How To Create Jobs and Income

10/21/07 revised

The world economy has been in crisis and here in Japan some policymakers and economic policy nerds have some ideas of how to boost up the weak demand of the economy.

In my opinion (and I think many people interested in economic issues will agree with it), there're generally two kinds of the problems the economy has: the structural one and short-run business-cyclical one.

As a structural problem, the older people get, the more money they need to make a living. Thus the government should pay them as a medical insurance and national pension plan, which consequently puts the budget into deficit and thus a long-term debt. So we need much more tax revenue as resources to pay them.

On the other hand, and as a short-run problem, many young people now have difficulties in finding a good job in such a weakened economy and many (how many? ...good question, but it doesn't matter at present) of them should put up with low-paid and insecure jobs.

The Prime Minister, Kan, and his economic team seem to want to solve the above two kinds of them at the same time: raise the tax to create jobs and income. It sounds weird in a traditional economic thinking, but they are so serious that they think they can. The government raises the tax and gets the revenue, which it can use to employ the unemployed and to boost up the income and consumption in a whole economy. Now the Kan administration can solve the two problems: it can get more tax revenue to employ the unemployed (it can solve the short-run problem), and thus it can get more and more tax revenue to finance the budget deficit and to shrink the long-term debt because more people can earn income and pay the tax on it in a whole economy(it can solve the structural problem).

Yes of course, there's always a lot of jobs that need young people in the economy from the viewpoint of a whole society, but I mean these jobs may not necessarily keep them on and what's more, we are more likely to have ability-oriented or region-oriented gap: some people can complete the work they are offered, but others can't. Or, in some cities there're many jobs to take but in other cities not many. Always there're jobs that need us as long as we live on, but some of them may not make them eat enough food to live on. (Why are there some job ads that we can always see in the newspaper?)

Although the economic policy the Kan Administration sounds logically coherent, unfortunately I am not sure how successful the solution Mr. Kan proposed is in solving the two problems, and I am wondering what happens to the economy if the government tries to do it.

I am Still Alive

For more than 3 months I have not updated my blog. That doesn't mean that I have nothing to write and to update, nor that I have no time to write.

Recently I have read some books some of my favorite economists recommend, and wanted to concentrate on them carefully. Of course, while reading them, I've been busy working and teaching.

Soon I will write and discuss on the books I read.

On Fiscal Policy (1)

I am teaching elementary economics at school, and I touch on fiscal policy - government budget, spending, cut tax, how built-in stabilizer works, tax collection, bond issue and fiscal reform of the Japanese government.

When I think of the fiscal problems that the Hatoyama administration should solve, this report may greatly help though it is on the fiscal policy of the US.


Fiscal policy has three functions: (1) allocation of resources, (2) income redistribution, and (3) economic stabilization.


This report is almost entirely on the function of fiscal stimulus, or comment on textbook Keynesian view on fiscal policy and here's the summary of this report:

(1) On the effects of government spending

There are two effects of government spending on aggregate demand(=consumption + investment). These are positive and negative effects:

The positive effect is multiplier effect, where government purchase leads to higher income and thus today's demand.


On the other hand, the negative effects are growth-retarding effect, where government spending leads to higher taxes in the future and thus less demand today to prepare for the higher tax, and crowding-out effect, where government spending results in higher interest rate and thus less today's demand.


(2) On the effects of tax cut and spending on demand


Generally, I say that government spending is more effective on demand than is tax cut. However, some researches say that it isn't, rather it is the opposite: tax cut is more effective on demand than government spending.

Moreover, (interestingly) successful, growth-promoting fiscal stimulus is tax cut whereas unsuccessful stimulus is spending more and transfer payments, which are now (unfortunately) the Hatoyama administration's main dishes!

A Japanese Shrine

This is Manshu-in Tenman-gu.

Visit to Kyoto

It's a Japanese heart-Cherry blossom.

