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December 27, 2012 3:56 PM   Subscribe

What's Going On In Japan? "Really Japan is quite a remarkable case, since neither fiscal nor monetary policy seems to be working to achieve the anticipated results. This year Japan will have a fiscal deficit of around 10% of GDP and gross government debt will hit 235% of GDP, yet the country is still struggling to find growth. Instead of reiterating old dogmas (whether they come from Keynes or from Hayek) more people should be asking themselves what is happening here. This is not a simple repetition of something which was first time tragedy and is now second time tragedy, it is something new, and could well be a harbinger for more that is to come, elsewhere. Oh, why oh why are economists not more curious?"

Time to Japanic? "About half of the Japanese government's annual budget now goes to pensions and interest payments... With projected annual budget deficits between 7 and 10 percent of GDP, Japanese savers are essentially tendering their savings in return for newly issued government debt, which is not backed by hard assets. It is backed only by an aging, shrinking population of taxpayers... A crisis in Japan would most likely manifest as a collapse of confidence in the yen: At some point, Japanese citizens will decide that saving in any yen-denominated asset is not worth the risk. Then interest rates will rise; the capital position of banks, insurance companies, and pension funds will worsen (because they all hold long-maturing bonds, which fall in value when rates rise); and fears of insolvency will surface..."
If Japan doesn't change course, it will have a major crisis within the next decade.

If. But what people need to understand is, the Japanese government does have the power to avert a crisis. It is not inevitable.

There is one way that the crisis can definitely be averted: Raise taxes. Japan's fiscal woes can be boiled down to one sentence: Japan has European levels social spending and European levels of aging with American levels of taxation. But this could change; if Japan raised taxes to European levels, crisis would be instantly averted. According to analyses I've seen, this would require raising Japan's taxes from their current level of 32.5% of GDP to somewhere between 40% and 50% of GDP. That's comparable to France or Sweden. Painful, but not impossible.

Now for the rumor (rumor always being a large component in Western analyses of Japan). My sources at the Bank of Japan and Ministry of Finance tell me that domestic Japanese investors are betting that, after all the grumbling and fighting and ending of political careers, Japan's government will suck it up and raise taxes. This, my shadowy sources say, is why pension funds are still willing to put the Japanese people's money into JGBs.

But this story is not really outlandish. It's similar to what we're observing in America right now. U.S. borrowing is at all-time highs, but demand for Treasuries shows no sign of flagging, and most of that demand - more than in the past - is from domestic U.S. investors. Yes, we have shown a reluctance to raise taxes - witness the apocalyptic debt ceiling fight from last year. But if the public really thought the U.S. government was willing to default, domestic Treasury buyers would be heading for the exits. That they are not heading for the exits probably indicates that they believe that when push comes to shove, the U.S. government will suck it up and raise taxes. There are signs that the Republicans are quietly recognizing the necessity of this. At this point, it's just a fight between Democrats and Republicans to see who takes the fall for raising taxes - that's what the "fiscal cliff" is really all about.

Japan seems to be in a similar situation. It is not really unusual or outlandish at all. Everyone in the country still seems to believe that the government will continue to function. The day that that belief falters - or is proven wrong by main force, when interest payments swamp the primary budget - is the day that Japan collapses (the same goes for the U.S.). But if Japan's government is less dysfunctional than the often skittish Western press believes, that day will never come.

(Anyway... oh yeah, I did mention that there might be two ways out of Japan's fiscal trap, didn't I? The other way is to use monetary policy to create negative real interest rates for a very long period of time. If that can be done in a stable way (without accelerating inflation) and if stable growth persists, then Japan can use an "inflation tax" to erode the value of its government debt instead of an actual tax. Econ bloggers (and commenters), who tend to believe that central banks can hit any NGDP target they want, will probably advocate this "solution"...)
Is Japan set to lead after 20 years of torpor?
But while a revolution is under way in the attitude to economic targets, the new tools and instruments required to hit these targets have hardly begun to be discussed. The unemployment and GDP targets suggested by Bernanke and Carney are empty promises in the absence of policy tools that could convincingly boost jobs and growth in the present deflationary environment. Which is where Japan comes in.

No other economy has (yet) suffered anything like Japan's 20 years of economic stagnation. It would not be surprising, therefore, if truly radical measures to deal with deflation were pioneered in Japan. Outside Japan, no central banker or politician has yet gone beyond pumping money into bond markets through quantitative easing. And nobody has suggested, at least officially, that central banks should directly lend to governments or finance one-off tax cuts.
This election may be different in Japan
The Japanese election on 16 December is attracting intense interest in the global financial markets. In part, this is because the LDP's election campaign, led by Mr Shinzo Abe, is based on forcing an entirely new monetary strategy on the Bank of Japan, with obvious consequences for the yen and the equity market.

On top of that, the Japanese election is the first in a major democracy where the role and mandate of the central bank has taken centre stage in a national political campaign. Is this the shape of things to come in other democracies facing low growth, subdued inflation and rising government debt ratios? Politicians in many other developed economies will be watching the Japanese experiment with rapt attention...

As the population ages, the savings ratio will fall further, and the government will be forced to look overseas for the financing of its rising debt burden. An important recent study by Takeo Hoshi and Takatoshi Ito concludes that this is likely to result in a government debt crisis well within a decade. Markets are forward looking, and will see this coming well in advance.

Japan has defied the debt crisis doom-mongers for more than a decade now, but its long term deteriorating trends on demography, government debt and export performance cannot be held at bay indefinitely. Shinzo Abe has concluded that the only way out of this dilemma is to force the Bank of Japan to raise the inflation rate and (though he does not say this specifically) push the yen down. Unsterilised purchases of foreign assets may be the only way the central bank can do this.

Of course, there are severe risks with the Abe programme. If inflation expectations rise, bond yields may follow suit, undermining the capital base of the financial sector which holds all the bonds. But the Japanese political wind is now blowing strongly in the direction of co-opting the central bank as an integral arm of the government. If Mr Abe does not do it, someone else almost certainly will.
A Conversation with Ray Dalio
I give the example of Japan because when you're looking at the United States, the Japan example, I think, is a very good example. We have -- Japan has total debt-to-GDP of about 500 percent, and it has government debt-to-GDP of about 270 percent. So it is way, way, way more leveraged, in a sense, than the United States is. And so then the question is, as we go through this, the magnitude of monetization. You have to go back to say, who are the buyers of the debt and what are the motivations?

There is a "greater fool" theory. The "greater fool" theory can go on for a really long time. The timing of when that shift takes place is very much dependent on that. So as we look in terms of, let's say, the United Sates, certainly it's the case -- and in Japan -- certainly it's the case that we can't support these kinds of debt. Anybody with a sharp pencil will know that we're not going to be able to support that. That doesn't mean there won't be adequate buy, just like in Japan's case. You can have plenty of buy. You provide enough liquidity, and the question is, what are the choices?
Rational astrologies: "The process by which rational astrologies are chosen is the process by which the world is ruled. The United States is the world's financial power because it is conventional to pretend that the US dollar is a safe asset, and so long as it is conventional it is true and so the convention is very difficult to dislodge. Economics as a discipline has not performed very well from the perspective of commonsensical outside observers like the Queen of England. But the conventions of economic analysis are the rational astrology of technocratic government, and decisions that can't be couched and justified according to those conventions cannot be safely taken by policy makers. Policy is largely a side effect of the risk-averse behavior of political careerists, who rationally parade their adherence to this moment's conventions as enthusiastically as noblemen deferred to pronouncements of a court astrologer in an earlier time. We can only hope that our era's conventions engender better policy as a side-effect than attention to the movement of the stars. (As far as I am concerned, the jury is still out.) But it is not individuals' independent judgment of the wisdom of these conventions that guides collective behavior. Our behavior, and often our sincere beliefs, are largely formed in reaction to the terrifying accountability that comes with making consequential choices unconventionally. Our rational astrologies are at the core of who we are, as individuals and as societies."

Central banks make an historic turn
When the economic history of the 21st century is written, September 2012 is likely to be recorded as a defining moment, almost as important as September 2008. This month's historic events – Ben Bernanke’s promise to buy bonds without limit until the U.S. returns to something approaching full employment, Angela Merkel's support for the European Central Bank bond purchase plans and the Bank of Japan's decision to accelerate greatly its easing program – may not seem earth-shattering in the same way as the near-collapse of every major bank in the U. S. and Europe. Yet the upheavals now happening in central banking represent a tectonic shift that could transform the economic landscape as dramatically as the financial earthquake four years ago.

