Sunday, December 30, 2012

On Abenomics

Right-Wing Hours?
At the end of this year we had the new Prime Minister (PM) Shinzo Abe, who was once the PM, and it's time to talk about his politics. Mr. Abe is said to seek for two kinds of economic policy: monetary expansion and large public spending, which they call grossly "Abenomics".

I would like to focus on what is called Abenomics, what it is and what and whom we think it will affect. However, I don't focus on his political philosophy, especially on his view of the territorial and historical issues that Japan is now having with China and Korea, which has also been paid attention to.

For almost 20 years the Japanese economy has been stagnant and the people, especially the young people, have been said to be getting insular and narrow-minded; They are seeking for relatively stable and secure job like the government and for a relatively calm and quiet life. They don't like luxury but moderation. They don't want any promotion and advance in their workplaces.

They are sometimes called the "Grass-eating people", which may imply what is behind the "Japan Moving Right", or what made Japan conservative, as once the Washington Post and Times reported.

For those who stick to the golden memory, JAPAN AS NO 1, once a byword of the 20-years-ago booming Japan, this time should be the one to be beaten and broken up. Mr. Abe looked like a hero to play such a role whereas the ex-PM of the Democratic Party, Mr. Noda, didn't seem to be able to propose any concrete and effective economic policy to get the economy recovered.  
Monetary Expansion: Inflation Targeting
Before the General Election, then the President of the LDP (Liberal Democratic Party: a relatively conservative party in Japan, but not like the Republicans in the US), Shinzo Abe, expressed his new idea on the economic policy to cure the ailing Japanese economy, aiming for the return to power. The press took it up as an intriguing topic, which led yen to depreciate and the Nikkei Average (the stock prices) to appreciate. The idea is inflation targeting. It sounded new to many Japanese.

Stagnating economy has already been a synonym for now the Japanese economy: decreasing prices and lower employment and production.

Lower prices might sound good for us consumers, but it also means decreasing payroll for us workers; We like lower prices but don't like lower pay.

Inflation targeting is thought to be one of the key solutions to such a deflationary stagnation. Here I try describing what it is like.

Banks Create Money
Where does money come from? Money comes from two kinds of banks: (1)commercial banks, (2)central banks.

Central banks were born only less than 100 hundred years ago mainly in developed countries. The role of them is to print paper money and pour it out to commercial banks, through the operations, or by buying and selling the government bonds. Commercial banks pour out money to firms and households by lending it to and borrowing it from them.

Banks create money and increase or decrease it in the economy as a whole. If banks increase money, then the prices go up because the people now have more money to spend and the goods sold in the economy get fewer: More money chases fewer goods in the economy.

Higher prices lead the producers to increase more goods because they find it profitable to sell more. And thus they hire more workers. To lure more workers they need to provide them with higher wages, and higher wages lead the workers to spend more and more. However, in the longer run, the producers cannot produce more than how much they used to produce, only the prices go up.

Abe's Illusion?
The above is called the"transmission mechanism" in the economy. It came originally from the Quantity Equation that the 18-century British economist, David Hume introduced, with which now most economists in the world agree.

Imagining that money flows through every household and firm and that the economy will get well, he proudly promised that he would ask the central bank (BOJ: Bank of Japan) to keep increasing money until the level of inflation,the growth of the prices, reaches 2%. By setting up such a target central banks conduct monetary policy. This is called the "inflation targeting".

This policy has already been conducted by the New Zealand central bank to stop the inflation. Since then many central bankers and economists have been discussing it. Some prominent economists say, no central bank took up the inflation targeting to deal with the deflation and they fear the risk of the inflation targeting and there are still a lot of pros and cons.

Mr. Abe might have had some suggestion from those who know more about economic policy and he tried announcing this policy. At first he said in public that he would try to target 4% of inflation, and later withdrew it. 

Though he doesn't seem to be familiar with economic policy, those engaged in the marketplaces reacted to his announcement, and as a result yen depreciated and the stock values appreciated. It was before the General Election that Mr. Abe made this announcement, and it might have led many voters to hope that he should be better as the new PM and to vote for LDP after all.