マクドへのファンメール

日本マクドナルド株式会社さんへファンメールを書いた。以下のその一文。

御社での製品(特に、マックシェイク、フィレオフィッシュ)は幼いころから楽しんでおり、「マクドファン」としてメールいたしました。

街中を歩いておりますと、御社の使用済み包装が散らばっているのを良く見かけます。包装については、衛生上の観点から必要であり、「過重包装」についても何度も御社では改善されたことを伺っております。

基本的に食後の包装の処理は消費者の責任でありますが、御社としては難しいとは存じますが、一度「デポジット制度」についてご検討されては、と存じます。例えば、お持ち帰りの包装に関して紙袋代やポテトの紙箱など一律10円を正規価格に上乗せし、店舗に持ち込めば、10円返金する、という制度です。

街中のゴミも減り、環境配慮を全面的にアピールする狙いを込めて、御社が積極的にこれに乗り出せば、更なる企業イメージアップも図れ、他社さんもこれに追随するやも知れません。

ご検討されれば、と存じます。拙文失礼致します。

Inequality and Education

Recently I've read the latest Mankiw's article and wondered how to solve an income (or opportunity) inequality. Not only has this problem been considered important in the US, but also in Japan.

Since around 1970s, the age of oil and dollar crisis, an income inequality has been wider in some developed countries and especially since late 1990s, when IT(information technology) revolution, the Internet, came across and changed our everyday business and life, we've got concerned about what is called "digital divide", which means that those who use IT are more likely to get higher income than those who don't.

"Kakusa society", in Japanese, means "income-gap society" and is now a well known word to a lot of modern Japanese people. Income gap leads to a wider opportunity gap; Those who get higher income are more likely to have good friends and spouses and live a better and happier life, and thus so are their children.

When Gary Becker & Kevin Murphy talk about the income inequality, they point out the role of "human capital" played in an income gap:

The initial impact of higher returns to human cap­ital(Taro added: a higher education of college and university) is wider inequality in earnings.

...Higher returns to educa­tion will accelerate growth in living standards as existing investments have a higher return, and additional investments in education will be made in response to the higher returns.

Why is the earnings gap widening? Because (of) the demand for educated and other skilled persons (and) ...a general shift in economic activity to more edu­cation-intensive sectors, such as finance and professional services... At the same time, world demand has risen for the kinds of products and services that are provided by high-skilled employees.

They tell us that initial impact of higher education on income widens income gap, but as time goes by, it decreases and leads to higher income and benefit spilled over more people. Moreover, they criticize the usual policy response to an income inequality:

...the solution to an increase in inequality is ...to raise taxes on high-income households and reduce taxes on low-income households. .. (That is just like advocating) a tax on going to college and a subsidy for dropping out of high school in response to the increased importance of education.

They suggest that we should encourage higher education for more people. I completely agree with them.

Teach Economics

Since last year I have been given some opportunities to teach elementary economics as a lecturer to students who are thinking of entering university and working for governments.

Here in Japan before we work for governments we should take the exam on law, history, and economics and have some interviews. These subjects are, however, at an elementary level,but to teach elementary economics is not easy for me because almost all the students don't know a lot about economics.(that's why they come up to me!!)

They need good lectures and thus they paid a lot for schools. I should talk frankly about economics and watch them study hard.

During this lecture I had some lessons on giving a lecture: I found I didn't understand what I had thought I knew a lot about. Moreover, I found good lecture depends on how much I prepare for it: If I didn't read the textbook very much beforehand, I couldn't teach well and would give the students an impression in which I don't know a lot about what I am talking about. That's true but I hadn't found it until I gave some lectures.

I believe it is a good experience and I should study more on how to teach elementary economics. But at the same time I should begin to write some papers for the doctor degree.

A Love From Russia?

Recently I've got some emails from someone that I've never met. They say that they came from Russia and girls. They say that they broke their love and looked for another good love.

It looks interesting and I've tried to reply to them. After a while, they emailed me and they said they found me an ideal guy... and I continue to email her(?) and she(?) says that she wants me, needs me and loves me....(like Elvis's song?)

What is that? I have no idea. Why do they email someone that they never meet?

