDP by population they actually have stuff per person. Also, one dollar only buys 25% as many yen as it did 50 years ago, so when they travel overseas (to America) they can buy 4 times as much stuff as they could 50 years ago. If their unemployment is only 5%, then I don't see how they are doing "badly" at all. In fact, I would say they appear to have done better over the last 50 years than the USA has done.
They are the textbook case on what not to do. History is long and tells us what should be done. I can assure everyone that this downturn here in America will blossom into a full depression and if the Fed Gov remains in power we will languish for at least 20 years. Well unless they take us into war then to many wild cards.
The real question is why is our leadership doing this. We have to accept 1 of 2 scenarios
1. Our leadership is full of the dumbest men who ever lived. Men so stupid that they should have worn helmets as children to protect their soft skulls and softer bains.
2. They know what they are doing is ruinouis to America and they do it anyway. To line their pockets, to fulfill their poltical agendas, or because they like to see us suffer.
So which is it?
2a. They know what they are doing is ruinous to America, and that is what they are trying to do. We need a global currency, global government, global policies against global warming, and Global Sachs.
Well, maybe you should come up with the solution. You could be at Obama's right hand, and get paid well and go on a million dollar book tour.
Smarter men then me have seen the solution. Let the insolvent institutions fail. Jim Rogers said this. Feel free to question my intelligence, but maybe calling Jim Rogers a fool will give you pause.
Obama would never do this plan. Governments exist to use and grab power. Allowing the natural laws of economics to function does not help them in this. This is why nations have embraced Keynesians, it gives them an excuse to use more power.
Think of it this way, the government(Fatty) is forced to go on a meal plan because it's fat any at risk of heart attack. Fatty has the choice of diets, one that is very restrictive and one that tells him he can eat anything and everything he wants and still get better. Fatty will likely double down and gorge until his heart gives out.
You may not believe it, but the answer is most definitely 1, although I know the majority of americans do not want to believe they are more stupid than the Japanese. Most people forget that Japan's reaction to the 1989 crash was first to let the banks and construction companies "earn their way out", and only after 1994, and on the string advice of IMF (aka the good ol US of Z) to go the QE way to print money and that gave spurts of growth that made everyone thought the problem was solved, only to re-surface whenever the world economic growth slows. The japanese are not stupid, they just do not have the resolve, and they are pushed hard by uncle sugar to print money, rather than go the opposite way. Don't you find it strange that all governments of the world are all printing as uncle sugar prints? If you think this is coincidence, think again.
As for Econophile, well, he is as clueless as most amateur believers of the Austrian school are, and their response to everything is the same: "DO NOTHING". In a real world, this is not acceptable, and even Rogoff accepts that extending unemployment benefit, coupled with serious attempt to clear up the banks' toxic mess, are the key forward. We also know that Volcker and company's proposals are gaining momentum, with at least some semblance of positive suggestions, like stemming out the systemic risks posed by rampant sepculation with CDS and securitisations, bringing Glas Steagall back, restricting banks to deposit institutions and no prop-trading for the investment banks.
Anon (I wish you anonymous guys would register with ZH and use a handle like everyone else):
I think you are quite wrong. I refer you to this article first, and then you can comment intelligently. Welcome to the "Real World" Anon, because nothing the government has done works. You can continue to believe what the government feeds you if you wish, but they don't have a clue as to how things work. Rogoff (and Reinhart) believe a lot of things, so what. They are well within the clueless bunch that advise our government on the idiotic policies they and Japan have enacted. Krugman complains the government hasn't spent enough, yet the Japanese followed his advice in the '90s to disastrous results. From your comments you fall in the usual trap of mistaking consequences for causes. And, I will cop to the accusation of being an "amateur." In fact, please don't call me an economist. I call myself a "writer" on economics because I don't want to taint my reputation by being accused of being an economist. I'd sure like to know how brilliant the Keynesian economist were in predicting our crash and discovering the root causes. And their solutions haven't worked either. And by the way, Hayek (you may have heard of him) actually believed in extending benefits to unemployed workers. Also, I would like to hear why do nothing is a bad policy. You may wish to study the 1920-21 recession vs. the 1929 crash (1929 started out as a recession not as bad as the one in 1920). Pres. Harding did "nothing" and it recovered in 18 months. Hoover did a lot, as did FDR, and they caused the Great Depression which lasted about 20+ years. Wake up, Dude!
