Re: Re: Japan's Debt

[Jim Devine]

Yoshie writes:>>>You are right with regard to the Great Depression in the 
30s, but today's Japan does not have "extreme unemployment," which has been 
one of the reasons why we haven't seen working-class revolts yet. Hardships 
have mainly hit new women college graduates, salarymen nearing the 
retirement age, small shop & factory owners & workers, etc., I think.<<<

I wrote: >>of course, unemployment doesn't have to be overt (it can involve 
hiring people not to work) while it doesn't always stimulate revolt (since 
it might be sublimated into alcoholism, etc.) I've also heard that Japanese 
unemployment stats are not strictly comparable to US stats, so that 
Japanese unemployment looks relatively good.<<

Yoshie responded: >... here's what I found on the net:
 >(A) Bureau of Labor Statistics, "Comparative Civilian Labor Force 
Statistics, Ten Countries, 1959-1996," at 
...

 >(B) Nobuhito Kishi, "Lies, Damned Lies: The Real Story of Unemployment in 
Japan," at , ...

 >Looking at A, the picture doesn't look so bad; B, in contrast, gives you 
a horror story ... Which is right?  Tell me what you think.<

Looking at A, I thought one way to correct for differences of measurement 
technique not captured by the BLS folks (but mentioned in B) and also the 
structural differences between economies (since different economies have 
different amounts of structural unemployment and labor-power market 
institutions) was to look at the changes in unemployment in the various 
countries _relative to_ the average unemployment rate for each country over 
the 1959-96 period. This shows how unemployment has risen relative to what 
a country is "used to." In fact, for political analysis, this seems useful: 
a country that has suffered 6 percent unemployment for a long time is more 
likely to suffer from political unrest if unemployment rises to 10 percent 
than would a country that has had 9 percent unemployment over a long time.

It's interesting that in my graph, Japan's experience isn't that different 
from that of W. Europe, Canada, or Australia. It is very different from the 
US -- or from Sweden, where the ratio equals about 3. Of course, whereas in 
W. Europe, Canada, and Australia, the rise in unemployment was due to 
"self-inflicted" neoliberal policies, the one in Japan is due to the 
popping of the Bubble Economy, which was not something policy-makers wanted.

The discussion in B is pretty convincing: the unemployment rate in Japan is 
really higher than the official statistics indicate. That fits with my guess.

Jim Devine [EMAIL PROTECTED] &  http://bellarmine.lmu.edu/~jdevine

Re: Re: Japan's Debt

[Stephen E Philion]

> 
> (B) Nobuhito Kishi, "Lies, Damned Lies: The Real Story of 
> Unemployment in Japan," at 
> , a link to 
> Sogo Kenkyu Kaihatsu Kiko [National Institute for Research 
> Advancement].

Re: Re: Japan's Debt

[Jim Devine]

At 06:30 PM 12/14/00 -0500, you wrote:
>Hi Jim D.:
>
>>Yoshie quotes Jan Kregel saying>Clearly, in present conditions it is not 
>>the lack of a credible inflation policy [as he dubs Krugman's cure], but 
>>a credible interest rate policy that is creating difficulty. As Keynes 
>>notes in relation to Fisher's recommendations of inflating out of the 
>>Great Depression: "The stimulating effect of the expectation of higher 
>>prices is due, not to its raising the rate of interest (that would be a 
>>paradoxical way of stimulating output --in so far as the rate of interest 
>>rises, the stimulating effect is to that extent offset), [*1] but to its 
>>raising the marginal efficiency of a given stock of capital" (JMK:VII, p. 
>>143) that is, raising the expectation of returns on new investment 
>>relative to the rate of interest, and this requires a credible policy 
>>that interest rates will not rise along with the rate of inflation, which 
>>is to say that the Fisher relation and the quantity theory should not 
>>hold. [*2]
>>
>>[*1] I think Keynes is off-base here. As I see it, Fisher was 
>>recommending a cut in nominal interest rates in the short run, which 
>>encourages inflationary expectations, which lowers the 
>>much-more-important expected real rate. In a situation of unused capacity 
>>and extreme unemployment, there is little reason to expect the nominal 
>>rate to rise in step with inflationary expectations (as Keynesian 
>>economics points out), so there is no reason why we shouldn't see real 
>>rates falling.