However, only the monetary expansion cannot increase the aggregate demand and boost the economy.  Another policy that stimulates the demand should be needed, which is called fiscal policy.  

Public Spending: For Another Pork Barrel 
Mr. Abe tried to spend more on social infrastructure and to strengthen the land of Japan as a whole. The eastern and northern part of Japan that was hit by the Great Earthquake in March 2011 has not still recovered at all and the victims have been still forced to live at temporary houses whose walls are so thin that they feel chilly in winter.

The recovery should be quick as soon as possible. Mr. Abe should tackle this task first of all, proposing the 10 billion supplementary budget to build new houses and roads and to create the new local jobs in the area, where the local general contractors are now hoping that they will receive a lot of orders.

Nevertheless, some people get afraid that this large public spending will be for the sake of the vote to LDP not of something necessary to build and create. This is to a point because LDP has been very good at scattering a lot of money in the name of the public works to collect the local votes for LDP, and this is the source of the power that LDP has had as a ruling party since 1955. It is now being criticized as a revival of the old politics that many Japanese have ever been tired of.

Public spending should not be cut off, and is certainly necessary for the victims and the economy as a whole to get recovered. Many people cannot rely any more on Mr Noda who seemed so irresponsible for taking the challenges. They are obliged to expect Mr. Abe to do it instead of him even though they fear that the tax revenue will be spent on unnecessary buildings.

Can't Avoid Increasing Taxes
The 20-century great British economist, John Maynard Keynes said, "people are dead in the long run".  Economists usually focus on the longer-run issues than the laymen such as the effects of fiscal deficit and debt and the welfare spending for the elderly.

More than 1/4 of the Japanese are now above 65 and less that 3/4 should support their livings by paying higher taxes and the insurance premium. Every developed country has now the similar problem, and we now face the situation where we cannot say any more that longevity is a very good aim in life.

One of the reasons the Japanese economy is stagnant is that there are more aged and less young working people in the society: the aged retire jobs and spend less and save more for their living, whereas less young people work full-time and well-paid, being single and having no child. As a result, more of the spending as a whole would decrease.

For the above reason the Japanese economy has been shrinking for almost 20 years, and we can say that the deflationary stagnation is rather a structural problem than a demand-side one. In this point Mr. Abe may be unable to get the economy recovered well only by stimulating the demand. He should also plan a structural reform to build a new country suitable for the above new situation.

On Consumption Tax
Ex-PM, Mr. Noda decided to increase the consumption tax by 5% in 2015 and accepted severe criticism because it wasn't written in his pledge.

In Japan, for more than 30 years the reform of the tax system has been conducted. The tax system is originally from what the US proposed after WW2, what is called Shoup taxation, and depends more heavily on the direct taxes like corporate and payroll tax.

The aim of the reform is to correspond to the coming aging society. The reform has progressed by changing the taxation into that depending more on the indirect taxes like alcohol, cigarette and consumption tax, which are relatively independent of the economic fluctuation and the stable revenue can be expected from now on.

Mr. Noda tried to raise the consumption tax to make up for the loss of the revenue for the welfare spending rather than the budget deficit. However, the budget deficit cannot be ignored too because it should be covered by the tax that we and our children pay in the future. The deficit will become the debt of the government and the debt will accumulate. Repaying it someday in the near future cannot be avoided and reducing the deficit and debt is of high priority.

Tax Increase Is A Hard Choice
Mr. Abe should increase public spending to create new jobs, while increasing the consumption tax. But he announced that he would never increase the tax unless the economy recovers.

This announcement has some dilemma: if the people expect for raising tax they get ready for it by saving more and spending less, and thus the economy doesn't get recovered. In Japan the benefit was tried twice, given to the family who has children, but the spending didn't increase because, the research says, they saved half of the benefit. They seemed to expect the forthcoming tax hike.

Thought tax hike in the future is more likely to reduce the present spending, Mr. Abe and the Japanese as well should know that postponing the timing of raising the tax is not a right choice. Mr. Abe needs to get ready for accepting harsh criticism for raising the consumption tax as did Mr Noda.    

