Monday, Dec 1, 2008

Trusting in the fiscal pump

"Learn from Japan," they said as the U.S., British and EU economies headed for their current downturns. Well, they may have learned something. But until very recently that something clearly was not enough.

One thing they do seem to have learned early on was the extreme folly of Japan's venture into supply-side economics at the height of its post-"bubble" downturn. So now no one is foolishly calling for governments to cut spending.

No Western financial medium seems keen to repeat those editorials from Japan's main economic newspaper, Nihon Keizai Shimbun (Nikkei), dismissing Keynesian economics as some kind of old-hat anachronism. As someone put it, we are all Keynesians now. Everyone, even Tokyo, now realizes the need for governments to pump money into a flagging economy.

But how much money? The United States took a very long time to realize the main lesson from Japan's "lost decade" — namely, that a deflationary slump is radically different from a recessionary slump. Recessions tend to self-correct: If asset prices fall, returns increase, investors move in and prices recover. Or as we saw in the Asian financial crisis of the late 1990s, if currencies collapse, exports expand, the economy recovers.

In short, if A goes down, B goes up. We are soon back to normal, though some fiscal pump-priming is always welcome.

But what happens when A goes down, and not only does B go down but C, D, and a host of other economic factors as well, which in turn push A further down, together with B, C, D, etc.? Then everything changes. We are in a deflationary spiral, as Japan was to some extent during the so-called structural reform era of former Prime Minister Junichiro Koizumi. Unchecked, we are soon in a 1930s' style Great Depression.

Fortunately, U.S. policymakers have in the past week or so finally begun to realize this danger. They realize that low or even zero interest rate monetary policies are no help. You have to go fiscal — push as much money as you can into every corner of the economy that needs it. Stop the rot.

But for a long time those realizing this need were an endangered species, accused simultaneously of bankrupting the nation and encouraging red-hot inflation. As recently as early October, the ever-conservative Wall Street Journal was able to run a column entitled: "We Won't Suffer a Japanese Deflation." The risk here and now is inflation, wrote one David Gitlitz.

Even as late as early November, an article by Samuel Brittain in the Financial Times urging massive government spending was seen as rather iconoclastic (even if that rather conservative paper was good enough to publish an approving response from myself). The move to what we see now — what some call the "helicopter approach" of scattering money in the billions, even trillions, in every direction — was not made before U.S. authorities repeated a few other Japanese mistakes.

To begin with, the original U.S. rescue operations were far too piecemeal — a classic example of too little, too late. As in Europe, there was also too much reliance on the low interest rate approach, although British Prime Minister Gordon Brown, a rare example of an economist as prime minister, realized early on the need for more drastic moves.

Then there was the psychological damage caused by allowing Lehman Brothers to collapse, which matched the damage caused by the premature collapse of Japan's Yamaichi Securities in 1997. The U.S. also took much too long to clamp down on "trash and cash" — the focused short-selling techniques of the hedge funds — which brought several of Japan's banks to their knees during the Koizumi years.

And like Japan, many in the U.S. have still to realize the harm caused by mark-to-market accounting which, incidentally, caused the Yamaichi collapse, cheered on by the usual claque of free-market fundamentalists.

The one saving grace in all this is the current U.S. revulsion against the financial cowboys who caused this disaster. But will it last?

As in the U.S. after the Vietnam War, the "best and brightest" may have been discredited. But as in foreign affairs, where in the so-called war on terrorism we are seeing a repetition of the same ignorance and mistakes that led to Vietnam, it is only a matter of time before the discredited return. The textbook fundamentalists could soon be back in command. Their weapon will be the complaints I mentioned earlier — waste of public funds and the danger of inflation.

With honorable exceptions such as the Japan Economic Recovery Association people supported in the past by current U.S. Federal Reserve Chairman Ben Bernanke and several other top U.S. economists, most fail to realize that governments have every right simply to create the money needed for recoveries, either by themselves printing money or by forcing central banks to cooperate. Taxpayer funds are not needed.

And, as in Japan, funds provided may well be repaid with interest, once recovery gets under way. As for inflation, governments also have the tools to clamp down on that problem too once recovery gets under way — provided once again they do not move too little, too late.

Discuss this Article

 だが、どれだけの金が必要なのか。アメリカは日本の失われた十年の中心的教訓 つまりデフレ的スランプと景気後退的スランプとは大きくちがうということ を学ぶのに非常に時間がかかった。景気後退のスランプは自己修正する傾向がある。 資産の価格が下がればリターンが増大する、すると投資家が参入してくるので、価格は回復する。あるいは、1990年代末のアジア金融危機のとき見たように、通貨が下落すれば、輸出は拡大、経済は回復する。
 幸い、アメリカの政策担当者は、ここ一週間やそこら、ようやくこの危機を認識し始めた。彼らは低金利、あるいはゼロ金利政策では役に立たないことを認めた。財政を動かすこと 資金を必要としている全経済分野の隅々にまで資金を注入すること が必要だ。
 われわれの目の前でいま展開している動き 数十億、さらには数兆という金を四方八方へバラまく、人呼んでヘリコプター方式 は、アメリカ当局が日本のまちがいをいくつか繰り返した後にようやくの事だった。
 まずは、アメリカの最初の救済活動はあまりにもコマ切れすぎた。 少なすぎ、遅すぎ、の典型的な例だった。またヨーロッパと同じように、低金利方式への依存がみられた。イギリスのブラウン首相はエコノミストが首相になった珍しいケースで、早くからよりドラスチックな転換の必要を自覚していたのだが。
1997年に日本の山一證券を時期尚早に倒産させたことで生じたダメージにも匹敵するほどのダメージだった。アメリカもまた、トラッシュ&キャッシュ(壊して儲ける) 集中的な空売りで稼ぐヘッジファンドのテクニックで、小泉時代に日本の銀行をいくつも倒産寸前にまで追い込んだ前科のある手法 を規制するのに時間をかけすぎた。
 そしてまた、日本と同じで、アメリカもまた時価会計のもたらす弊害をいまだに理解していない人が多い。 因みにこれは、自由市場原理主義者の取りまき達にもてはやされて山一を倒産させたものでもある。
 ベトナム戦争後のアメリカのように、ベスト&ブライテストたちは面目を失墜したかもしれない。だが、外交と同じで、ベトナムへとつながった同じ無知とあやまりのくり返しが、いわゆるテロとの戦いにおいても、われわれの目の前に展開している。失墜したはずの面々が返り咲くのは時間の問題だ。教科書原理主義者が、すぐに指揮の座に戻ってくる可能性がある。彼等が武器と頼むのは、私が先に述べた不満 公共資金浪費とインフレ懸念という不満 だろう。
 日本経済復活の会などの尊敬すべき例を除いて、過去において、現FRB(米連邦準備理事会)議長ベン・バーナンキや米トップエコノミスト数名に支持されている面々の大半は。政府が、回復に必要な金を簡単に作り出す権利をしっかり持っている 自身が紙幣を印刷してもよいし、中央銀行に強制的に協力させる方法もある ことを理解できずにいる。納税者による資金は必要としないのだ。