Yoshie writes:
>You are right with regard to the Great Depression in the 30s, but today's 
>Japan does not have "extreme unemployment," which has been one of the 
>reasons why we haven't seen working-class revolts yet. Hardships have 
>mainly hit new women college graduates, salarymen nearing the retirement 
>age, small shop & factory owners & workers, etc., I think.

of course, unemployment doesn't have to be overt (it can involve hiring 
people not to work) while it doesn't always stimulate revolt (since it 
might be sublimated into alcoholism, etc.) I've also heard that Japanese 
unemployment stats are not strictly comparable to  US stats, so that 
Japanese unemployment looks relatively good.

In any event, do you know about the unemployment and/or destruction of 
_fixed capital_, which is a crucial part of the Depression situation. It's 
unused fixed capital which discourages private accumulation.

Jim Devine [EMAIL PROTECTED] &  http://bellarmine.lmu.edu/~jdevine

Re: Re: Re: Japan's Debt

[Peter Dorman]

Thanks, Dennis.  Can you provide some references?

Peter

Dennis Robert Redmond wrote:

> On Tue, 12 Dec 2000, Peter Dorman wrote:
>
> > investment.  The structural question is whether the elimination of
> > these unproductive investments, and the resulting financial drag, can
> > be accomplished within the political-economic framework of Japanese
> > capitalism.  So far, Japan has not found a way to do this.
>
> Japanese profit rates are way, way, *way* up, especially in high-tech
> markets, and most of the bad debts of the system have been washed
> out. Even the banks are showing decent profit margins again. There isn't
> much evidence that capital markets have replaced the keiretsu banks as
> sources of investment, though the Big Four (Sumitomo-Mitsui,
> Mitsubishi-Tokyo, UFJ and Mizuho) *are* becoming more like European-style
> universal banks, i.e. doing business with their erstwhile keiretsu
> competitors.
>
> -- Dennis

Re: Re: RE: Re: Japan's Debt

[Jim Devine]

At 04:29 AM 12/14/00 +1000, you wrote:
>Fantastically cool, Matt!  Only a jack of all trades can really aspire to be
>master of one!

or jill of all trades, in Yoshie's case.

Jim Devine [EMAIL PROTECTED] &  http://bellarmine.lmu.edu/~jdevine

Re: RE: Re: Japan's Debt

[Rob Schaap]

>By the way, is it cool that Yoshie is evaluating Levy working papers and I
am
>discussing Japanese novels, or is this scary?!

Fantastically cool, Matt!  Only a jack of all trades can really aspire to be
master of one!  Especially when the one in question is political economy,
eh?  I realise it's because I'm a white bearded chap, but I do come over all
wistful for those great days of an intellectually bold and vibrant
bourgeoisie, say 150 years back, when white bearded chaps were not only free
to inquire into all areas of nature and the arts, but indeed felt it
absolutely necessary to do so.  None of that stuff we're hearing about
narrow specialists, encouraged to intellectual inertia by the deadening
institutional sway du jour, eh?  

We gotta rediscover (if enormously expand) the spirit that linked Joseph
Banks to Freddie Engels or Stephen Maturin to Sherlock Holmes.  The belief
that it is downright practical to stick the beak in a multitide of
'disciplines' and to theorise across that whole spectrum - and to have
everyone so enabled and so disposed ...

And on to claret and cigars with a generation of Yoshie Fuhurashis and Matt
Forstaters, I say!

Yours beyond even his bed-time,
Rob.

RE: RE: Re: Re: Japan's Debt

[Forstater, Mathew]

Yoshie- I would say Miyabe's book gives a very different view of consumer credit
in Japan than what you put forward. It does argue that there are a group of
people who do not go for credit cards, but this is not due to their
unavailability, etc. I will try to type a few paragraphs in later. Some history
is provided, via the lawyer character explaining some stuff to the detective. It
talks of big crises in the early 80s and early 90s, but also talks about the
beginnings in the early 60s.  The book also goes into the whole issue of family
registers and legal identity, also focusing on bureaucracy.  Supposedly Miyabe's
written lots of books that have been made into movies. Do you know if any of
these ones we would have seen (e.g. Tampopo, Accountant's Wife, etc.)?

