Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Trying to "fix" a sclerotic, inefficient state-cartel economy by boosting inflation--the ultimate goal of Japan's Monetary Pearl Harbor-- is a self-liquidating path to destruction.
The Bank of Japan's surprise expansion of financial stimulus strikes me as the monetary equivalent of Pearl Harbor --not in the sense of launching a pre-emptive war (though the move does raise the odds of a global currency war), but in the sense of a leadership pursuing a Grand Strategy to the point of self-destruction because they have no alternative within their intellectual and political framework.
In the years before Japan's December 7, 1941 attack on Pearl Harbor, the Imperial government's Grand Strategy was simple: bring the entire Asian-Pacific region under the control of the Japanese Empire.
That this Imperial Project would necessarily lead to conflict with the United States was baked into the project from the moment of its inception.
To lift productivity, Japan needs serious structural changes to promote creative destruction, the process of replacing decaying firms with vibrant ones. The sectors of Japan’s economy that face international competition, such as the auto industry, enjoy high productivity. But the lion’s share of the economy is domestically oriented, and much of it is shielded from both international and domestic competition by domestic regulations and cartel-like business practices.Japan’s milk market isn’t even open to domestic competition. The powerful farm cooperative known as Japan Agriculture uses its stranglehold on distribution to protect inefficient farmers in the main part of Japan by hindering shipments of milk from the larger, more efficient farms in the northern island of Hokkaido. Tokyo turns a blind eye because Japan Agriculture is a powerful electoral ally of Abe’s political party and because rural voters are disproportionately represented in the Diet. A real reformer would scrap Japan Agriculture’s exemption from the Antimonopoly Act, a law passed in 1947 designed to encourage competition, and use the act to crack down on such practices.
Since Japan’s rigid labor laws make it nearly impossible to lay off permanent employees in downtimes, companies now tend to fill open slots with part-time or temporary workers, and they typically pay them a third less. Today, 17 percent of Japanese men aged 25 to 34 hold such second-class jobs, up from four percent in 1988. Low-paid temps and part-timers now make up 38 percent of Japanese employees of all ages and both sexes -- a stunning figure for a society that once prided itself on equality.
Since 1997, wages in Japan have fallen by nine percent in real terms. They are expected to continue falling, despite highly advertised wage hikes by a few hundred giant firms whose profits from overseas sales have been artificially boosted by the weaker yen. Abe claims that wages will rise once workers and firms come to expect inflation. In reality, deflation is not the cause of Japan’s problems but a symptom. Trying to cure Japan’s malaise by generating inflation is like trying to cure a fever by putting ice on the thermometer.
Now the Bank of Japan is pursuing its own self-destructive tragedy, and all the world can do is watch from afar and hope the eventual collapse of this Grand Strategy doesn't take the entire global financial system down with it.