Spending Cut Is Also A Hard Choice
Tax increase is not popular among voters whether in the US or in Japan. Here in Japan the successive PMs tried to reform the government spending. They cannot raise tax, and how about cutting the spending? But it is also very difficult to do. 

Certainly, cutting the government spending, as Alesina of Harvard University goes, is better at stabilizing the economy as a whole than increasing taxes.

Politics is full of bitter choices rather than full of sweet cakes: If they cut off the government employees' pay, the other people should be happy with it because they don't need high tax. Politics is such a kind of a cake-cutting problem: If your piece of cake is larger, I get angry!

It seems to me that Mr Abe is just only thinking of how to win the Election for the Upper House next year: Voters usually dislike high tax and his followers dislike spending cut. A good politician sometimes need to play a role to be hated and it is the problem whether he can do it.  

Mr Abe should spend more on something effective enough to stimulate the economy and increase the tax at the same time. Increasing the tax and the same amount of spending, theoretically, creates the same amount of the income we gain(*): If the government collects 1 billion yen and spends it on the public works, then it can create new jobs that are worth just the 1 billion yen.

This elementary accounting doesn't seem to make us fear too much the risk of increasing the tax. But in the point of creating new jobs, it should be worth considering.  I hope that Mr Abe will announce when to increase the tax and where to spend it on, and that he will show the plan to cover the expenses necessary for us in the near future.        

(*) The effect of the consumption tax depends on the (Marshallian) demand function, but it is homogeneous of degree 0, which means rather NO CHANGE than decrease in the demand when the tax is higher. However, raising it will decrease the welfare of the people.      

Thursday, December 13, 2012












40兆円。 これはほぼ日本政府の国家予算の半分に匹敵する。


今の日本経済において、行政サービスを維持するためにもデフレ対策は必須なのだ。 さて、このデフレを克服する手段には伝統的に2つある。










では、デフレの原因は? おそらく現代経済学の解答は、人々の「期待」にあるといっていい。

人々が物価が下がるのを期待すると、本当に物価が来年下がってしまう。これを自己実現というが、その理由は、値段が下がるのをひたすら待つ人々の購買活動にある。 閉店前のスーパーで値段が下がるのを店内で待つ人々を見かけるが、彼らが店内の割引を促しているともいえる。












モノの量<お金の量 ・・・・・(2)

が実現してしまう。ここでモノがなくなるのは、人々の勤労意欲も低下することに起因する。税金のない皆平等な社会主義国家では、 実際これが起こった。










Tuesday, November 13, 2012

Whole Foods

Here's a little old article

What’s in the fridge? “Nothing special, standard junk. We love Whole Foods, so most of our food is from there. Here we have some yogurt, some chicken breast...a lot of stuff is organic,” Mankiw says. 

 I love Whole Foods too, except for high prices.

Friday, November 09, 2012

David Wessel On the Long-Term US Economy

David Wessel, economics explainer of WSJ, talks about what Mr. Obama should do for tackling the problems lying ahead of the US economy and the world economy.

Mr. David has three points on fixing the US economy:

1) Human and physical capital that will pay off

Government spending ought to be focused on investments in human and physical capital that will pay off—which means spending less than projected on retirement and health benefits.

In regard to upward mobility,

The next four years would be more productive if they began with an acknowledgment that the gap between winners and losers in the U.S. economy has been widening. 

....the distance between the penthouse and the ground floor is growing yet the escalators of mobility—such as education—haven't improved commensurately.

Mr. David says that Mr.Obama needs to improve the education in the US, which is closely related to the accumulation of human capital.

2) Expansionary fiscal and monetary policy that will decrease unemployment

Fiscal and monetary policy should be calibrated to get more of them working before they become permanently unemployable.

3) Climate change that should be tackled soon

"Our climate is changing," New York Mayor Bloomberg wrote,"And while the increase in extreme weather we have experienced in New York City and around the world may or may not be the result of it, the risk that it might be—given this week's devastation—should compel all elected leaders to take immediate action."

...this will be hard for a political system that finds it difficult to look beyond the short term and the next election.