Re: RE: Re: Re: Japan's Debt

[Jim Devine]

At 10:42 AM 12/13/00 -0600, you wrote:
>Jim- Are you an advocate of IS-LM??

No, but ISLM provides a good language for the _start_ of a discussion, 
since almost every macroeconomist knows it. For example, Paul Davidson, a 
well-known anti-ISLMicist, uses IS-LM in his paper on the finance demand 
for money (reprinted in his MONEY IN THE REAL WORLD). He may now be more 
purist, but he's still got that blot on his escutcheon (from his own purist 
perspective).

I'm afraid that ISLM will survive until someone presents a clear 
alternative, since criticizing a theory doesn't smash it until there's an 
obvious replacement. It's interesting that in Thomas Palley's excellent 
book on post-Keynesian macroeconomics, he presents a series of useful 
models that aim to get us away from the official Keynesianism (what 
Robinson termed "bastard Keynesianism"). The economics is quite different, 
but the graph remains the same. In his final, most complete, model, what do 
we see but ISLM? he draws it upside-down and (if I remember correctly), 
backward, but it's still ISLM. The story behind the curves is different, 
but it's the same graph. (I've lost my copy of that book, alas!)

It sort of reminds me of Rasputin. All sorts of folks have tried to kill 
ISLM, in all sorts of ways, but it survives. Even the  recent article (from 
a quite establishmentarian perspective) by  David Romer, I believe, in 
Brad's journal (THE JOURNAL OF ECONOMIC PERSPECTIVES) didn't kill it as 
much as arguing that the LM curve shouldn't be upward-sloping, since the 
Fed can fine-tune interest rates.

In the end, I think ISLM has a little to say about the short run, but see 
the rate of profit as the main variable running a capitalist economy, along 
with such things as the debt load, expectations, and unused capacity.

Jim Devine [EMAIL PROTECTED] &  http://bellarmine.lmu.edu/~jdevine

RE: Re: Re: Japan's Debt

[Forstater, Mathew]

Jim- Are you an advocate of IS-LM??

>Is this analysis totally wrong? 

RE: Re: Japan's Debt

[Forstater, Mathew]

Actually I disagree with Jim's assessment, and think Yoshie is right. I don't
think Jan is just concerned with what Keynes "really" meant or said, but with
whether Krugman's analysis is useful for effective policy. 

By the way, there are some other useful papers on the subject at Levy. Marc
Andre Pigeon's Minskian interpretation, e.g.

By the way, is it cool that Yoshie is evaluating Levy working papers and I am
discussing Japanese novels, or is this scary?!


-Original Message-
From: Yoshie Furuhashi
To: [EMAIL PROTECTED]
Sent: 12/13/00 3:24 AM
Subject: [PEN-L:6097] Re: Japan's Debt

 From Jim D. to Mat:

>At 11:20 AM 12/12/00 -0600, you wrote:
>>"Krugman on the Liquidity Trap: Why Inflation Won't Bring Recovery In
Japan,"
>>Jerome Levy Economics Institute, Working Paper No. 298, March 2000
>>Jan. A. Kregel
>>
>>Abstract
>>
>>Paul Krugman has argued that Japan is in a liquidity trap and that it
can
>>recover only if the central bank there follows a policy of 
>>"credible inflation."
>>This paper argues that Krugman's proposal, which is similar to what
Fisher
>>proposed during the depression, is based on a different interpretation
of the
>>liquidity trap from that proposed by Keynes and as a result his policy
>>recommendations can result in neither the elimination of the trap 
>>nor in Japan's
>>economic recovery.
>
>I was a bit disappointed with this article, which seems obsessively 
>concerned with "what Keynes really said." Sometimes the Keynesians 
>can be more fundamentalist in their method than the Marxists.