Anyway, if you have some idea of such an anonymous email, I would be happy to hear it.

Trip to Old Japan

I found a good collection of old pictures of more than 100-year-ago Japan. Enjoy it.

Haiti Tragedy

It is a very sad news of Haiti's earthquake. What Krugman says is also what I really want to say: As far as one can tell, those with the power to help are doing all they can. One can only hope that enough help arrives fast enough to avoid the second-round calamities — deaths due to lack of food and water and/or disease — that can all too easily follow a natural disaster.

It also reminds us of the Kobe-Awaji earthquake that happened 15 years ago.

American Obesity

WSJ says on 13/01/2010 that:

WASHINGTON—One-third of American adults are obese, according to new U.S. government figures released Wednesday, but the rate of increase seen in recent decades has slowed.

Figures from the National Center for Health Statistics showed 34% of American adults age 20 and older were obese in 2007-08 while 68% were considered overweight or obese. In children ages 2 through 19, 17% were considered obese while 32% were considered overweight. Broadly, the figures are similar to rates seen in 1999-2000.

"Obesity remains high and is a significant public-health problem in the U.S.," said Cynthia Ogden, one of the main researchers involved in tabulating the data and an epidemiologist with the Centers for Disease Control and Prevention's health-statistics unit.

..."I see this as relatively good news," said William Dietz, the director of CDC's division of nutrition, physical activity and obesity. "It suggests we've halted the progression of the epidemic."...."The administration recognizes that control of obesity is related to health reform," Dr. Dietz said.

The obesity figures were taken from 5,555 adults and nearly 4,000 children who are considered representative of the U.S. population. For adults, researchers looked at body mass index, a measure that estimates body fat by using a person's height and weight in the calculation. Those with BMIs of 25 to 29.9 are considered overweight and those who are considered obese have a BMI of 30 or greater. A BMI of 18.5 to 24.9 is considered a normal weight for adults.

Interestingly, we can see this article in the site of Yahoo JAPAN! although it is a piece of the American news that doesn't seem to have anything to do with our own life. I'm not sure how many Japanese are obese and what growth rate of obese Japanese we have seen for the past decades, but I'm sure it is not other people's affairs.

We have already lived a civilized life here for long: the foods we eat are more similar or closer to those the American eat, and we do less exercise for long and so do they. Our life style becomes quite closer to American one. I think we need to take a good look at the data of obesity in America for good reference.

Herd Society

We are the same as monkeys.

The Conscience of a Conservative

What is a conservative? I don't think I am a conservative but I sometimes wonder what the idea of a conservative is like. Let me tell you about it:

Longman dictionary says that a conservative means a person who dislikes changes. My definition of a conservative is a little different: Generally, a conservative has three principles of behavior, or beliefs.

(1) To love his or her own culture, custom and tradition

That's natural to what is called a conservative. There's always such a person no matter which part of the world he or she lives in. Such a person always says that he or she loves and tries to protect his or her own tradition.

(2) To be tolerant

When you meet someone who doesn't agree with you, if you blame him or her, you are not a conservative in my definition.

What a conservative is like is tolerance for disagreement or misunderstanding. I know if you are hard for someone to understand you feel bad with him or her. But try to keep calm and to listen to him or her because someone who doesn't agree with you probably has a different point of view from you that might sometimes help you broaden your outlook. (It is difficult to keep calm when you are harshly blamed. That's our nature!)

A conservative is basically not a violent one, rather a gentle and kind one in this way.

(3) To know that changes are sometimes needed

"Change to remain the same!" Ichiro Ozawa, a politician of the Democratic Party, now a ruling party in Japan, likes this phrase. Ozawa has been considered to be and called a neoconservative, who believes the power and dynamism of freedom. I like this phrase too.

When we see the world in which we live changing fast, we should not stick to our own opinion or idea. We should first rather learn how the world is changing and what is changing in the world. And then if we feel the need to change the way in which we behave due to changing social and economic surroundings, we should try to change our idea, or if needed, ourselves to remain the same as what we are and how we live on.