To see why, we must go back in history 40 years, to the early 1970s. Maintaining full employment was at that time regarded as the main objective of all economic policy, and this had been the case for roughly 40 years, since the Great Depression. But by the early 1970s, voters had enjoyed decades of more or less full employment and were starting to focus on inflation rather than depression as the main threat to their prosperity. Economists and politicians were responding to this shift. Milton Friedman led a monetarist "counterrevolution" against the Keynesian obsession with unemployment, designing new economic models to challenge the Keynesian view that market economies were naturally prone to long-term stagnation. By restoring the pre-Keynesian assumption that market economies were automatically self-stabilizing, the monetarist models produced two powerful policy prescriptions directly opposed to the Keynesian views.

First, the monetarists insisted that price stability, rather than full employment, was the only legitimate target for monetary policy and government macroeconomic management more generally. Second, they argued that central bankers should not accept any direct responsibility for unemployment, since sustainable job creation depended solely on private enterprise – full employment would be achieved automatically if inflation were conquered and market forces were allowed to operate freely, with the minimum of government interference or union constraints. A few years later, Margaret Thatcher and Ronald Reagan turned Friedman's intellectual revolution into practical politics. On top of its economic impact, monetarism had huge ideological effects by absolving government macroeconomic management of any direct responsibility for jobs and instead attributing unemployment to regulations, unions, welfare policies and other market distortions.
Japan, Corporate Profits, Kalecki and Living Standards - "Saying that the government's deficit is the non-government's surplus is only a slice of the overall story and really tells us very little about the overall health of the economy. It's more important to understand how domestic investment plays the primary role in how increases in living standards are generated."

also btw...
-Effects of QE3
-A time of hoarding and inflation fears, 1930s edition
-When Banks Were Able to Print Their Own Money, Literally [1,2,3]
-Is a revolution in economic thinking under way? [1,2,3]
-Judge Posner's Remarkable New Ideas About Taxation, Regulation, and the Constitution [1,2,3]
-Robots and Liberalism [1,2,3]
-Japan's women hold key to growth
posted by kliuless (82 comments total) 196 users marked this as a favorite

 
ok, off to read. see you all back here in 2014.
posted by leotrotsky at 4:11 PM on December 27, 2012 [52 favorites]


This is a good post. Please mefites don't rush to post snarky comments based on your political alignment without reading the OP because I really feel it is one of those rare posts that reveals the complexity of normative thought.

The truth resists simplicity ect etc
posted by Another Fine Product From The Nonsense Factory at 4:12 PM on December 27, 2012 [17 favorites]


Thank you for this, it's one of the most interesting posts I've seen on Metafilter this year. On December 28th.
posted by jaduncan at 4:17 PM on December 27, 2012 [1 favorite]


And I just renewed my Economist subscription... darn....

Srsly - mad props to kliuless. MeFi continues to delight.
posted by Devonian at 4:21 PM on December 27, 2012


Fantastic post - full of good analyses and discussions points. I think there is much to learn from Japan's current stagnation and it's efforts to move forward for developed economies. Will be digging into this over the next few days!
posted by helmutdog at 4:27 PM on December 27, 2012


Interesting post. For my two cents worth, deflation has been a boon since the cost of living has decreased remarkably since I first arrived in 1994 and a bane, since wages have not increased and have actually decreased since 1994 (purchasing power has helped address some of this).

In the short term, deflation helps Japan's elderly population by giving them more purchasing power, but hobbles the younger generation, since it's almost impossible to build wealth.

Before too many people say that Japan has an unusually aging society, it's good to remember that China will be in the same boat shortly. Korea is already there, as is Europe. Canada, the US and Aus are doing only slightly better.
posted by KokuRyu at 4:28 PM on December 27, 2012 [1 favorite]


It doesn't change your main point but the USA is actually doing massively better than Japan in that regard. The population has been growing at or just above replacement for some time. Japan, by contrast, is approaching, what, half replacement rate?
posted by Justinian at 4:36 PM on December 27, 2012


Isn't the aging population the biggest factor here?

...The number of Japanese citizens has been shrinking since 2005. Once you take account of this, Japan's GDP per head increased at an annual rate of 2.1% in the five years to 2007, slightly faster than America's 1.9% and much better than Germany's 1.4%. In other words, contrary to the popular pessimism about Japan's economy, it has actually enjoyed the biggest gain in average income among the big three rich economies

Indeed, from the first link in the post:

If Japan’s demographics have got some important part to play in the drama which is unfolding there, then it is Europe which is most likely to follow, since the continent’s demography is the closest to the Japanese one.

So the answer to "What's going on in Japan?" looks to me like "the number of working-age adults is falling, so naturally the economy is shrinking."
posted by alasdair at 4:40 PM on December 27, 2012 [1 favorite]


Japan, by contrast, is approaching, what, half replacement rate?

I'm 6 articles in, and note that none of the articles suggest the obvious issues caused by the Japanese refusal to countenance large scale immigration. A low birth rate society that chooses to develop robotic helpers rather than import SEA labour is going to be a little odd going forward; racism very much handicaps a lot of the obvious solutions and the absolute refusal to import labour does make Japan at least somewhat of a special case.
posted by jaduncan at 4:40 PM on December 27, 2012 [3 favorites]


More broadly regarding demographic challenges, a trend towards a stable cylindrical age/population distribution must happen eventually, everywhere, since we do not live in an infinite world. It’s all well and good to complain that the population isn’t growing, but at what point do we get off the treadmill? Is there a stable or even slightly declining population for Japan that’s economically sustainable? If not, then it’s the economic model that’s broken, not the other way around.
posted by wilful at 4:43 PM on December 27, 2012 [8 favorites]


It's important to note that Japan is not relying on robotic helpers to weather the coming demographic storm; there doesn't seem to be any plan to do anything about the demographic shift. There are some stirrings about making it easier for women to participate in the workforce (women typically earn half of what men do).

However, immigration isn't going to help out all that much - the US and Canada, which rely on immigration, are still in the same bind as Japan, and so are Korea and China (neither of which encourage massive immigration).

Even Europe is closing the doors on immigration. It's a problem throughout G8/G20 economies.
posted by KokuRyu at 4:46 PM on December 27, 2012


Even Europe is closing the doors on immigration.

Well, ish. It's more internal flows now; Western Europe gets plenty of immigration/labour from the eastern EU ascension states. At some point Turkey is allegedly to join also, but IMO that really will be racism vs economics.
posted by jaduncan at 4:51 PM on December 27, 2012


Isn't the aging population the biggest factor here?


Or how about the xenophobia that keeps immigration from picking up the slack?
posted by srboisvert at 4:51 PM on December 27, 2012


You could say the same thing about Korea or most countries in Europe.
posted by KokuRyu at 4:52 PM on December 27, 2012


This is the best post ever and timely for me as I've been feeling like I need to bring myself more up to date with what's happening in Japan. Thank you so much!
posted by young sister beacon at 5:10 PM on December 27, 2012


Is there a stable or even slightly declining population for Japan that’s economically sustainable?

Of course there is. The hysteria about declining or aging population is just as crazy as the hysteria about the fiscal cliff. As long as productivity increases at a faster rate than the population declines, the population becomes wealthier -- and that is presently the case in Japan. What's not to like about a declining population? Less crowding, cheaper housing, and higher wages for the young.
posted by JackFlash at 5:19 PM on December 27, 2012 [10 favorites]


> the US and Canada, which rely on immigration, are still in the same bind as Japan

The U.S. has a birth rate of around 14%, and a population growth rate of just under +1%.
Japan has a birth rate around 8.5%, and a population growth rate around -0.1%

In addition, about 10% of the U.S. population is foreign-born. Despite populist anti-immigrant rhetoric, legal immigration to the U.S. has gone up between 2000 and 2010.

I am not sure you know what you're talking about.
posted by ardgedee at 5:20 PM on December 27, 2012 [2 favorites]


Krugman: Is Growth Over?
posted by mek at 5:23 PM on December 27, 2012


Man, I'm sure there is a lot of sense here, but every one of these economic panic articles since the beginning of the modern era always uses that so-sure language. "Japan will do this..." and "Inflation will rise out of control..."