Right, but Kregel's conclusion appears sounder than Krugman's (within 
the confines of Keynesian economics, that is), at least to this 
non-economist:

*   Clearly, in present conditions it is not the lack of a 
credible inflation policy, but a credible interest rate policy that 
is creating difficulty.  As Keynes notes in relation to Fisher's 
recommendations of inflating out of the Great Depression: "The 
stimulating effect of the expectation of higher prices is due, not to 
its raising the rate of interest (that would be a paradoxical way of 
stimulating output --in so far as the rate of interest rises, the 
stimulating effect is to that extent offset), but to its raising the 
marginal efficiency of a given stock of capital" (JMK:VII, p. 143) 
that is, raising the expectation of returns on new investment 
relative to the rate of interest, and this requires a credible policy 
that interest rates will not rise along with the rate of inflation, 
which is to say that the Fisher relation and the quantity theory 
should not hold.  But the failure of a higher rate of increase in the 
quantity of money to increase prices and the rate of interest is what 
Krugman calls the liquidity trap and he identifies as the cause of 
Japan's recession.  In Japan even if the Bank of Japan could mount a 
credible inflation policy, there would be no guarantee of the 
stability of the yield curve.  What is required is a credible policy 
to ensure increased higher rates of return on investment, which may 
or may not be accompanied by rising prices.  In general in Japan it 
has not.  This requires credible increases in aggregate demand. 
Traditionally in Japan this has come from exports.  Given recent Yen 
strength and other structural changes in global markets this is now 
unlikely.  What Japan needs is a credible policy of increasing the 
return on producing for domestic demand.  From a Keynesian point of 
view it might be more appropriate to say that Japan is in an 
underemployment equilibrium with deficient aggregate demand than in a 
liquidity trap.

   *

Yoshie

Re: Re: Japan's Debt

[Jim Devine]

Yoshie quotes Jan Kregel saying>Clearly, in present conditions it is not 
the lack of a credible inflation policy [as he dubs Krugman's cure], but a 
credible interest rate policy that is creating difficulty. As Keynes notes 
in relation to Fisher's recommendations of inflating out of the Great 
Depression: "The stimulating effect of the expectation of higher prices is 
due, not to its raising the rate of interest (that would be a paradoxical 
way of stimulating output --in so far as the rate of interest rises, the 
stimulating effect is to that extent offset), [*1] but to its raising the 
marginal efficiency of a given stock of capital" (JMK:VII, p. 143) that is, 
raising the expectation of returns on new investment relative to the rate 
of interest, and this requires a credible policy that interest rates will 
not rise along with the rate of inflation, which is to say that the Fisher 
relation and the quantity theory should not hold. [*2]

[*1] I think Keynes is off-base here. As I see it, Fisher was recommending 
a cut in nominal interest rates in the short run, which encourages 
inflationary expectations, which lowers the much-more-important expected 
real rate. In a situation of unused capacity and extreme unemployment, 
there is little reason to expect the nominal rate to rise in step with 
inflationary expectations (as Keynesian economics points out), so there is 
no reason why we shouldn't see real rates falling.

[*2] here's where PK, not Keynes, is wrong, because he doesn't pay 
attention to the marginal efficiency of capital (roughly, the expected rate 
of profit). It's possible that real private investment won't respond, even 
to negative real interest rates. (The IS curve may be vertical or close to 
it.) Here pen-l faces a disagreement: Peter says that Japanese private 
corporations and banks face stuff like low profitability, excessive debts, 
pessimistic expectations, and unused capacity, while Dennis (always an 
optimist concerning Japan) sees profitability recovering. It would great to 
see some evidence.

 >But the failure of a higher rate of increase in the quantity of money to 
increase prices and the rate of interest is what Krugman calls the 
liquidity trap and he identifies as the cause of Japan's recession.<

I interpret PK more prosaically: he's saying that monetary policy can't 
lower nominal interest rates and thus, given expectations of inflation, 
real expected real rates. This is because nominal interest rates can't fall 
below zero (while some would add a little liquidity premium on top of that 
zero). PK's main story about what's happening isn't about inflation. 
Rather, inflation is what he recommends.

 > In Japan even if the Bank of Japan could mount a credible inflation 
policy, there would be no guarantee of the stability of the yield curve. <

this is right on target. Low short rates may coincide with higher long rates.

