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.

...an "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.

The Age of Keynes

The picture: guardian.co.uk

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.

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.

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.

I'm Still Alive!

I am still alive, just no time to update this blog!

Econ101

Taller People Earn More

Well, this kind of research is not old itself, "height premium": taller people earn more.

This is a new research conducted by two Australian economists.

“Using data from a nationally representative sample of Australian adults, we found that taller people earn more, with the effect being strongest for men”. “For example, the average man in our sample is 5 feet 10 inches tall,...,if he was 6 feet tall, he would earn another 1.5 per cent, or around $950 per year."

“The wage gain from another 2 inches (5 centimetres) of height is approximately equal to wage gain from one more year of labour market experience,..., This result holds constant across a number of other factors that also affect wages, such as age, race, family background, experience, and education. However, we found that the effect of height on women’s wages was smaller than for men, and not statistically significant.”

Interestingly, they also look at the relationship between wages and Body Mass Index (BMI).

In their data, 36 per cent of Australian workers were overweight, and 22 per cent were obese.

“...there seemed to be no wage penalty to being overweight or obese in the Australian labour market,...,This is in contrast with previous studies that used older data from the United States and Germany and found that people with higher BMI scores earned lower wages.

“It is difficult to know whether this is due to cross-country differences, or changes over time. Perhaps Australians are less likely to discriminate against overweight and obese workers than the other nations. Or maybe we cannot find an effect because we are using more recent data than the other studies, and the majority of workers are now overweight or obese.”

This problem, as I've ever heard, is the one related to "discrimination" in the labor market, or we could also say, employers' "preference "to employees.

This research is interesting because wage might be closely related to appearence.

Lucas on the Crisis

In macroeconomics, there are two theories(or believes?) : no policy should be done, and as many policies as should be done for the ailing economy. The difference is due to how to see the functioning of a market: a market is self-regulating or not.

Which is true? Nobody can still answer it definitely. Robert Lucas, one of the theorists who are in the former position(at least I believe so), talked about the recent crisis:

The responsibility of the Federal Reserve in this situation is to provide more cash reserves, and in that sense they are doing their job.

...But right now the recession is the more immediate problem. If inflation resumes, reserves can be taken out as quickly as they were added. This is a classic lender-of-last-resort situation and it is important to maintain focus.

In my view, these are the most important considerations for US policy today. I think if the current Federal Reserve lending policies are continued aggressively our chances of avoiding a recession larger than that of 1982 are very good. At this point, I think this is the best that can be hoped for and it is a lot better than a replay of the 1930s.

He worries about the deflation and he thinks the Fed should add more money to people.

In my impression, textbook-version Lucas discussion is like that: nothing should be done, let it alone.

However, he doesn't think so. The lesson: we should ask the question for the right person!

Mt.Fuji

Fat Debtors

Ikeda,Myong-Ⅱ,Otake, of Osaka Univ., "Fat Debtors:Time Discounting, Its Anomalies, and Body Mass Index".

The above topic is on why and how debtors are more likely to be obese than non-debtors. I haven't read it yet but it looks very interesting.

Japan's Maestro

07/04/2009, Jiji-tsushin, Shirakawa, governer of BOJ.

Inside the Temple

Short Visit to Kyoto

Hey, guys! That's the Kiyomizu temple, a very famous and old one in Kyoto, Japan.

Today, I'll take you to a traditional, historic and amazing part of Japan. Shall we go?

The gate,

The big bell,

The cherry blossom,

Japan:Still in Cold Winter

We have a useful data set to look at our economy, TANKAN, a diffusion index of "Favorable" minus "Unfavorable", %points.

This index is very clear and easy to understand and may have a great impact on the coming economic event and policy in Japan. Here's the part of it:

[Business Conditions] Dec. 2008, March 2009

[Large Enterprises]
Manufacturing -24, -58
Nonmanufacturing - 9, -31

[Medium-sized Enterprises]
Manufacturing -24 , -57
Nonmanufacturing -21, -37

[Small Enterprises]
Manufacturing -29, -57
Nonmanufacturing -29, -42

[All Enterprises]
All industries -24, -46


We can see large enterprises of manufacturing worst in the above index and they have the most sever sufferings of all.

This is because they much depend on foreign demands and so are very weak at the time of world slump as we have today.

Large enterprises have low sales and thus low profit, which brings much lower sales and profit of smaller enterprises(because they are usually given jobs from large ones) and thus lower income and consumption as a whole.

Companies cut the prices and wages more, and workers(as a result, consumers) spend less further. We are now at the edge of serious deflationary recession.

A Happy Marriage

Today I got married with a woman whom I've ever loved. I am so happy!! Here's the picture of the wedding.