And the fact is that so few of these sure-things, both good and bad, ever work out the way the crystal-ball gazers threaten it will.
posted by clvrmnky at 5:24 PM on December 27, 2012 [1 favorite]


This is an astounding post. Thanks so much!

The mods really need to disable comments till next Monday for this one. Monday morning just put it back at the top of the queue so people might have actually read some of the links.
posted by Sangermaine at 5:32 PM on December 27, 2012 [4 favorites]


I am not sure you know what you're talking about.

I'm not sure if you do, either, since you didn't cite, and it's impossible to tell if you are comparing apples to oranges or cherry-picking results.

Anyway, I'm assuming you got your information from the always-reputable Time Magazine, as that's the first result for 14%. According to your source, then, the US birth rate is plunging.

I guess a lot of people get Japan wrong, or consider the country out of context. It's laughable for an American to call the country xenophobic, when so many African-Americans are incarcerated, for example.
posted by KokuRyu at 5:32 PM on December 27, 2012 [1 favorite]


[Please don't turn this into some sort of "Oh yeah..?" exchange and give this post some respect. Thank you.]
posted by jessamyn at 5:38 PM on December 27, 2012 [6 favorites]


If you trust the CIA World Fact Book the USA has positive population growth independent of immigration. The 2012 figures for the USA and Japan (as N per 1000) for (deaths, births, and net immigration) are (8.4, 13.7, 3.62) and (9.15, 8.39, 0), respectively.

I'm not sure what "14% birth rate" means but it sounds terrifying on the face of it.
posted by hoople at 5:42 PM on December 27, 2012 [4 favorites]


Part of Japan's problem is that they've long refused to do a good shot of fiscal stimulus. They always half-ass it like we did in 2009. They did manage to get something almost large enough in the early middle 2000s, but it didn't take hold, likely due to global economic headwinds at the time reducing its effectiveness. Half-ass stimulus is probably worse than no stimulus, because it doesn't create a self-sustaining recovery and saddles the government with unnecessary excess debt.

There's also a serious problem with banks refusing to write off bad debt, which leaves many of their companies struggling under insane debt loads rather than just going bankrupt and getting a fresh start.
posted by wierdo at 5:57 PM on December 27, 2012 [2 favorites]


> I'm assuming you got your information from...

My bad, I should have provided citations...

The U.S. has a birth rate of around 14% (OECD: 12.7%, World Bank: 14%, CIA World Factbook: 13.7%), and a population growth rate of just under +1% (United Nations: 0.97%, World Bank: 0.86%, CIA World Factbook: 0.96%).

Japan has a birth rate around 8.5% (OECD: 8.3%, World Bank: 9.0%, CIA World Factbook: 8.3%), and a population growth rate around -0.1% (United Nations: -0.02%, World Bank: -0.11%, CIA World Factbook: -0.28%).

In addition, about 10% of the U.S. population is foreign-born. Despite populist anti-immigrant rhetoric, legal immigration to the U.S. has gone up between 2000 and 2010.

posted by ardgedee at 6:06 PM on December 27, 2012


> I'm not sure what "14% birth rate" means but it sounds terrifying on the face of it.

The number of births per 1,000 people per year. (That's inclusive of the entire population, not only the part capable of reproducing or of giving birth. The linked article is worth a skim for its comments on what trends over time might or might not indicate.)

This is in contrast to the Total Fertility Rate, which is apparently a more solid indicator of a population's capability to sustain a population.

United States fertility rate: Slightly above 2.0 (United Nations: 2.05, CIA World Factbook: 2.06, World Bank: 2.1)
Japan's fertility rate: 1.35-ish (United Nations: 1.27, CIA World Factbook: 1.39, World Bank: 1.39)

2.0 is a hypothetical level mark at which population is steady. For various reasons, the actual level mark has to be higher (eg, not all women reproduce, and the newborn population might be majority male). Above that level, population increases; below that level, population decreases (assuming no immigration and no emigration).
posted by ardgedee at 6:21 PM on December 27, 2012


Once again, I would take issue with your statement that I don't know what I'm talking about, as I would argue that population replacement is all a matter of degree - according to your Wikipedia, as of 2010, about 48% of the world population lives in nations with sub-replacement fertility.

Anyway, population growth rates (at 1% or whatever) don't really tell the whole story - replacement rate is key, and according to your Wikipedia the US seems to be achieving a population replacement rate year on year.

The EU and Japan have high dependency ratios. While people upthread have said the Eastern Europeans are supposedly providing immigrants to improve the birthrate in the EU, the various Wikipedia articles indicate that eastern European countries have some of the lowest birth/growth rates in the world. Just like Japan.
posted by KokuRyu at 6:24 PM on December 27, 2012 [1 favorite]


Japan's problem, in my opinion, is simply that it is run by and for people in their late 60's, early 70's and older. Policy, by and large, is aimed at keeping the aging population happy (they are, after all, the largest block of the population) at the expense of all else. Policy doesn't have to do much more than keep things afloat for the next ten to twenty years simply because that's all that group needs.

I really wish I'd bookmarked it, but there was a report a couple years back saying that the average monthly salary of Japanese people under thirty was less than 100,000 yen a month, and that a huge, almost unbelievable percentage of young workers are only part-time or temporary. For the most part, a giant proportion of the wealth in this country is held by the elderly, who don't use it. It stagnates. Businesses don't have enough customers, they lay off young people.

It's a sinking ship that I've foolishly tied myself to. I don't have a lot of hope in the future for this country. Ishihara and the fuckwit from Osaka creating the third largest party in the new government (based essentially on rabid nationalism) doesn't bode well. Cratering economy, disillusioned youth unable to get employment? Add in the traditionally xenophobic culture, and the next ten to twenty years could be very, very ugly.

The thing is, almost all of the young Japanese people I know are incredibly creative and eager. They're trying to do great things, but unable to push forward. Very few, if any, are interested in politics at all, for the most part because they know that it's not open to them. If you don't come from the right university (Tokyo U., Kyoto U., Waseda, a couple others), or have family connections (most Japanese Prime Ministers in recent years have been son-of or grandson-of former ministers or PMs), so most young people don't even try.

Like I said, it's going to be very, very ugly.
posted by Ghidorah at 6:33 PM on December 27, 2012 [13 favorites]


Wow! So it is possible to raise taxes high enough so as to generate enough revenue for Japan and/or the US to avoid defaulting on its debt obligations. So it's settled: raising taxes to avoid bankruptcy is the golden answer to our complex economic woes. It is a neat and simple solution to such a complex problem though, and after all, we all know our government can do anything to protect us and make our lives better. After all, who creates jobs? Private companies one might say? Surely you jest. Government creates jobs through monetary stimulus programs and through raising taxes. Companies and entrepreneurs respond to reduced economic returns caused by higher taxes by investing more capital and hiring more employees.

Okay, so, we now know that a federal income tax rate of 40 to 50% is the answer. Not sure what the magic number is in that range, but perhaps we will just pick a number (say, 46%) and go from there, trial and error like.

But comrades, I submit to ye--is there another solution we are missing here??? Why stop at a 50% tax rate???? What if the US government were take ownership and control over all major means of production??? The government could then essentially tax itself at a 100% tax rate and thereby provide housing, food, jobs and even a little culture and entertainment (movies, music, comic books, etc.) for its citizens. Then the US government could create companies like Facebook just like Zuckerberg did. Everyone would have a job. Everyone would give (work) according to their abilities and receive according to their needs. Gone forever would be rich people with their lavish homes and fancy combustible engine automobiles. Instead, everyone would have non-luxurious homes, autos and material things. The proletariat will be the ruling class, and the only class. Such a political and economic system would directly mirror human nature--that is, the drive deep within all of us comrades to be compensated for our hard work at a level commensurate with a flat, fixed salary as established by the motherland, the United Proletariat States of America (UPSA).

Workers of the world unite--solidarity is ours, revolucion is coming!
posted by stevenstevo at 6:36 PM on December 27, 2012 [2 favorites]


As long as productivity increases at a faster rate than the population declines, the population becomes wealthier -- and that is presently the case in Japan.

There's a lot wrong with that sentence, but just to scratch the surface I'll talk about productivity increases due to automation. That is to say, a robot that assembles widgets five (or five hundred) times faster or with a lower error rate than five (or five hundred) humans shows up on the ledgers as increasing that plant, and hence the country's, productivity. But it also puts those five (or five hundred) people out of work.