Change is not always a good choice, though. We should think of the effect of the change we make on our life and society. I know it's a difficult task. It's not a simple matter of cost-benefit analysis. It can be said that it's a great decision to make a change in our present life and society.

The Peter Principle

It's very interesting! The Peter Principle says that the less productive a worker, the more likely will she succeed.

...There are, though, perhaps more basic messages here. Competition needn’t necessarily yield optimum outcomes; “survival of the fittest” mightn’t be the most efficient principle. And the organization of corporate hierarchies might be inefficient, not (just) from heterodox perspectives, but from the perspective of conventional neoclassical economic theory itself.

Now might be the time for us to study such a kind of economics; Just before, Koizumi and Takenaka tried to conduct an economic policy of a traditional neoclassical version of competition and privatization(Reaganomics), in order to boost up the stagnant Japanese economy.

Recently a lot of people have doubt on an attempt to make such a policy because the Japanese economy is still stagnant. The Peter Principle would not be a key solution to the difficult problem of the Japanese economy, but greatly influence the ideas of political and business leaders.

Economics

Paul A. Samuelson died. (The picture is from NY times.)

When I was a freshman at college, I took a course of international economics. The lecturer introduced one econ textbook to the students. That was the Samuelson's economics. Of course, it was the one written with Nordhaus and soon I dropped from this course because I felt it was enough to read it.

I can't talk about Samuelson and his work because I don't know what he really did in economics. However, he is so famous in the area of economics that most of people should find his name in any introductory econ textbook.

Of course, Japanese economists of older generation studied economics with his textbook and if they were asked who wrote a great econ text, they would definitely answer "it's Samuelson". He is certainly a brand name in Japan too and influenced them so greatly. Unfortunately, I have never read his economics (I've read Mankiw's one instead.) but I heard most of econ textbooks have followed his style of economics by introducing micro, and then macroeconomics.

Recently, I have been wondering what's the true meaning of the distinction between micro and macroecon. Well, I think it's easier for econ teachers to teach beginners economics. But as an econ beginner I struggled to understand what econ is like; Micro seems very different from macro in intro econ textbooks. To be precise, Keynes theory(AD-AS analysis) seems different from New Classical one(Demand-supply diagram).

I know Barro of Harvard tried to integrate them into one. I am not somewhat happy with the Barro's style of economics and I cannot give alternative version of econ(it's really a big task!), but I would say there's no more need than to make the distinction.

I would say macroeconomics should be described as an applied microeconomics and this trend has been already accepted. Why have many of intro econ textbooks still followed an old-fashioned Samuelson's style of econ text? It might be a stable equilibrium of econ style.

Tax Cut Or Spending?

This is one of the conventional themes in macroeconomics and most of students in introductory economics class may study which policy is more effective on the stagnant economy, tax cut or government spending.

As introductory macroeconomics(say, the Keynesian Cross) says, government spending is more influential, more likely to increase the national income(GDP).

The reason is quite simple: government does a debt-finance.

Imagine two people earn income of $100 a day, buy food from each other at a cost of $10 and the income tax imposed is $10. Thus each of them has $90 in hand and spends $10 on food a day.

In this economy, the total income (the sum of two people's incomes) is $180.

Due to economic stagnation, one of them becomes unemployed and earns $0 a day. If the government cuts income tax (-$10) to stimulate the economy, the employed will have more(she has now $100 in hand a day) but the unemployed will not. So the unemployed has no food to eat this day. (In this case the unemployed can earn money to sell food to the employed, because both eat nothing.)

In this tax-cut economy, the total income is $100.

Alternatively, if the government provides the unemployed with a job that makes him earn $10 a day, that is, increases the government spending, then the unemployed will get the benefit(he has now $10 a day in hand) but the employed will not (her income remains $90 in hand) .

In such a spending economy, the total income is $100. The same! This is not more effective than tax cut.

The reason is in government-spending economy, she is still imposed income tax of $10. The point is, in a tax-cut economy, income distribution is done through the exchange from each other, whereas in a spending economy through the government that just takes $10 from the employed and gives $10 to the unemployed.