Sakura in Washington

Suicide Forest

AOKIGAHARA FOREST, Japan (CNN), By Kyung Lah -- Aokigahara Forest is known for two things in Japan: breathtaking views of Mount Fuji and suicides. Aokigahara Forest is known as the "suicide forest" because people often go there to take their own lives. Japan's Aokigahara Forest is known as the "suicide forest" because people often go there to take their own lives.

Taro, a 46-year-old man fired from his job at an iron manufacturing company, hoped to fade into the blackness.

"My will to live disappeared," said Taro. "I'd lost my identity, so I didn't want to live on this earth. That's why I went there." (Bold letters: Taro added)

Taro, who did not want to be identified fully, was swimming in debt and had been evicted from his company apartment. He lost financial control, which he believes to be the foundation of any stable life, he said. "You need money to survive. If you have a girlfriend, you need money. If you want to get married, you need it for your life. Money is always necessary for your life."

...He started to wander, he said. He collapsed after days and lay in the bushes, nearly dead from dehydration, starvation and frostbite. He would lose his toes on his right foot from the frostbite. But he didn't lose his life, because a hiker stumbled upon his nearly dead body and raised the alarm.

....Japan's suicide rate, already one of the world's highest, has increased with the recent economic downturn. There were 2,645 suicides recorded in January 2009, a 15 percent increase from the 2,305 for January 2008, according to the Japanese government.

The Japanese government said suicide rates are a priority and pledged to cut the number of suicides by more than 20 percent by 2016. It plans to improve suicide awareness in schools and workplaces. But officials fear the toll will rise with unemployment and bankruptcies, matching suicide spikes in earlier tough economic times.

"Unemployment is leading to this," said Toyoki Yoshida, a suicide and credit counselor."Society and the government need to establish immediate countermeasures to prevent suicides. There should be more places where they can come and seek help."

Yoshida and his fellow volunteer, Norio Sawaguchi, posted signs in Aokigahara Forest urging suicidal visitors to call their organization, a credit counseling service. Both men say Japanese society too often turns a cold shoulder to the unemployed and bankrupt, and breeds a culture where suicide is still seen as an honorable option.

Well, many Japanese choose to kill themselves if they have some difficulties. I think it comes from "Samurai culture" and it is out of date. It should be revised and reconsidered.

However, I am always wondering why many Japanese people are unable to enjoy their modern affluent life with joy. The life in Japan is very enviable and pleasant to many international people, because in many countries the freedom of speech and idea and belief is restricted and some democratic people are in jail. It's unbelievable here in Japan.

Anyway, we should feel much happier than we now do. For me, my life is always good enough to enjoy.

Japan's Beauty

Keynesian beauty contest: I am not sure if she is hot to international people. I like her best as an actress.

She is a very famous movie actress, Fujiko Yamamoto, in Japan and the above photo("From the world of Yuji Hayata, STAR", Bungei-Shunju, 1989) is my favorite one.

Ha~, I want to have a drink with her at a little quiet bar...

Appendix:
It's a well-known episode: After Ms. Yamamoto graduated from high school, she applied for the Bank of Japan, BOJ. She did well in the paper exam, but she failed in the interview. A few decades later, the interviewer confessed the reason to one magazine: "She was so beautiful that he couldn't employ her for fear that many male workers couldn't concentrate on their own duties."

Ms. Yamamoto then thought that the coming age was for women to get their own jobs, so she decided to take the way to movie actress. She was one of the first independent professional women in Japan.

By the way, if this BOJ interviewer had decided to hire her, we now could never see and feel in love with her. So I' m not sure if I should appreciate this interviewer, but as a result we could be proud that we have a greatly respectful Japanese woman who has great beauty and intelligence.

Spam Report

Today I had a spam report: This blog was reported as a spam.

This blog is neither for the purpose of hurting and insulting some particular people nor of blaming you for some particular, especially, political or religious, ideas.

This blog is for the purpose of giving you and me a nice and fresh opportunity of exchange of different opinions. Recently I've tried to give you some beautiful photos.

I hope anybody will talk to me about what he or she is thinking and interested in.

I might have had something to say or to show that someone doesn't like or feels bad about.

I would like to say to someone who reported this blog as a spam, "sorry, sorry, please forgive me. I know I am so ignorant!!"

I wanted to say that it was a great challenge to sound democracy and freedom of speech or idea, but now I feel so sorry about this happening. :(

Maki

I was surprised at this very long maki (seaweed-rolled sushi).

When I went shopping at, say, Whole Foods and other grocery stores in the US, I found them selling a variety of makis. In the US, maki looks more familiar sushi than I thought before. Maybe it is much easier for them to eat and I think it is the Japanese version of fast food like hot dog and hamburger in the US.

I like both hamburger and maki very much.

We never make maki as in the above photo but sometimes for local community advertisement some people do like that.