But let's ignore those newly-redundant people - anyone using GDP as a primary metric was going to ignore them anyway, frankly, whatever their social services cost - and concentrate on the other thing that pervasive automation exposes your manufacturing sector to: risk, and lots of it.

Robots don't care where they work. So if your supply chain is largely robots, then some bright spark in your organization is going to run the numbers on how much gasoline it takes to move the raw materials that make up your products from wherever they start to wherever those robots are, and and then they're going to move the robots around until that number gets as close to zero as it can get.

And wherever that pin lands, that's where the robots are going. Might not be the same country; robots don't care. The people who are left unemployed by their departure probably care, but aggregate productivity, amirite?

So when you say "What's not to like about a declining population? Less crowding, cheaper housing, and higher wages for the young, it's not clear that any of it follows - when a large percentage of your GDP is generated by machines, a declining population can easily mean crowded cities, less jobs, tectonic socioeconomic shifts and a great deal of ppverty and desperation.

I'm glad I visited when I did, because I strongly suspect that the idea of Japan, if that means anything, is going to outlast Japan-as-it-is-in-the-real by decades. And that's sad as hell.
posted by mhoye at 6:40 PM on December 27, 2012 [1 favorite]


stevenstevo, thank you for your mature and reasoned response. Er hang on, no, that was idiotic. As clearly noted in the post, higher tax rates than Japan or the US occur across the developed world, including in areas that have lower unemployment and a greater export success than the US, yet somehow managing to maintain a decent economy and standard of living. Perhaps, faced with this evidence, you could throw out your Reaganomics as a model that plainly doesn’t fit the real world?
posted by wilful at 6:45 PM on December 27, 2012 [29 favorites]


Dick Hokenson is a well-respected demographer who has done a series of reports this year on country by country demographics. Sadly, I can't link to any of them here as I get them through a subscription that my work has to the research reports of ISI, but here is a public report he's done ("The United States Is Not the Next Japan") comparing some of the demographics of Japan and the US.

Short version: the US has a replacement birth rate and a much more positive approach to immigration, so the US demographics are very favorable when compared with Japan.
posted by young sister beacon at 6:46 PM on December 27, 2012 [1 favorite]


Why stop at a 50% tax rate???? What if the US government were take ownership and control over all major means of production??? The government could then essentially tax itself at a 100% tax rate and thereby provide housing, food, jobs and even a little culture and entertainment

Jesus. Come on. Try to have a discussion like an adult.
posted by young sister beacon at 6:49 PM on December 27, 2012 [40 favorites]


I think that given the environmental and natural resource situation, a less than replacement birthdate is a preferable solution to the over population problem to alternatives like disease, starvation and war, and should be encouraged. The older people will start dying eventually, and the earth will heave a sigh of relief.
posted by empath at 6:53 PM on December 27, 2012


Wow! So it is possible to raise taxes high enough so as to generate enough revenue for Japan and/or the US to avoid defaulting on its debt obligations. So it's settled: raising taxes to avoid bankruptcy is the golden answer to our complex economic woes.

I too am reluctant to allow communist fluoridation to impurify my precious bodily fluids.
posted by mhoye at 6:55 PM on December 27, 2012 [15 favorites]


"Demand for Treasuries shows no sign of flagging, and most of that demand - more than in the past - is from domestic U.S. investors."

This is not only misleading it is patently false. Demand for Treasuries in recent years has been driven nearly entirely by none other than our federal reserve. The Fed purchased some 60% of all Treasury issuances in 2011, an astronomically high number considering the Fed typically never purchases its own debt. By some measures, foreign demand for US paper has been declining. But a slow decline is the least of our worries--everyone should now know that the financial markets can correct themselves rather quickly. If the dollar takes a huge plunge, then rest assured that raising federal income taxes to 50% will not solve our problems.
posted by stevenstevo at 6:58 PM on December 27, 2012 [2 favorites]


ardegee: thanks, although I find it a bit confusing as someone not well-versed in these matters to have 14/1000 treated as 14% and not the more-obvious 1.4%, particularly when the overall population growth rate is (apparently) reported as a true percentage.
posted by hoople at 7:04 PM on December 27, 2012 [1 favorite]


Oh, why oh why are economists not more curious?

Perhaps the goal is not what it seems and you are not being told the actual goal?

Written by a pair of researchers from universities in Montreal and Madrid, it examined whether the study of economics made students more apt to lie for financial gain. The answer: a resounding yes.

Conventional "Economic" thought - Iceland VS Ireland. Look at what happened to these nations after following "economic theory".

robots

Here's the next 'economic theory' to ponder - what happens to the "economy" when 'manufacturing' is done in-mass by robots? Warehouse workers, waitstaff, bank tellers, and even the checkout clerks are being replaced bit by bit. Think the high end is safe? Look at Watson being brought in to 'advise' medical doctors.

Imaging a world where there is a robot owning class and everyone else.
posted by rough ashlar at 7:19 PM on December 27, 2012 [1 favorite]


so, japan's economy is stagnating, except adjusted for pop. growth it isn't stagnating and even though japan hasn't had even the slightest whiff of hyperinflation in the last decade, it's just around the corner because the yen is going to collapse, even though most of japan's debt is owned by the japanese i.e. denoted in yen, this makes japan's a potential new greece.

what a load of gibberish.... I'm sure Japan has actual economic problems but I don't think they are getting brought up here.
posted by ennui.bz at 7:20 PM on December 27, 2012 [2 favorites]


I'm glad I visited when I did, because I strongly suspect that the idea of Japan, if that means anything, is going to outlast Japan-as-it-is-in-the-real by decades. And that's sad as hell.

Japan has been around as a political entity for 1500 years, and I think that tends to affect the thinking of its ruling class. It is a very resilient society - it successfully outmaneuvered US and European colonialists 150 years ago, and survived two atom bombs, and then went on to reindustrialize rapidly. At the tail end of that the country transformed its industrial landscapes into livable landscapes. I think Japan is far from down and out.
posted by KokuRyu at 7:24 PM on December 27, 2012 [7 favorites]


what a load of gibberish.... I'm sure Japan has actual economic problems but I don't think they are getting brought up here.

Japan is really useful in that way.
posted by KokuRyu at 7:25 PM on December 27, 2012


This is not only misleading it is patently false. Demand for Treasuries in recent years has been driven nearly entirely by none other than our federal reserve. The Fed purchased some 60% of all Treasury issuances in 2011

That's only true for the narrow window of early 2011. According to the information here and elaborated on here, through late 2011 and into the first half, at least, of 2012, both the Fed and foreign investors were outbought by domestic investors, precisely as alleged.
posted by mhoye at 7:29 PM on December 27, 2012 [7 favorites]


I haven't finished reading through all the material either but is the following correct?
  1. Because the BoJ couldn't lower interest rates, it had to resort to a form of quantitative easing for the past few years. But due to global economic conditions, those stimulus programs were ineffective so they had to inject more money into the system by way of government bonds.
  2. Domestic investors hold the majority of those issues, specifically, institutional investors holding representing the older working demographic and those in retirement.
  3. This is precarious because of Japan's inverted population pyramid and because the bonds are backed only by tax income. The tax income is at risk because of the aging working population. Should there be a loss of confidence, the holders of those Japanese bonds would dump them for being too risky.
  4. As government bonds are deemed more risky, investors will demand higher interest rates. The relatively larger increase in market rates will decrease the market value of all yen dominated bonds. Japanese institutional investors have such large exposures that their capital ratios would plummet and possibly cause a solvency crisis.
  5. One possible way to avert/soften the effects of this scenario is to raise taxes to compensate for the decreasing tax payer population. If the government can offset the decrease, then bond holders would doubt the risk of default and would continue to hold government bonds and possibly support additional stimulus injections.
If Japan's population descent is so obvious, wouldn't investors already have factor that in their purchase price and hedge against a government default scenario?

Or alternatively, if something happened that caused domestic financial institutions to lose confidence in their own govenment, wouldn't that have to be such a large, systematic event that there wouldn't be much of other safe assets to switch into, cash or otherwise? Other than US treasury bills, what other sovereign bond could they could buy into at such a time? (I am objecting the possibility of step four -- it seems circular: Japanese investors hold most of JGB and they will demand higher interest rates on those bonds, which will then cause their existing bonds to mark down in value.)