Mr. David says that it is not only Mr. Obama but also the future Presidents that should take the action for the climate change, but the US didn't sign the Kyoto Protocol to reduce the emission of greenhouse gases;

What will the US do for the climate change? I think it is most difficult for the US to tackle of all the issues that the US now face.

John Lott On Mr. Obama's 4 More Years

Obama doesn't believe in incentives, and penalizing Americans for working hard and taking risks means that the US rank will slip further behind the rest of the world.

Dr. John Lott says very clearly that Mr. Obama won't get the economy better. I chase his words because Dr. John Lott's words are really clear: he says no when he think it is wrong, and vise versa. 
I should keep an eye on what will happen in the US economy and what Mr. Obama will do for the US economy.

Mr. Obama will soon face the difficulty called 'fiscal cliff', which means the depressed economy we will see due to the end of the Bush tax cut and the beginning of the government spending cut.

I am looking forward to seeing how Mr. Obama will overcome it, and what Dr Lott will say about his economic policy.

Thursday, November 08, 2012

New Words on Macro-economy

Recently I have seen new words in the newspaper related to macro-economy. This is a reminder for myself:

It is a time of bad economic conditions where the government cuts its spending or increases taxes to reduce its budget deficit and debt.

2)Credit Crunch
As creditors become unwilling to lend money to businesses or individuals because debtors increase the risk of default due to the economic and political conditions.

3)Fiscal Cliff
In the US, Bush tax breaks end and the tax increases and spending cuts begin at the end of 2012, which could push the US economy back into recession.

4) Operation Twist
In an attempt to lower long-term interest rates with central bank's balance sheet unchanged, central bank buys long-term government bonds and sells short-term bonds.


Wednesday, November 07, 2012

On the Work of Shapley

Shapley and Roth won the Noble Prize in economics for the theory of stable allocations and the practice of market design.

I am now studying matching and search theory and it is a good timing. This is a focus on the work of Dr. Shapley and a reminder for myself; the below largely depends on Wiki,, and the article of the Washington Post(2012.Oct.15),

(1)Shapley Value(1953)
In a game where n players play cooperatively, how important is each player to the overall cooperation, and what payoff can he or she expect? The Shapley value provides one possible answer to this question.

(2)Shapley-Shubik power index(1954)
In a voting game, players with the same preferences form coalitions. Any coalition that has enough votes to pass a bill or elect a candidate is called winning, and the others are called losing. Based on Shapley value, Shapley and Shubik concluded that the power of a coalition was not simply proportional to its size.

The power index is normalized between 0 and 1. A power of 0 means that a coalition has no impact at all on the result of the game; and a power of 1 means a coalition brings the outcome of the game.

(3)Gale-Shapley deffered-acceptance algorithm(1962)
This is the reason Dr. Shapley won the Prize: In a large group of men and women considering marriage, both partners feel that they have gotten the most attractive possible match; Shapley and his colleague David Gale developed a process for ensuring that those matches are as stable as possible.

In the process, there are a series of rounds in which men and women rank potential mates, and matches are made until everyone finds a spouse and the system is stable.

Here's the excerpt:

The Gale-Shapley algorithm can be set up in two alternative ways: either men propose to women, or women propose to men. In the latter case, the process begins with each woman proposing to the man she likes the best. Each man then looks at the different proposals he has received (if any), retains what he regards as the most attractive proposal (but defers from accepting it) and rejects the others.

The women who were rejected in the first round then propose to their second-best choices, while the men again keep their best offer and reject the rest. This continues until no women want to make any further proposals. As each of the men then accepts the proposal he holds, the process comes to an end. Gale and Shapley proved mathematically that this algorithm always leads to a stable matching.

The specific setup of the algorithm turned out to have important distributional consequences; it matters a great deal whether the right to propose is given to the women – as in our example – or to the men. If the women propose, the outcome is better for them than if the men propose, because some women wind up with men they like better, and no woman is worse off than if the men had been given the right to propose. 

Indeed, the resulting matching is better for the women than any other stable matching. Conversely, the reverse algorithm – where the men propose – leads to the worst outcome
from the women’s perspective.

