Sunday, September 27, 2009

Recession, Beliefs and Multiple Equilibria

...individuals growing up during recessions tend to believe that success in life depends more on luck than on effort, support more government redistribution, but are less confident in public institutions. Moreover, we find that recessions have a long-lasting effect on individuals’beliefs.

This is one of the researches which clearly show the relationship between social psychology and economic equilibria: Individuals experiencing recessions during the formative years(at the age of 18-25) believe that luck rather than effort is the most important driver of individual success, support more government redistribution, and have less confidence in institutions.

The following caught my eye: The role of economic beliefs determines the economic system and institutional outcomes; two countries with a similar starting position can converge to two very different equilibria, one based on luck and high taxes (the so-called French equilibrium) and one based on effort and low taxes (the so-called American equilibrium).

In Japan, we have long been discussing which way for the Japanese capitalist economy to take, the economy based on the Americanized market system or the one based on the Europeanized welfare-state economy. I had no idea which to take, of course, but I get to think that this is not a problem of which way we should take, but of what values we believe in and how we get to such beliefs. "American" equilibrium with laissez-faire policies and just-world beliefs or a "European" one with social welfare and a more pessimistic view about how just the world is... anyway we always have the possibility of multiple equilibria in our economy and it might be difficult to expect what equilibrium to be realized at last, but we always need to take it into account when we think about the effects of public policy on our economy.

Saturday, September 26, 2009

The Age of Keynes

The picture:

Keynes is the economist who has been recently talked about most frequently among modern economists. He was a British economist and is thought to be the father of modern macroeconomics.
This blog is on economics, though its topics haven't been specific to it, and sometimes looks at macroeconomics. Macroeconomics is the application to general equilibrium theory, according to Roger Farmer, a famous macroeconomist of UCLA, but to Keynes himself, it seemed that it was one of disequilibrium theory. (It is normal for modern macroeconomics to be expressed as modern terms like general equilibrium theory, so at present I don't care the difference between modern macroeconomics and Keynes's macroeconomics. )
He always said that the economy as a whole in a country was always unstable and fluctuate, so the demand and supply of goods and service are far less likely to be equal. From the above perspective, he insisted on government spending policies consisting of tax cuts and government purchases, in order to strengthen the demand side of the economy.
He thought that the main problem of the capitalist economy was weakened demand side, not supply side of the economy; People sometimes feel nervous about their future because of something uncertain in their life(I think it is rather psychological factors than malfunctioning of economic mechanism.), and so they get to consume less and the firms invest less, produce less and pay less to the workers. Thus, the less they earn, the less they consume and the more the economy shrinks.
Instead of the people, the government should buy goods and services supplied in the economy and stabilize the economy and the employment. That's what Keynes suggested around 60 years ago. Better or worse, this principle has now been the main theme of the public policy in most developed countries. Looking back on Keynes' words, I think, is necessary to us when we have some economic difficulties, but we also need to criticize them at the same time.
I do not intend to call myself Keynesian(who is Keynesian, by the way?). However, definitely to say, when we think of macroeconomic problems, we never avoid his words.

Wednesday, September 16, 2009

Should I Expect a New Era?

Actually I have no idea I should support a new cabinet and I guess nor do many people in Japan.

I should first know what a new Hatoyama cabinet wants to do for slumping Japan.

Wednesday, September 02, 2009

A New Path for Japan

This is what a would-be prime minister says. Some people say this looks so anti-capitalistic, but I don't think it is so bad.

I don't know how many Japanese people have tried to talk about what they really feel since Morita-Ishihara. Japanese have been said to be "a great 'yes' man" in the world , I mean, they've seemed not to try to disagree with other people, especially, Americans.

They always smile and say nothing, but in fact they don't know how to say what to say. Japanese seem to dislike to talk about themselves and to have any discussions, but I hope this article will be a good place for many people all over the world to know what Japanese think about the modern globalized world and their country.