I'm actually not following step five either. If the BoJ has had such a hard time in the past two decades stimulating economic activity by free loans and refusing to kill all those zombie companies with bad loans, why would they even entertain the possibility of increase the tax rate?
posted by tksh at 7:40 PM on December 27, 2012 [1 favorite]


Japanese investors hold most of JGB and they will demand higher interest rates on those bonds, which will then cause their existing bonds to mark down in value.)

Or perhaps as Japan's society continues to age (I'm thinking of their baby boomer cohort) they will capitalize their investments to pay for whatever - medical treatment, better living conditions, etc.
posted by KokuRyu at 7:46 PM on December 27, 2012


tksh: I am still working through this myself but 1-3 seem correct. In the overall context I think the point kliuless was trying to make was less specifically to advance 4 and 5 and more to bring attention to the notion, (apparently growing in popularity?), that we are in for a sea change in the general consensus as to the role of central banks, with Japan an initial testbed for policy experiments (its hand in some sense being forced).

But, there's a lot to read through and as much as I love these posts they are definitely from the broader Fox News school of reporting, so I could easily be very far off on all of this.
posted by hoople at 7:54 PM on December 27, 2012


Ghidorah: Japan's problem, in my opinion, is simply that it is run by and for people in their late 60's, early 70's and older. Policy, by and large, is aimed at keeping the aging population happy....there was a report a couple years back saying that the average monthly salary of Japanese people under thirty was less than 100,000 yen [$1157] a month, and that a huge, almost unbelievable percentage of young workers are only part-time or temporary. For the most part, a giant proportion of the wealth in this country is held by the elderly, who don't use it. It stagnates. Businesses don't have enough customers, they lay off young people.

tksh: One possible way to avert/soften the effects of this scenario is to raise taxes to compensate for the decreasing tax payer population.

It would have to be a wealth tax, because, if Ghidorah's right, it looks like the younger cohorts currently don't have much income to tax and are poorly positioned to have much more in the future.
posted by cosmic.osmo at 8:17 PM on December 27, 2012


In common parlance, a wealth tax is known as inflation.
posted by amuseDetachment at 8:27 PM on December 27, 2012 [7 favorites]


Hmm, so maybe step four should be: as the aging population draws on their savings, there will be a net decrease in capital from personal savings. Unless corporate investment fills in, there will be less cash going around, so bonds will need to have more attractive yields. Current bonds will decrease in market value, and so forth.

hoople: yeah, I now realise steps four & five is just one blogger's scenario and prescribed fix. And it looks like Japanese did increase its sales tax just this summer (from 5% to 10%).

cosmic.osmo: a wealth tax would be an incredible political manoeuvre. And outside of the central bank's domain.

Given China's reserve problem and its overexposure to US economics, could the central bank work with the Japanese financial sector to have Chinese sovereign funds quietly buy JGB and fill in that capital gap? Or work with other sovereign funds who want to diversify away from US holdings?

If there weren't so much internal savings in the first place and more foreign investors held JGBs, that tax base problem would be less detrimental and allow the central bank to focus on stimulating the economy. Increase productivity, higher GDP or whatever to keep up the tax base. I guess that would place Japan in a more similar situation with the US. I wonder if there's a political or cultural reason that kept JGBs inside the country.
posted by tksh at 8:30 PM on December 27, 2012


This CNBC article says that the elderly in Japan are spending more - "The 60-plus age group's average monthly expenditure was more than 300,000 yen last year ($3,831) compared with around 260,000 yen for those under 39." Interestingly the increase in spending by the elderly is partly attributed to last year's tsunami and earthquake, in that "Older people looked at last year's disaster and said, 'Well you have money, you can't take it with you, so you might as well spend it.'"
posted by needled at 8:42 PM on December 27, 2012 [2 favorites]


If the dollar takes a huge plunge, then rest assured that raising federal income taxes to 50% will not solve our problems.

Mostly because raising the nominal rate to 50% will result in the Mitt Romneys of the world paying something in the high teens instead of 13%.

Just requiring everyone to pay the same proportion of Social Security taxes—and still get it all back as benefits—fixes the SS budget, like that. In this solvency scenario from the Trustees' 2011 report, simply requiring everyone to pay SS taxes on all income and crediting those contributions ensures that everything is fully funded at least out to 2085. (From a list of other solvency provisions to address the problem.)
posted by XMLicious at 9:05 PM on December 27, 2012 [2 favorites]


This is not only misleading it is patently false. Demand for Treasuries in recent years has been driven nearly entirely by none other than our federal reserve. The Fed purchased some 60% of all Treasury issuances in 2011

That's only true for the narrow window of early 2011. According to the information here and elaborated on here, through late 2011 and into the first half, at least, of 2012, both the Fed and foreign investors were outbought by domestic investors, precisely as alleged.


Hahaha. Oh man. Hahaha. Did you actually read the second article you linked to in your response?

I will go ahead and quote the article for you: "Yesterday we focused on household purchases of U.S. Treasuries, making note of the fact that the category is not “mom and pop” as many may believe. Instead, it is the residual category the Federal Reserve uses for all Treasury purchases which cannot be categorized. While mom and pop are part of this category, it is difficult to say how large a part of this category they actually are. Mutual fund flows, which are driving by mom and pop flows, suggest it is not very large."

And another: "The second chart shows long-term mutual funds are net buyers of Treasuries. While these purchases have rebounded in recent quarters, neither the long-term mutual funds nor the money market funds are large players in the Treasury market when compared to foreigners or the Federal Reserve."

And before you skim over the rest of the article, maybe a picture will make more sense. Check out the graph titled "The Federal Reserve's Holdings of Government Securities." If that does not register in your brain, then well, I give up.

And narrow window of early 2011? No, that is all of 2011, and the first article you link refers only to Q2 2012, a quarter which was not even over at the time the article was written.
posted by stevenstevo at 9:20 PM on December 27, 2012


The only thing more snarky than a bunch of tabletop gamers is a bunch of economist geeks trying to one-up each other. It's like it's impossible to have a pleasant discussion.
posted by KokuRyu at 9:30 PM on December 27, 2012 [7 favorites]


Check out the graph titled "The Federal Reserve's Holdings of Government Securities." If that does not register in your brain, then well, I give up.

I'm not sure the point you're trying to make but all this graph shows that the Fed's holdings have increased dramatically, which we all knew. It says nothing about the ratio of the Fed's purchases to total government debt issued in 2011, which you are arguing is 60%. In any case, this is probably easy enough to check yourself since that information is public (pdf). Please show where you get your 60% figure.
posted by young sister beacon at 10:14 PM on December 27, 2012 [4 favorites]


Someone's been taking Zerohedge a little too seriously...
posted by wierdo at 10:24 PM on December 27, 2012


"If Japan doesn't change course, it will have a major crisis within the next decade."

People have been saying the shit will hit the fan for two decades. Not to say it still won't, but Japan remains the largest economy is Asia.

That said, the real crisis is the demographic one. I live in South Korea, and there are similar problems here with the low birth rate (simply put, it's too damn expensive to have a kid these days, along with a nascent feminism that dictates that if a woman wants to have a career unimpeded by a family, so be it). But SK is taking baby-steps towards a sensible immigration policy (lots of legal aliens here from Vietnam, China, and the Philippines who work the factory jobs that "spoiled" younger Koreans don't want, and also lots of brides brought in from those countries to marry the country farmers since, as mentioned, some Korean women want to make their own money and not rely on a man as per tradition).

But yeah, here's the Japanese mentality in a nut-shell -- instead of letting in a paltry number of foreigners, we'll just make robot nurses for the time when, literally, 100 80-somethings in a hospital will have roughly 1.0 human nurses between them to feed them and help them to the bathroom.

I love Japan, but they are simply the most racist (or more politely, xenophobic) country in a region where anti-foreigner bias tends to be over-the-top, all the time (and maybe for good historical reasons, but YMMV). And it's biting the nation in the ass right now.

Also, picking a nit, the US going back to Clinton era levels of taxation is a drop in the monetary bucket compared to what Japan presumably needs to do. If one were so inclined, she could argue that allowing the excessive, disastrous, un-funded Bush tax cuts for Paris Hilton to die a natural death is not even a tax hike but rather a return to sane fiscal policy. Just sayin'.
posted by bardic at 10:44 PM on December 27, 2012


Coming at this as a non-economist - and as a person who lives in the 'war zone' under discussion here - I have to express frustration at the difficulty of getting around the 'crying wolf' aspect to reports of this type.