If there were no income tax on her(government made a policy of debt-finance) in a spending economy, the total income would be $110 and thus more effective than tax cut policy (of course, later a tax increase will come). Keynesian policy is always a debt-finance policy!

Money and Life

I read a comment from one of the readers of Yomiuri Shimbun, a major newspaper in Japan, and it caught my eye:

Yomiuri shimbun, 09/12/2009

A letter from a mother in her 40s says,

"I have two children, one is an elementary school student, the other a junior high school student. The older one is not good at plugging at study, but quick in understanding, and began to go to cram school and the grades are going up.

We need more money in education for my children. My husband's income was always low and due to recent recession, it is even lower. Less overwork and work on holiday made him stay longer at home. My husband is a good man and kind to our children, but his income is low!

I am working part-time and have a lot to do for children, but I am so nervous that our low income may be going to give them few accesses to good opportunities. Looking at his face, I feel hatred for him. I am worried that our conjugal life may be broken and may do our children harm. First of all, I feel so sad that I cannot give my husband a smile."(Translated by Taro)

During the economic stagnation, people feel so nervous and disappointed at their future life. "Money can't buy happiness", some people say, but nobody disagrees that money is very important for life. What is really needed for good life? Money! Probably, but probably not at the same time.

Money can buy good education and good access to good career and good life. That's why many students go to the US to get MA or PhD at higher-ranked university. However, they know that school may not guarantee happy life with good partner and children. They feel after graduation they may be unemployed or poor or alone all their life.

Some economists may say that economics gives a good hint on what and how to do for living a good life, but I don't know it clearly. I know while many people are seeking for better and happier life, very few people really know what and how to do for it.

Which is better for you in your life, a poor life with warm-hearted partner or a rich life with a cold-blooded partner? As Milton Friedman says, "free to choose!". The point is what you need most all your life. If you need a stable life, you should choose to work for government, and if you need an unstable but, if you are lucky and good at business, a rich life, you should choose to become a business entrepreneur.

If you think happiness is to put up with any hardship both for your good life and for your children's life, you should choose a partner who agrees with you. If you think happiness is not to be miserable or not to be poor, you should check your partner's bank account and payroll before choosing him or her as a lifelong partner. Anyway, free to choose, right!?

When Was Japan Born?

I think if you drop in at this blog, you will probably be one who may be interested in Japan or other Asian countries. I happened to see the Japan page, NY times, I knew that I hadn't known
the birth(or independence) year of Japan. Here's the page;

Japan at a Glance

Official Name: Japan

Capital: Tokyo (Current local time)

Government Type: Constitutional monarchy with a parliamentary government

Chief of State: Emperor Akihito represented by Yukio Hatoyama, prime minister

Population: 127.43 million

Area: 145,902 square miles; slightly smaller than California

GDP Per Capita: $33,100

Year of Independence: 660 B.C.

Since I saw "Year of Independence" here, I haven't known what year Japan became dependent. In fact I can't remember if I learned at school when Japan appeared in the world history. At the beginning of the histry class that most Japanese people have, the origin of the Old World is first introduced and after that the dawn of Japan is introduced, but never is that Japan was born in 660 B.C. taught! We just learned that early Japanese used stone tool at that age.

What's "the Year of Independence, 660 B.C."? To be sure, it comes from part of the Nihon Shoki, and Wiki says,

"Most scholars agree that the purported founding date of Japan (660 BC) and the earliest emperors of Japan are legendary or mythical."

What Makes Us Rich?

Daron Acemoglu, professor of MIT, answers a big question, "what makes us rich?".

He says incentive is the key role in what makes us rich or poor:

People need incentives to invest and prosper; they need to know that if they work hard, they can make money and actually keep that money. And the key to ensuring those incentives is sound institutions — the rule of law and security and a governing system that offers opportunities to achieve and innovate. That's what determines the haves from the have-nots — not geography or weather or technology or disease or ethnicity.

Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments.

Very simple answer!