This idea is based on the idea of market/mechanism design and actually applied to how to match doctors and hospitals, students and public high-schools and kidney donors and patients. 

Tuesday, November 06, 2012

神経経済学事情(Recent Trend of Neuroeconomics)





John Lott on Recent Slow Recovery

Americans have suffered two very slow recoveries – during the Great Depression and now. The most obvious common factor in both has been the Keynesian policies and massive regulations used to “cure” those downturns. Clearly, “financial crisis” can’t explain the current slow recovery.

That's just like Dr. John Lott..

Thursday, November 01, 2012

On Dr Boskin's View on Debt and Deficit

Failing to rapidly begin bending the long-run debt-GDP curve down risks a growth
disaster, whose severity could be much worse even than the recent deep recession and
tragically anemic recovery. 

Left unchecked, it eventually risks a lost generation of growth, a long-run growth depression.

Boskin's recent report is quite to the point. It seems that large deficit and debt are closely related to lower economic growth rate.

See the Japanese economy: Sony, Sharp, Toshiba and Panasonic are all representative Japanese manufacturing giants and it has recently been reported that they all have a large deficit.

Hearing the news, I am wondering how the Japanese government's large deficit and debt caused the loss of these companies. Of course, yen appreciating is the major culprit and it may be one of the results of the deficit and debt.

I think that the yen appreciation is directly caused by the money supply increased by FRB(QE1&2) in the US. Can we think that it is also caused by the large deficit and debt?

 The prospect and then reality of higher tax rates, plus increased uncertainty about future fiscal policy, slows growth..., which might sharply raise interest rates.

Theoretically, higher interest rate could make the currency appreciate more. In this point the recent yen appreciation may imply the tax increase and spending decrease expected in the near future. Tax hike and spending cut should make the people spend less and less and save more and more. They should think that they should prepare for the tax increase and the future burden. It may be one of the reasons the Japanese economy has been stagnant for almost two decades.

Higher debt ratios eventually crowd out investment, as holdings of government debt replace capital in private portfolios.

I don't know if Dr Boskin implies, but reading his report I can't help wondering if the Japanese government knows what to do first to make the economy up. I might have heard of such a warning many times from many economists, but, as far as I can see, the Japanese government does nothing to do with the large deficit and debt.

Boskin's report:

Wednesday, August 22, 2012












実は、「水を入れる」ことは「水位を上げる」ための十分条件とはならない。なぜか? 風呂桶を小さくすれば、水位を上げることができるからだ。

ダムの水位を上げるに は、別に「水を入れ」なくてよい。需要を増やさなくてもよい。「ダムを小さく」してもよいだろう。そう、経済の需要が一定なら、経済の生産能力を小さくす れば(石油コンビナートを破壊するなど)、「水位は上がる」(インフレになる)。


Wednesday, June 06, 2012

Spend More Now!

I found a new book written by Paul Krugman, "End This Depression Now" in the book store on my way back home. It had been four years since I met Krugman in his book, "The Return of Depression Economics".

I am not going to write this new book review, but after reading it and seeing the recent news about the stagnant economies of EU and, of Japan, my home country and the third-largest country in terms of GDP, I feel like writing about what I think about how to end this recession.

 My view on how to get the economy right sounds Keynesian, but my point is not that of what Keynes and Keynesians tell:

(1) Spend money

Who should spend money? That sounds a good question, but that doesn't matter at all. If you are one of so-called Keynesians, you should insist that the government should spend much money to strengthen the aggregate demand in the economy. But I wouldn't think so: It is good for the government to spend the money to build new houses, schools, hospitals and roads in the east-northern part of Japan that was hit by the earthquake last year. It is also good for the general people not to worry about what to spend on, but to buy what they need now (I need new shoes and trousers for business now.) Who spends the money doesn't matter. That's my point of this article.

If you don't have any money, you can't buy anything you want (but I would ask you how you make a living now with no money at all. You should have some money in your bank account and, I mean, if so, don't be thrifty with your money. Don't keep it in the drawer and use it to believe that it should return back to us. That's what money is like. )

Money is not what we should save, but what we use to buy something necessary for you to enjoy your life. To the best of my knowledge, Keynes (maybe Marx too) must have warned us against stocking money.   