Our media - traditional and new, print and online - are full of this kind of reporting/analysis. Today it's Japan, next week it will be the US, last month it was Greece ... or Spain ... or someplace. It's always going to be the end of the world, and somehow it never actually is. People lose/gain jobs ... what else is new? Currencies go up/down ... what else is new?

This story from Ireland, comparing their lot with that of Iceland (having taken different paths after the 2008 crashes), really supplies an interesting viewpoint - that the 'market' has no morals, doesn't reward you for 'doing the right thing', and cares nothing for what you have done ... only for what it (thinks) you will do.

Using the Icelandic experience (as outlined in that story) as a guide then, in the case of Japan, one could thus argue that there will indeed be some kind of financial 're-adjustment' at some point down the road when the demographic shit hits the national debt fan. So what? Write it off. Let everybody scream (foreign and domestic debt holders alike). The dust would soon settle and we'd be still sitting here with a well-educated population, a world-class infrastructure (with newly repaired tunnel ceilings by then, no doubt :-), a tight-knit social structure, and plenty of people with the 'smarts' to take us forward. And the markets at that time will recognize those things, and away we would go on the next 'round'. This country has been wiped out before, and the argument could be made that it is under those circumstances that it performs best ...

Anyway, back to my bench ... gotta keep making stuff ... this is one very little corner of Japan where manufacturing isn't totally hollowed out! :-)
posted by woodblock100 at 12:18 AM on December 28, 2012 [11 favorites]


This story from Ireland, comparing their lot with that of Iceland

I'm just going to note that it's a lot easier to just tell people you're not going to pay without global crashes if you're Iceland's 250,000 people than it would be for Italy or Spain (or, indeed, even Ireland).
posted by jaduncan at 12:26 AM on December 28, 2012


So perhaps it happens as one part of a general global re-alignment/meltdown (wherever that might start). I'd certainly bet on Japan in those circumstances ...
posted by woodblock100 at 1:02 AM on December 28, 2012


There's a lot wrong with that sentence, but just to scratch the surface I'll talk about productivity increases due to automation. That is to say, a robot that assembles widgets five (or five hundred) times faster or with a lower error rate than five (or five hundred) humans shows up on the ledgers as increasing that plant, and hence the country's, productivity. But it also puts those five (or five hundred) people out of work.

I've been a-gathering links in a doc called "robots" because I've been seeing a lot of economic blogging that addresses this very issue. Though maybe it won't be worthwhile if we're going to have that discussion in this thread instead.

The thing that niggles at me is, on some level --- not even a bird's eye view, maybe a satellite-eye view --- the original industrial revolution, up through the mid-20th century, was about replacing human and animal brawn with fossil-fuel driven machines. Instead of my foot working a loom or a horse pulling a plow, we invented engines to do those things. This freed up people to do a lot more work involving brains --- a vast expansion of technical, professional, administrative-type jobs. (As a byproduct, enabling women to compete on an equal playing field with men.)

What happens when you replace brains? What exactly does that free up people to do? Or maybe a better way to put it would be, what does it free people up to do that actually pays? The kind of talent that makes people willing to pay you for creative efforts has always been a rarity, the strivers perpetually in far greater supply than the demand for them. And the professions where you need a human to provide a friendly face, a kind hand --- well, those pay about the worst of any, for the most part, the dreaded service industry.

I mean, I dunno, people worried about this during the first industrial revolution too (le sabotuers et al) and we somehow stumbled along. It's an article of faith in economics that we will stumble along. But to put it in that parlance, if we can perpetually increase productivity than we're producing wealth and the system's fine, even if we're not creating any employment...
posted by Diablevert at 3:09 AM on December 28, 2012 [4 favorites]


bardic: I love Japan, but they are simply the most racist...

This sort of subjective opinion just does not help this conversation. There is a lot of xenophobia in East Asia, certainly some in Japan but also across the Sea of Japan as well.

Since the middle of the 20th century, Japan has been "open" for a lot longer than it's larger neighbor in East Asia (which by most accounts is not open at all).
posted by gen at 4:36 AM on December 28, 2012


The kind of talent that makes people willing to pay you for creative efforts has always been a rarity,

And 'creative talent' brings you Madison avenue and the whole machinery of Propaganda. (Propaganda later called Public Relations due to a branding issue) Unless you can keep making 'hits' you are only as good as your last successful campaign.

Rather than try to figure out how to "have a good job" in an 'economic system' - perhaps re-thinking work and what job means is in order?
posted by rough ashlar at 4:38 AM on December 28, 2012 [1 favorite]


"There is a lot of xenophobia in East Asia, certainly some in Japan but also across the Sea of Japan as well."

Objectively, while few Asian countries are open to wide-scale immigration, Japan is notorious for not even considering some sort of baby-steps towards a policy that would actually solve some of their pressing needs re: medical labor to care for an aging populace.

Hell, ethnic Koreans born in Japan aren't allowed to vote.
posted by bardic at 4:44 AM on December 28, 2012


Where is it written that all countries have to be 'open', and interested in having people from other places allowed to come and live there? Doesn't the existence of a national polity imply the ability to make a decision not to encourage/allow large-scale immigration?

For better or for worse, Japan has 'made' such a decision - after looking around the world and seeing how such immigration has affected social structures in many other nations - and will sink or swim with it, as they well understand.
posted by woodblock100 at 4:51 AM on December 28, 2012


Hell, ethnic Koreans born in Japan aren't allowed to vote.

This isn't really what that link says. They can vote if they adopt Japanese nationality, but since that involves renouncing their Korean citizenship many choose not to. I'm not sure that there are very many countries that let non-citizen permanent residents vote in national elections.
posted by A Thousand Baited Hooks at 5:56 AM on December 28, 2012 [2 favorites]


Re the under-thirty generation, their job prospects, and their wealth prospects in this scenario: the two are not always related.

1. I've seen many recent college grads struggle to find decent career-track jobs, or any job at all, for that matter. This is a serious problem for many of those individuals. It is also a problem for firms where the workforce is ossifying. Job placement rates on graduation are the issue at faculty meetings at many unis. That said, it isn't necessarily the end of the world for that generation.

2. Similar to the Little Emperors after China's one child policy, I do see some in the under-thirty generation who have little to worry about as far as longterm wealth regardless of career success. If you are one of the two or three children in the third generation, your prospects aren't too bad if you stand to inherit the remaining accumulated assets of four grandparents, two parents, and the odd aunt or uncle without kids. Yes, this does not apply equally, and some will get nothing, but is not uncommon in a society with a declining birthrate. And, if the grandparents' generation was as productive and frugal as many of those now in their 60's to 80's, there may be a fair bit to inherit.

When I see twenty-to-thirty-somethings bouncing along, living at home, working part-time, and generally not too stressed about their financial future, I wonder if they have made that calculation. On the other hand, financial future aside, waiting until you're in your forties to begin an independent financial existence has some personal costs as well. There may also be a consequent increase in inequality.
posted by Gotanda at 6:55 AM on December 28, 2012 [1 favorite]


This isn't really what that link says. They can vote if they adopt Japanese nationality, but since that involves renouncing their Korean citizenship many choose not to. I'm not sure that there are very many countries that let non-citizen permanent residents vote in national elections.

The UK allows non-citizen residents to vote in local and national elections and commonwealth citizens even get to vote in EU elections. The consequence of this is that non-citizens can become engaged in the political process and care more about their neighbourhood and country of residence in a way that the dis-enfranchised just don't. Now that I am an immigrant in the U.S. and have fewer political rights than a convict it feels very weird. It is as if a part of me is missing.
posted by srboisvert at 8:15 AM on December 28, 2012 [6 favorites]


re: robots replacing virtually all paying jobs

It would be interesting to see what happened if one of the larger countries tried outlawing private robotic ownership, and instead uses tax money to build fleets of publicly owned robots and lease them out to companies. Lease money coming back from would be split evenly between all citizens.

This is literally straight out of science fiction.

The author takes it a step further and nationalizes all natural resources, as well.
posted by cseibert at 8:40 AM on December 28, 2012




Learning from abroad: Don't forget Poland
Poland has been one of the world's great development success stories of the past two decades... If you want to understand why Poland had a good crisis, you need to understand three things. First, you need to know that Poland's currency, the zloty, was never pegged to the euro... Private credit growth was much slower in Poland, although it was still pretty rapid. Some of this was because of Poland's history with corporate nonperforming loans from the late 1990s and the early 2000s... Poland's institutions were relatively unfriendly to creditors...