Sorry man the solution is to step aside and let the chips fall where they may. These problems were created because of government interference. The whole structure allowed these big banks to make insane bets, because guess what there was not risk, zero. LTCM was a clear sign, full speed ahead on all assets because Greenspan would have their back.
I you were to tell me "Shameful, I like you, lets go party in Vegas. I'll tell you what feel free to gamble. Anything you win you keep, and if you lose I'll cover your losses. Any stakes don't worry about it, it's on me." Could you really be angry with me for gambling a fortune on an insane bet and losing? After all I'm a winner no matter what as I'm running up comps (fees) the whole time. And if you happen to want to do this deal in real life I am available for all your money wasting needs!
This mess was caused my government interference in the market, more government interference will not solve it. At best we will be like Japan. And I tell you I would be overjoyed if we only have it as bad as Japan! What will happen is more interference and more moral hazard. Hell we are due for Banker Bailout Mk.2 anytime now, and that's assuming the Fed just isn't doing it behind closed doors.
For capitalism to work losers have to lose and winners allowed to win. If the system no longer lets anyone fail then the whole system fails.
Hey, their unemployment is only half of ours. That's crazy!
Maybe we need to adopt their policies, so that we can get back to a 5% unemployment rate.
It's all relative. Their rate is about 5.5%, but double what the norm is. The reason their rate is lower is that it isn't easy to fire people. Would you wish to involuntarily contribute money to someone else to keep their job even thought their employer is not economically productive? That's what they are doing.
You're incorrect about the full time employment policy.
In Japan young people cannot find permanent employment. Something has to be done, and this regulation is simply putting back into place the policy that _worked_ before.
You are wrong because Japanese companies don't make staffing decisions based on profits to the exclusion of other considerations, like Western companies do. Japan is retrenching, IMHO. We will have a hard time with our Japanese subsidiary if that's the case I suspect, as they shift the focus (correctly) to making things easier for the average Japanese person in the coming crash.
It want to be at home (in Japan, that is) rather than in the West when the crash happens.
I don't speak Japanese so I don't know what was said, but I'm guessing Mr. Anonymous is Japanese living in Canada? Whatever. First, in case you haven't noticed the crash has already happened, here and in Japan. You then need to ask yourself why young people can't find permanent jobs. Could it have something to do with economic policy? I don't see where it worked before since GDP has been sluggish for 19 years (on average). The something that has to be done is for the government get rid of laws that make employers reluctant to hire workers, such as higher than market wages, overly generous benefits, restrictions on layoffs, minimum wages, and the like.
I appreciate your Japan columns, Mr. Econophile. Sorry for the distraction, I rarely get a chance to speak it anymore.
I believe that there is little than any government can do, because the core issue lie beyond the scope of government. For example, an aging population below replacement can't be reversed overnight.
The Japanese and every other government in the world is getting all "Keynesian"-- a prefer the more bald phrase "controlling the implosion" because it beats the alternative in every way.
I'm not sure that everyone understands just how deleveraged the world can get if thing get out of hand. It is pretty scary to me.
Nihon'jin desu ka?
iie, kanada jin desu. dakedo nihon no kaisha o yoyou shiteimasu.
Hajimemashite. Nihon no Ginko ni hatarakimashita.
nihongo ga joozu ja arimasen, hanashite mitai deso yo.
Sayanara, anon-san.
Sun'honin sembu ka zou.
I'm assuming this means something in dickese...
Nothing jump-starts growth like trading $588 billion USD of potential purchasing power for a bunch of paper. You have to wonder how much longer the Japanese citizens will (or can) continue to finance these buffoons.
set the over/under at 2030. who wants action?
I'd take that action, under baby way under. Look at their demographics chart and you'll see the wave of misery about to enguff the country. That would be enough to drive them to their knees in good economic conditions. Hell their savings rate is now down to American levels to.
The real bet is who caves first Japan, UK, or US.
Do you have any data on Japanese emigration
rates?
Given the abject punishment that
the young have to face in subsidizing the
bloated lifestyles of the old (hmmm, boomers and
Gen X/Y anyone?) why would young Japanese want
to live in a high tax, low employment state?
The famously homogenous Japanese desire to
retain cultural affinity will only take them
so far.
Haven't seen the data, I just know that with their pensions and their ageing pop they are in for a world of hurt. Will agree that some young people might leave.