 >What is required is a credible policy to ensure increased higher rates of 
return on investment, which may or may not be accompanied by rising 
prices.  In general in Japan it has not.  This requires credible increases 
in aggregate demand.<

PK might respond that expansionary (inflationary) monetary policy might 
raise aggregate demand in this way, so that this is a distinction without a 
difference.

 >Traditionally in Japan this has come from exports.  Given recent Yen 
strength and other structural changes in global markets this is now 
unlikely.  What Japan needs is a credible policy of increasing the return 
on producing for domestic demand.  From a Keynesian point of view it might 
be more appropriate to say that Japan is in an underemployment equilibrium 
with deficient aggregate demand than in a liquidity trap.<

I'd agree that the "vertical IS curve" situation referred to above is quite 
an apt description of what's going on (perhaps with a horizontal LM curve 
thrown in).

If so (i.e., if Dennis' optimism is off-base) then Japan faces a 
contradiction. On the one hand, they need to build the welfare state, 
including old-age pensions, as Yoshie points out, in order to shore up 
aggregate demand (since infrastructural investment has hit the wall). Also 
as she says, the ruling elites won't do that, since it's against their own 
self-interest (both as a group and as individuals). But if the Japanese 
workers kicked up a fuss, they'd be pushed to do so. But the other horn of 
the contradiction is that intensified working-class struggle would hurt 
investors' expectations, making private investment even more depressed.

Is this analysis totally wrong? enquiring minds want to know

Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~JDevine

Re: Re: Japan's Debt

[Dennis Robert Redmond]

On Tue, 12 Dec 2000, Peter Dorman wrote:

> investment.  The structural question is whether the elimination of
> these unproductive investments, and the resulting financial drag, can
> be accomplished within the political-economic framework of Japanese
> capitalism.  So far, Japan has not found a way to do this. 

Japanese profit rates are way, way, *way* up, especially in high-tech
markets, and most of the bad debts of the system have been washed
out. Even the banks are showing decent profit margins again. There isn't
much evidence that capital markets have replaced the keiretsu banks as
sources of investment, though the Big Four (Sumitomo-Mitsui,
Mitsubishi-Tokyo, UFJ and Mizuho) *are* becoming more like European-style
universal banks, i.e. doing business with their erstwhile keiretsu
competitors.

-- Dennis

Re: Re: Re: Re: Japan's Debt

[Anthony DCosta]

I think this view is somewhat correct.  If public spending is
significantly focused on physical infrastructure than Japan's
infrastructure is "overdeveloped".  I recall a NYT article talking about
spending vouchers being distributed as part of public spending, some of
which could be used for pachinko parlors and on prostitutes.  OTOH
more spending on education and research I do not think diseconomies have
set in.  There is a big debate going on about Japanese education system
and its attempts institutionally to move away from the "catch-up" model.
Questions of immigration is also looming large.

Cheers, Anthony


Anthony P. D'Costa
Associate Professor Ph: (253) 692-4462
Comparative International Development   Fax: (253) 692-5718 
University of WashingtonBox Number: 358436
1900 Commerce Street
Tacoma, WA 98402, USA
xxx

On Tue, 12 Dec 2000, Jim Devine wrote:

> Date: Tue, 12 Dec 2000 14:16:35 -0800
> From: Jim Devine <[EMAIL PROTECTED]>
> Reply-To: [EMAIL PROTECTED]
> To: [EMAIL PROTECTED]
> Subject: [PEN-L:6083] Re: Re: Re: Japan's Debt
> 
> At 01:45 PM 12/12/00 -0800, you wrote:
> >One consideration regarding Japan is that, so far as I understand, Japan's 
> >deficit
> >has been used for massive public works spending, which could mean greater
> >productivity in the future.
> 
> on the other hand, I've heard that they've actually encountered diminishing 
> returns to public works investment, something rarely seen in the U.S.
> 
> Jim Devine [EMAIL PROTECTED] &  http://bellarmine.lmu.edu/~jdevine
> 
> 

Re: Re: Re: Japan's Debt

[Peter Dorman]

Well, this refers to the fiscal deficit, which is not such a big problem (compared to
the financial fragility problem).  Also, according to Bill Tabb's book on Japan (and
other sources I've seen), "infrastructural" spending in Japan comes pretty close to
Keynes' admonition to dig holes and fill them in again.  (Which in turn is more
ambitious than the project underway in Boston, which has so far achieved only the
first half of Keynes' far-seeing program.)