In the absence of a currency peg, they were perfectly willing to make loans in zloty through their Polish subsidiaries. These inflows from the West caused the zloty to appreciate by more than 50% against the euro during the credit boom. While the strong currency made foreign-currency-denominated debt relatively more attractive to people who unwisely assumed that the zloty would continue to appreciate indefinitely, it may have dampened loan growth overall. The strong currency also provided flexibility to respond to a downturn.

Sure enough, when the crisis hit and Western European lenders started pulling their money out of Poland, the zloty lost more than a third of its value against the euro... the devaluation was unambiguously stimulative. Between the middle of 2008 and the beginning of 2009, Poland's trade balance swung from a deficit of more than €1.7 billion to a surplus of more than €100m. The trade balance returned to deficit as world trade rebounded, but at about €500m, it is now far smaller than it was...

Of course, the devaluation of the zloty would not have been sufficient to keep Poland out of recession had it not been for an act of flagrant government intervention into the private financial system: the Vienna Initiative. This is the second thing you need to know about to understand Poland's post-2008 performance. In one of the wiser acts of European policymaking, the Vienna Initiative encouraged Western European lenders to maintain their exposures to Central and Eastern Europe...

The last thing you need to understand about Poland is that it practised robustly counter-cyclical fiscal policy. During the boom years, its government budget deficit shrank from more than 6% of GDP to less than 2%. Then, in response to the downturn, the deficit ballooned to nearly 8% by 2011. The government explicitly rejected austerity and was the only nation on the European continent to avoid a recession.
The Big Secret of Poland's Economic Success—and What It Means for Us
Its GDP per capita, adjusted for purchasing power parity, has increased at an average annual rate of 5.1 percent since 2007 versus 1.4 percent a year for the U.S. over the same period. Now, the U.S. is much richer than Poland, so we would expect the latter to grow faster -- but not this much faster...

It wasn't hard money that saved Poland. It was really, really, really easy money that saved Poland. Just look at the chart below of the exchange rate between the Polish zloty and the euro the past five years. That's a 33 percent drop starting in late 2008... A nice, big currency depreciation is as easy as easy monetary policy gets. It's what Princeton professor and deputy governor of Sweden's Riksbank Lars Svensson calls a "foolproof way" out of a liquidity trap -- when short-term rates are zero and central banks can't cut them any further. It's what Israel did in 2009 and Switzerland is doing today with its currency peg.
also btw Russia is no longer in a demographic death spiral
Over the past seven years, Russia's demographics have improved at a rapid clip. As data released today by Rosstat, the Russian state statistical agency, show, Russia is actually on track to record a small natural population increase in 2012. To understand just how dramatic a turnaround this is, it helps to look at a graph of the past two decades...

During the chaos of the 1990's, as the economy collapsed, living standards fell, and the state was unable to fulfill even its most basic obligations. Russia really did experience a withering demographic crisis. Consumed by insecurity and anxiety, Russians stopped having children and started to die at greatly elevated rates. The health system's disfunction played a role, but was secondary to a pervasive environment of psychosocial stress, heavy drinking, and poor nutrition. This was a humanitarian disaster on a grand scale that was almost totally unheralded in the West while it was taking place even as many Russians, such as dissident Aleksandr Solzhenitsyn, shouted themselves hoarse about the ongoing catastrophe.

However, over the past seven years there has been a decline in death rates from causes like murder, suicide, and alcohol poisoning, and the birth rate has increased. State efforts, such as the much heralded "maternal capital" program which gives almost $10,000 to parents having a second or third child, have had some impact. But most of the improvement is due to economic growth, increased wages, and a generally increased sense of normalcy and stability.

Russia will, like every other country in Europe, face demographic challenges: its population will continue to age, and major reforms to the pension system are clearly needed. But Russia is, thankfully, not in the midst of a "death spiral"—when you account for substantial immigration, its "declining" population has actually been growing for most of the past four years.
(cf! Russia Is Finished & Inequality in Pre-Revolutionary Russia ;)
posted by kliuless at 10:40 AM on December 28, 2012 [2 favorites]


Is there any data on whether demographic trends in Japan have been changing in recent years?

I am curious because the birth rate appears to be going up in Korea since hitting a low in 2005 - "The changing trends in live birth statistics in Korea, 1970 to 2010" reports that birth rates have increased slightly since then, and I read in Korean news that birth rates in 2011 had increased from 2010. It still hasn't reached replacement levels, though.
posted by needled at 11:12 AM on December 28, 2012


Reading the "more curious" link makes me think the author needs to consider this:
The article tells readers that the share of the population over 65 is projected to rise from 25 percent in 2010 to 40 percent in 2050. Given that roughly 20 percent of the population is under age 20, this implies that the current ratio of people ages 20-65 to people over age 65 is approximately 2.2 to 1. Assuming the under 20 portion falls to 15 percent of the population by 2050, in that year the ratio will be 1.4 to 1.

If productivity growth averages just 1.5 percent annually (it has been averaging more than 2.0 percent in the U.S. over the last 15 years), then output per worker will be more than 80 percent higher in 2050 than it is today. If the average retiree currently consumes 70 percent as much as a prime age worker, then this increase in productivity would allow retirees in 2050 to enjoy a 50 percent rise in living standards above current levels, while still leaving workers almost 30 percent better off.
Also: "In short, the aging story is a joke."
posted by Critical_Beatdown at 11:24 AM on December 28, 2012


Where is it written that all countries have to be 'open', and interested in having people from other places allowed to come and live there? Doesn't the existence of a national polity imply the ability to make a decision not to encourage/allow large-scale immigration?

I'm trying to think of G7/G20 countries that encourage mass immigration, besides the US, Canada, and Australia. Are there any others?

While ethnic Koreans may not be allowed to vote, it's interesting that Japan subsidizes North Korea-affiliated private schools in Japan (these schools have portraits of the Kim family in each classroom).
posted by KokuRyu at 11:54 AM on December 28, 2012


Neojapanisme.com has been linked on metafilter previously, especially here. Their year-end summary went up today.

If the last decade saw an explosion of recessionary culture in Japan, 2012 suggested that even this recessionary culture could be on the wane, leaving us a true social vacuum. To have culture, people have to participate in society; to have political change, people have to vote and organize; to have global economic success, companies must make products that the world wants.

None of this happened, however, and in its place, we got nothing new. Instead of a more terrible AKB48-like thing, we got just slightly less AKB48. Instead of extreme political change, the disheartened electorate voted for a return to LDP rule.

A decade ago there was something slightly interesting in the long decline: How would a truly advanced country handle poor economic prospects, fatal demographics, and dwindling global relevance? But now in 2012 we’re too familiar with the very process of decline. We all know that 2013 will just see a little more slouching in the same direction — more nothing.

posted by jfuller at 1:52 PM on December 28, 2012 [3 favorites]


In terms of participating in society, 2012 marked sustained anti-nuclear demonstrations, some of the largest demonstrations in Japanese history, and certainly the biggest grassroots movement since the 1960's.

In terms of making stuff the world wants, 50% of the iPhone is made from Japanese parts.
posted by KokuRyu at 1:58 PM on December 28, 2012


kliuless, never stop posting.

Today it's Japan, next week it will be the US, last month it was Greece ... or Spain ... or someplace. It's always going to be the end of the world, and somehow it never actually is. People lose/gain jobs ... what else is new?


The media might move on, but Greece and Spain are still stuck with a 25-6% official unemployment rate (compared to 8% or so before the crisis). An acquaintance of mine was fired earlier today from their part-time job. Their take-home pay was 200 euros per month. That's $264 or 22,732 Yen per month.
posted by ersatz at 2:01 PM on December 28, 2012


If productivity growth averages just 1.5 percent annually (it has been averaging more than 2.0 percent in the U.S. over the last 15 years), then output per worker will be more than 80 percent higher in 2050 than it is today. If the average retiree currently consumes 70 percent as much as a prime age worker, then this increase in productivity would allow retirees in 2050 to enjoy a 50 percent rise in living standards above current levels, while still leaving workers almost 30 percent better off.

Do workers reap the rewards of productivity gains these days?
posted by srboisvert at 2:44 PM on December 28, 2012 [1 favorite]


In some ways. Look at the tremendous improvement in access to information that has occurred over the past 15 years, thanks to cheaper computing technologies and ubiquitous internet.
posted by KokuRyu at 2:48 PM on December 28, 2012


Do workers reap the rewards of productivity gains these days?