Did read a fun story that the gov was letting Chinese workers in to be farmers. That must really piss people off :)
Question: If the strong yen is such a problem for export-based Japan, why can't the BOJ sink it by printing yen and buying dollars, euros, etc.? I assume they have the same fiat power as the US Fed? Getting one's currency to appreciate is not easy: it requires fiscal and monetary discipline -- right? But forcing one's currency down seems easy, no? On the other hand, is Japan a powerful counterexample to the thesis that huge deficits and quanitative easing must lead to currency devaluation and rising prices? Help me out here guys.
Traditionally the BoJ has not had to finance their government debt from foreign investment. Japanese savings have been historically high, although in recent years it has declined substantially. The government has access to the Postal Savings system which has huge assets and is the favorite savings-investment entity for Japanese savers. Also their system is more politically driven, so I don't know if sinking the yen is a political option.
You might wish to see this earlier article I wrote on the systemic differences between the US and Japan.
Your questions are 100% valid and Japan does prove that excessive printing does not have to lead to hyperinflation--at least not yet. I would start by saying that currency crosses can become distorted for months at a time and often have less to do with the fundamentals than the weakening of another currency. As a result, fiscal and monetary policy don't always lead to instant currency debasing.That said, Japan has been really good at keeping their currency low to support their exports until this last year of chaos.
To go further into your questions, Japan started 1990 with a much different template than we have here--they were always savers on a consumer level and getting them to spend is difficult. Our similarities are that we are aging populations and in crisis--1990's Japan, 2007 US--our banking systems are identical in terms of not writing off bad loans and letting them fester for years. Japanese banks are much better now but it took them about 8 years to get the bad loans off the books.
However, the Nikkei bubble, consequent real estate bubble, and official depression until 2004 kept them kings of the carry trade with zero rates. Obviously, they're still eeking by or they wouldn't need more stimulus. One thing to point out was the commodity bear market that occurred between 1982 and 1999. The deflationary forces of the commodity bear market allowed Japan to have a much different starting point in terms of the macro picture than the US--which IMHO our decline officially started in 2000 with the Nasdaq bubble, our own consequent real estate bubble, and current decline (I am in the bear market rally camp). Thus we are deflating in incomes, housing, and most consumer goods while inflating in energy and other commodities which could lead to a number of different outcomes.
Here are just a few: 1) a deep depression that knocks the snot out of the commodities market no matter how much is printed since the US consumer is still needed to prop up the world 2) long-term stagflation or 3) a combination of a depression that leads BB to print so much paper that it leads to hyperinflation ala Argentina. There are numerous other scenarios but we just won't know until it happens. We have a global fiat currency crisis on our hands which was really not the case in 1990 when Japan started their descent--the Euro didn't even exist. Stay tuned. And keep asking good questions.
Wow, golf clap Howard...excellent sense of history on your part, a critical skill set in my view.
I'm more likely in the option 2 camp but I think the potentiality of serious geopolitical events (not a typo, i do mean plural) to throw an enormous monkey wrench into everything is quite high.
My number one concern on the foreign front is Paki....if the tali/al q get one or two of those mobile nukes, the landscape is dramatically different starting that moment. The list of candidates for other shit happening seemingly has no end.
I'm right there with you since I am a cycle trader and war in the middle east is cyclicly due 2010-2011. And that creates a whole different shitstorm.
Thank you, Mr. Beale. For a man as mad as hell who's not going to take it anymore, you speak great sense. Are you now perhaps only mildly peeved and willing it take it a bit longer?
Of the options you present, my vote is (2), stagflation with a war in the offing.
Still mad as hell but willing to take it and hopefully laugh as long as I live and breathe. I will add that the BOJ is just as powerful as Ben & Timmay and they will get their carry trade back for a good while.
Currency debasement wipes out the Japanese bondholders who fund(ed) the debt. That's risky political strategy.
Yeah, but letting your economy tank for twenty years ought to be a risky political strategy, too. Central banks, we are told, love inflation: "healthy" (i.e., modest) inflation is their general goal. Central banks are also, we are told, unlimited in their ability to inflate the money supply as long as they have something to buy -- and, I would suspect, there is always something to buy especially with most governments running huge deficits that require gigantic bond floats. Yet Japan is mired in deflation? If the BOJ is as powerful as central banks are alleged to be, why not knock 15% off the yen the way Timmy & Co. have the dollar?