Peter

Michael Perelman wrote:

> One consideration regarding Japan is that, so far as I understand, Japan's deficit
> has been used for massive public works spending, which could mean greater
> productivity in the future.

Re: Re: Re: Japan's Debt

[Jim Devine]

At 01:45 PM 12/12/00 -0800, you wrote:
>One consideration regarding Japan is that, so far as I understand, Japan's 
>deficit
>has been used for massive public works spending, which could mean greater
>productivity in the future.

on the other hand, I've heard that they've actually encountered diminishing 
returns to public works investment, something rarely seen in the U.S.

Jim Devine [EMAIL PROTECTED] &  http://bellarmine.lmu.edu/~jdevine

Re: Re: Japan's Debt

[Michael Perelman]

One consideration regarding Japan is that, so far as I understand, Japan's deficit
has been used for massive public works spending, which could mean greater
productivity in the future.

Peter Dorman wrote:

> I'm not an expert on Japan either, but I think Jim's analysis of Japanese
> financial fragility is correct.  It needs to be understood in the context of
> that country's system of corporate finance, networks of firms under the
> guidance of lead banks.  These networks partly socialized the risks of bank
> loans, which spurred generous finance during the good times.  When the
> expansion of the system as a whole ended, however, the risk became systematic
> again, and the networks ended up protecting vast amounts of unproductive
> investment.  The structural question is whether the elimination of these
> unproductive investments, and the resulting financial drag, can be accomplished
> within the political-economic framework of Japanese capitalism.  So far, Japan
> has not found a way to do this.  Larry Summers is sure that the answer lies in
> an acceptance of neoliberal orthodoxy: the breakup of the interfirm networks
> and the transfer of finance and supervision from banks to asset markets.
>
> Sorry to be so condensed, but this is time crunch season...
>
> Peter
>
> Jim Devine wrote:
>
> > Paul Krugman says that there's a liquidity trap there, but I think it's
> > also a matter of excessive banks by nonfinancial corporations to banks and
> > the banks' massive non-performing loans that are keeping low interest rates
> > from stimulating the Japanese economy. The nonfinancial corporations don't
> > want to borrow and the banks don't want to lend. Or maybe that's what PK
> > means by a "liquidity trap." In any case, this is consistent with Keynes'
> > macroeconomics.
>
> snippety-snip
>
> > On this issue, I'd really like to see input from experts, to see if my
> > understanding of Japan is totally off-base.
> >
> > Jim Devine [EMAIL PROTECTED] &  http://bellarmine.lmu.edu/~jdevine

--

Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail [EMAIL PROTECTED]

Re: RE: Japan's Debt

[Jim Devine]

At 11:20 AM 12/12/00 -0600, you wrote:
>"Krugman on the Liquidity Trap: Why Inflation Won't Bring Recovery In Japan,"
>Jerome Levy Economics Institute, Working Paper No. 298, March 2000
>Jan. A. Kregel
>
>Abstract
>
>Paul Krugman has argued that Japan is in a liquidity trap and that it can
>recover only if the central bank there follows a policy of "credible 
>inflation."
>This paper argues that Krugman's proposal, which is similar to what Fisher
>proposed during the depression, is based on a different interpretation of the
>liquidity trap from that proposed by Keynes and as a result his policy
>recommendations can result in neither the elimination of the trap nor in 
>Japan's
>economic recovery.

I was a bit disappointed with this article, which seems obsessively 
concerned with "what Keynes really said." Sometimes the Keynesians can be 
more fundamentalist in their method than the Marxists.

I doubt that "credible inflation" will help Japan, but the important thing 
is not _who_ developed a theory that says so but _why_ this is so.

Jim Devine [EMAIL PROTECTED] &  http://bellarmine.lmu.edu/~jdevine