Well, now you are talking about an entirely different issue, the distribution of income. But the point is that the problem is not an aging or declining population. That is just a red herring used by the wealthy to distract you. With rising productivity there is plenty of income to go around. Anyone who tells you that the problem is an aging or declining population is a fraud and you should immediately know that you should ignore anything they say. They are simply making excuses for the unequal distribution of income.
posted by JackFlash at 3:21 PM on December 28, 2012 [1 favorite]


H'm. I'm under the impression the largest tranche of private sector household debt is mortgages. America has lots of land so house prices fall easily as there is always competition from lots of other properties: the UK has not only consistently higher demand than availability constantly driving up house prices (since 1973 is pretty consistent, with one drop during the 1980s), but can only have a booming economy when house prices are rising, such a huge sector of the economy are they (translation: the forty odd years you spend paying for a house you won't be buying much else, and if you aren't paying for a house, it's because you're paying skyhigh rent or so poor you're economically £zero. So most shopping, in terms of total value, is house prices). So, the UK won't deleverage, and american's aren't more virtuous than us. So i claim.
posted by maiamaia at 7:45 PM on December 28, 2012


Also, can't we just let Turkey join the EU now? Proof, like China's being lumbered with holding onto Tibet whatever the cost, that if you indoctrinate your electorate/support in order to gain unearned support, you are, in the end, tied by a leash of your own making.
posted by maiamaia at 7:47 PM on December 28, 2012


QE3 and beyond

Fed Watch: The Japan Story Continues to Evolve - "Explicit cooperation between fiscal and monetary authorities to dramatically support domestic demand in Japan would be a step forward, but everything else that seems to be coming from Abe is a step backwards." [1,2,3]

Should Japan "reflate"? - "So I'm left ambivalent about 'reflation'. I still think it's worth a try. I think hyperinflation seems unlikely (though I don't really know this for sure)."

What's Going To Matter In 2013 (via) - "Japan: If Shinzo Abe can bring Rooseveltian resolve to Japan and break the back of deflation, it'll be important not just for the world's #3 economy but as an example to the rest of the developed world. Noah Smith, who knows Japan much better than I do, says we shouldn't put our faith in Abe who's really just an ugly nationalist and not any kind of monetary policy wonk. I would say there's no contradiction there. The ugly nationalists running Japan in the 1930s were the first to ditch gold and beat the recession. Adolf Hitler ran a very intelligent and forward-thinking monetary policy regime. Sometimes it takes a national security hawk to beat the inflation hawks. That said, if the upshot is an invasion of Manchuria and a sneak attack on Hawaii we may end up missing the good old days of prolonged Japanese economic stagnation."

Cash is no cure-all

The case for electric money, the end of inflation and recessions as we know it

How to Pay for What We Need (via via) - "Congress could create money, as it did during the Civil War, funding public projects that shock the economy back to life..."

When Central Is Essential - "In his famous 1945 article, 'The Use of Knowledge in Society,' F. A. Hayek argued that despite their inequity and inefficiency, free markets were necessary in order to allow the incorporation of information held by dispersed individuals into social decisions. No central planner could hope to collect and process all the information necessary for social decisions; only markets allowed and provided the incentives for disaggregated information processing. Yet, increasingly, information technology is leading individuals to delegate their most 'private' decisions to automated processing systems... While these information systems are [currently] mostly nongovernmental, they are sufficiently centralized that it is increasingly hard to see how dispersed information poses the challenge it once did to centralized planning."

The information revolution and the invisible hand - "Ever more powerful information technology now allows consumers to carry gigabytes in their pockets and businesses to organise and analyse data on a scale never seen before... The greater the ability to process information centrally, the more realistic the prospect of centralised control by companies or states. Both are ramping up their capacity to monitor the behaviour of customers or citizens. Policy battles will increasingly be fought over the use and ownership of data. Already, governments intervene to protect privacy... Such contests will grow stronger before they are settled. Meanwhile, big data is empowering individuals, too. If the information revolution makes data more amenable to centralised analysis, it also gives individuals the knowledge better to exercise their economic freedom – price comparisons, for example. Even when companies use data to charge consumers different prices for the same good, this can enable exchanges that would be impossible at a uniform price, thereby making the market more efficient."

Zeke Emanuel's plan to fix health-care spending - "We've got to do two things. One is the scorable savings, the things CBO will score. Then you need to focus on the things that will transform Medicare and Medicaid into a more efficient system... more competitive bidding in Medicare... we're going to need more data. Right now it's a black box. You need utilization and outcomes data about the patients who are on Medicare advantage."

Population Growth As Coordination Mechanism - "I think it's pretty clear that population growth trends can provide a coordination mechanism... you don't need any particularly optimistic beliefs to see that the state is primed for certain kinds of investment. We're going to need new houses for these new people in the short-run, and we'll need new schools & hospitals, new car dealerships, and new highways for them in the medium run. So we're investing. And with that investment happening we need new Whataburger franchises and new H-E-Bs and probably new power plants as well. And now suddenly we're on the high equilibrium. We need more accountants and more wedding planners, we're going to need some fancy restaurants, we'll need hotels, we'll need more of everything. And since we'll need more of everything and the price of new homes will remain moderate, we'll expect the population to keep growing as people from around the country tend to move here in search of work. None of this guarantees that we become especially rich on a per capita basis -- it doesn't amount to brand new TFP-raising technology, but it does ensure that we remain on the high investment equilibrium."

More on the NGDP debates - "RGDP is an artificial concept requiring that we estimate an index of the aggregate price level... NGDP is 'the real thing,' whereas P and Y are simply data points pulled out of the air by Washington bureaucrats."

Whether we like it or not, policymakers are not indifferent to the composition of NGDP - "Adopting a NGDP target implies that policymakers can commit to (say) a 5% NGDP growth rate. But what if inflation turns out to be 4% and RDGP growth turns out to be 1%? (Or how about 7% inflation and -2% RGDP growth?) A credible NGDP target implies that policymakers remain committed to the 5% NGDP growth rate. But ask yourself this: Do you really believe that policymakers would leave policy unchanged in this circumstance?"

Evaluating Large-Scale Asset Purchases - "As the private demand for money-like assets rises but the private supply falls, what will bridge the gap? Mr Stein's answer is that the Treasury should issue more short-term debt."

Shadow Banking: Economics and Policy

Is US government debt different?

On the new purpose of government debt - "the purpose of government debt is not to fund government spending. It is to provide safe assets..."

Why a "free" market changes everything
Ultimately, it takes two to make a monetary-based economy: investors and spenders. But it's the relative balance between these two parties that ultimately determines the cost of money and value of savings and investments.

What we have now, unfortunately, is an economy overcome by "investors" looking to protect wealth, in a world that offers ever fewer risk-free opportunities outside the government sector.

And why is that? Because private alternatives are naturally riskier when diminishing capital returns are guaranteed to manifest more quickly due to the collaborative "free" effect. Indeed, unless you invest in an industry monopoly which is prepared to sue anyone who tries to compete in their field — often in a way that suspends or regresses technology — it's unclear whether the company in question will have enough time in the limelight to be able to return your capital, let alone interest, before it is obliterated by a market competitor or the collective collaborative base.

What's more, when so much is available for free in the market, who can actually be bothered to spend on stuff that, you know, costs something?

Think of it, perhaps, as entirely new "free" market.
Closing the deficit is painless - "If closing the deficit and getting more revenue as a percent of GDP is all about growth, then why do we have to raise taxes on anyone? Here it's probably best to think of Fiscal Policy not as a tool to create revenue and close deficits, but as a tool to shape society by incentivizing some kind of activity (e.g. tax credits for R&D), disincentivizing other kinds of activity (sin taxes) and redistributing wealth (progressive taxation). All of this is controversial stuff, but there's almost nobody on either side of the political spectrum at this point who doesn't favor some kind of redistribution of wealth so as to ameliorate extreme inequality... One of the most important charts in the world is Richard Koo's look at what happened when Japan tried tightening fiscal policy prematurely during its slump and deficits widened. Pain is entirely the wrong way to think about closing the deficit. If it's important to make it go away, we need to find a way of doing the exact opposite, putting people to work and making the economy grow."
posted by kliuless at 2:34 PM on January 2, 2013 [1 favorite]


Krugman: Some Notes On Japanese Numbers
posted by the man of twists and turns at 4:27 AM on January 14, 2013


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