(2) BOJ should buy more long-term government bonds

A little technical, but a basic idea on how the money circulates in the economy. BOJ, the Bank of Japan, equivalent to FRB in the US and ECB in the European countries, buys the bonds issued by the government from the private commercial banks, and then the money is paid to the banks and they get the money. The commercial banks will lend the extra money to someone else who needs most to build a new house or a new plant, and if he or she can borrow the money, he or she will spend the money on building a new house.

The question is, are the private banks going to lend the money to someone? I know that a lot of professional economists cast doubt on this point and that it is BOJ that insisted that the money wasn't spent as the theory says.

In the case of the Japanese economy, the private banks actually have bought a lot of the government long-term(10-year) bonds, not to lend the money to someone. The banks don't want to take any high risk and don't want their balance-sheets downgraded. Not to have bad loan, they usually buy safe and low-risk government bonds and don't lend the money to someone. (Yes, buying the government bonds is equivalent to lending the money to the government. The banks believe that the government should never go bankrupt and that the bonds are thus safe to buy. I don't know if the government bonds are really safe for sure. )

That's why some critics, as does BOJ itself, insist that BOJ's buying the bonds doesn't make any sense.
(3) Don't worry about the government budget deficit and debt

My opinion is, the government should have as many bonds bought by BOJ and the private banks as they can. The money the government borrowed from them should be spent on some necessary public programs. If the money spent on such programs circulates in the economy as a whole, the production, employment, national income and thus the tax revenue should increase. The government doesn't have to worry about the large budget deficit and debt because it will be able to decrease the deficit and debt with tax revenue increasing. Sounds nice. It's like a dream.

However, does BOJ buy as many bonds as it can? That's the problem. The private banks buy the bonds because they don't want to run high risk to lend the money to someone. I don't think BOJ is likely to buy much more bonds than it has bought now.

(4) Forced saving and Forced spending

Furthermore, if BOJ buys much more bonds as they can, what should happen in the economy? Yes, inflation. According to some textbooks, it sounds true. But is that truly true? As long as the general people keep spending the money, inflation is likely to come, or the prices are going up in the economy. But, this is an important point in this context, if they don't spend the money at all and save all the earnings they get by working, inflation won't come at all. The money stays in the drawer or in their bank accounts.

The important question is, should the money be spent if BOJ buys the government bonds from the private banks? No one knows. Just the government's issuing and BOJ's buying the bonds don't make the money to be spent.

There has been an idea called 'forced saving'. It sounds like the government forces us to save money. Right, but the saving also means an involuntary one(it is saving that occurs due to no available goods to buy.) and there seem to be some definitions. As far as I know, forced saving means that real income, real consumption decrease, and thus real saving(=income-consumption) increases as the prices go up.

At any rate, what does saving work for our economy? I would think of it as short-term and long-term; In the relatively poor society, as people earn more than they spend, the remaining should be saved in order to rebuild their house or pay the tuition for their children in the near future. In the economy as a whole, more saving leads to more physical or human capital accumulation and thus to more production and more employment. More saving means that people get richer in the long run though they get poor in the short run. Actually, decades ago Japan promoted saving by cutting the tax on it and increasing saving was the one of the important policies conducted for high economic growth.

But now there are a lot of stuff in the economy and much is unsold. That's why the prices are going down because stores can't help cutting their prices to have people buy their products. In Japan deflation stays alive and the value of the money people have is going up gradually, which makes it better for people to wait for the money to increase its purchasing power.

People save more due to deflation, though the original definition says that it is caused by inflation.This time needs somewhat a challenging policy that has so a great impact on the behavior of such people that it can stop them from saving their money: Now it is the time for them to spend more, not to save more. As I get a hint from 'forced saving', I would call this policy, "Force People to Spend", or "FPS".

In the well-developed economies, should less saving lead to less physical or less human capital accumulation? and thus to less production? In the long run it is true. But such rich economies are capable to produce more than the people need. In contrast, poor economies (I would call "Malthusian/Ricardian economies". Malthus and Ricardo are the economists who lived the 18th-century Britain. The then Britain saw the age of "Industrial Revolution" in the late 18th century and thus the dawn of the modern "Affluent Society", where goods are going around and their standards of living are becoming on average higher. So decades ago, Japanese economy  was the Malthusian/Ricardian one and promoted saving for high economic growth. 

Rich economies(I would call Keynesian/Galbraithian economies. Galbraith is my favorite economist and wrote an influential book, "The Affluent Society".), we can easily see a lot of stuff being sold and at the same time being unsold in the store/shopping mall. The prices should be going down(yes, yen is appreciating as of 05/June/2012, which is likely to make prices down.) and thus the real value of the money people have in their pockets is going up, where people think they should spend less to hold more money. Thus less money circulates in the economy and thus less should be spent. That should be called "recession" and should be the problem to solve quickly. What should we do?  Government should do something for people to spend more, not to save more, yes "FPS".

(5) Learn Mr. Ikeda's double income policy*

In 1960 then the Prime Minister of Japan, Hayato Ikeda, declared the policy called "double national income" in the newspaper, Nihon Keizai Shimbun, 09/March/1959. He identified himself strong in economics and finance, and he talked to the general people in the newspaper about what he thought about how to do for increasing the standards of life. What was "double national income"? What did he do? In fact, there was no concrete item in this policy. Mr. Ikeda did nothing but declared, (as Mr. Ikeda said in the Nihon Keiza Shimbun) "if there is the wise political leadership that induces you to work hard, it won't be impossible for you to double or triple your monthly pay in five or ten years."(Taro translated.)

Certainly that time was clearly booming: The Japanese economy, as well as the American economy, was growing fast, 10% average every year(This growth rate leads to double national income in around 7 years). In 1968 the GNP(Gross National Product) became the second-largest in the world and this (golden?) record hadn't been cracked until 2010. That time was bright, nothing was scared. That is what the Golden Age was like.

What Mr. Ikeda did is that he talked to the general people about how bright their future life will be and encouraged them to work, earn and spend more. His speak was very easy to understand and, say, one of his words was, "Poor people, eat barley. (It was then what poor people ate)!"    

(6) Self-fulfilling Economy

Mr. Ikeda himself didn't seem to be Keynesian, because in his duty, he didn't increase fiscal spending in an attempt to stimulate the economy. Rather, he was said to believe that that "the private companies should not be expected to ask the government for help but to take their own responsibility for the production activities."(Taro translated)

Of course, the government should play a big role to get the economy better: the government should take any possible action to induce the people to work, spend more. Mr. Ikeda's policy is one of the successful announcement policies and now I think we should follow his policy.

The economy(and we ourselves) is what is self-fulfilled: if we think we can do it, we can really do it. It sounds like Placebo effect, but something like Placebo should have caused the economy to move. It was Mr. Ikeda's double income policy: It wasn't based on any reasonable fact or data. Certainly, he had some great economists in his arm and they gave some advice to him, but double income policy itself didn't depend on any serious mathematical economic model because it was in the 1960s.

"Force people to spend"(FPS), as I insist,  is not as it sounds like: Each one is induced to spend more, not forced to spend more by the fearful central planner. The government should do something to induce people to spend more and, in this point, the government's role is not so small. Just only cutting tax or great public programs won't get the economy better, but the strong leadership(not dictatorship!) that seems like it gives birth to something new will get the stagnant economy right: Something will change. Something will happen. Such kind of bright expectation(belief or trust), though it isn't based on any reasonable fact, should induce the people to move forward, work more and spend more.

It is not so easy for the government to build such an environment, but we have a success story. Some pundits might say that their believing such a past success story has made Japan mad and stagnant ever, but I don't think so. The more people believe their future is bright or isn't necessary to worry about, the more money will run around. The economy will get recovered soon. Why not think so?   
*Reference: Yomiuri Shimbun, 08/October/2011

Saturday, May 05, 2012

The Jazz Age 1920s


Sunday, January 22, 2012




Wednesday, January 04, 2012