Tuesday, Feb. 1, 2011

A contrarian view of how 'austerity' bleeds Japan

With the Standard and Poor's downgrading of Japan's long-term credit rating from AA to AA minus, the focus even more is on how the economy can get out of its current deflationary quagmire.

For most of the 1970s and '80s, Japan had no quagmire. It followed sensible Keynesian economic polices — fiscal stimulus when the economy was down, restraint when overheated.

The postwar generation of economists was raised on Keynesian principles. One reason I know this is because my father, British economist Colin Clark, who had worked with Keynes in the 1930s, was a frequent and welcome visitor to Japan. His ideas featured in all Japanese school textbooks. He was often invited to talk and write by the then progressively minded Nihon Keizai Shimbun (Nikkei), Japan's leading economic mouthpiece. One of his students was a young Finance Ministry official, Kiichi Miyazawa.

Popular legend today says increases in public spending during this Keynesian period created the national debt problem we see today. That is completely false. The figures and graphs show clearly how throughout that entire period government tax revenue increased at almost exactly the same pace as government spending. Public debt also increased, but at a rate much less than the rate of inflation.

True, the immediate post-"bubble" years of the early '90s saw a large increase in public debt. That was inevitable, given the fall in tax revenue as land prices collapsed and the need for stimulus polices to help the economy recover. Those Keynesian-style policies worked. And the prime minister for much of this period? None other than Kiichi Miyazawa.

By the end of 1995 the economy was registering a 4 percent growth rate. The soft landing in land prices badly needed to rescue the banking system seemed likely. Things only began to go downhill with the anti-Keynesian, fiscally restrictive policies of the Hashimoto administration (1996-98). One reason for the change was concern over the post-bubble increase in public debt. Another factor was more ideological — the prevailing U.S./U.K., anti-communist Reaganite-Thatcherite orthodoxy that said Keynesian economics were out and supply-side economics (emphasizing small government, deregulation and market fundamentalism) were in.

Whether the West needed the new economics can be debated in the wake of the recent U.S./U.K./EU banking fiascos. Japan clearly did not need it. The economy went into a swoon. Tax revenues plummeted. Ryutaro Hashimoto's pledge to cut new borrowing to zero was quickly forgotten. Public debt began its spectacular increase.

There was a brief but very successful return to normality under the Keynesian stimulus polices of the Obuchi-Mori administrations (1998-2001). But the economy quickly resumed its supply-sider tailspin during the Koizumi regime (2001-06). Severe spending cuts triggered a chain-reaction collapse much worse than that under Hashimoto: Falling land prices caused an increase in bad bank loans leading to increased bankruptcies, a further decrease in land prices and further declines in tax revenue.

The Koizumi era saw a massive ¥200 trillion increase in the very public debt that the policies were supposed to reduce (today the debt exceeds ¥900 trillion). The economy was only rescued by its usual reliance on exports — that is, foreign demand rather than domestic demand.

The disastrous Koizumi years led Tokyo to realize vaguely the need to return to Keynesian-style stimulus policies. But they were halfhearted. Conservative anti-stimulus instincts remained strong, especially with the very influential Nikkei group, which had made a complete about-face, even to the point of telling us that Keynesianism was an anachronism.

So government revenues continued to fall. Debt continued to rise. Japan moved firmly into the impasse we see today.

Supply-side economic policies can make sense in economies where private consumer and investment demand are buoyant enough to take up the slack from government spending cuts. They may even be a useful antidote to bad Keynesian policies that encourage excessive government spending and control. Even then, they walk a fine line.

Severe cuts in government spending — austerity as it is now called — can easily depress an economy to the point where cuts in tax revenue exceed cuts in government spending. Deficits increase rather than decrease, as we see in Greece today and in Japan under Hashimoto and Koizumi.

Calls for austerity policies sometimes refer to the economy as a car headed for the canyon of yawning fiscal deficits unless the brakes are rapidly applied. The true analogy is very different: When your car hits a skid what should you do? The instinct is to brake hard, but any good driver will tell you how that only worsens the skid. Instead you should accelerate and drive out of the skid, as Japan did so successfully during its brief Keynesian post-bubble recovery period. Put on the brakes later, if needed. Think contrarian.

Sadly our policymakers often cannot think contrarian. Ever since the Hooverite policies that led to the U.S. Great Depression of the 1930s, they want instinctively to hit the fiscal brakes that serve simply to worsen a recession.

In Britain and Europe we hear happy talk about how austerity policies will somehow save the day by encouraging enough confidence to increase private spending and investment. That's nonsense. American economist Paul Krugman rightly calls it the "confidence fairy."

True, the Europe and U.K. economies may be able to muddle through since, unlike in Japan, consumer confidence is hard to dampen, even in recessions. People eventually will always want to spend. The economies also enjoy the stimulus of the currency devaluation caused by their mistaken policies. And sensible financial policies — lower interest rates, quantitative easing — can counter the harm caused by mistaken fiscal policies.

Japan's situation is very different. Cultural factors, and now population decline, continue to suppress consumer demand. Current plans to increase the consumption tax will only encourage a chronically purse-tight population to cut spending further. Interest rates cannot go lower, and pushing money into the hands of banks and firms that do not want to lend into an already thoroughly depressed economy simply encourages them to buy more government bonds.

Many, Nikkei especially, seem to think that innovations and productivity improvements will save the day. Few seem to realize that in the real world of business, firms will not invest unless they see rising demand for their products. Under the current deflationary situation, that is just not going to happen.

Any solution needs to take account of Japan's special problems:

• Excessive accumulated savings: Personal financial assets sitting in bank deposits and cash still exceed an enormous ¥600 trillion. This means governments are still obliged to borrow some of that money and spend it simply to remove deflationary pressures.

• Chronic lack of demand: Everything should be done — deregulations especially — to encourage Japan's reluctant consumers to spend more and allow firms to invest more. A sensible immigration policy would help. The reverse mortgage systems popular in the United States and Europe would dramatically increase spending by the elderly.

• Copy-cat mentality: More than elsewhere, people are influenced by what others do or say. Recessions intensify naturally as a result. If tax increases are needed, then demand-killing consumption taxes should be replaced by specific product and service taxes that are levied at the source and do much less to antagonize flighty consumers.

Finally, if all else fails, and it will almost certainly will, think contrarian, again. Think about shock therapy — the massive injection of public spending proposed by Shizuka Kamei, leader of the small coalition People's New Party. Last year he called for a ¥100 trillion injection in the budget. All he got was ¥1 trillion.

With shock therapy it is crucial that the funds concentrate on projects with strong employment and spending multiplier effects — noncorruptible public works for example, or even kindergartens, rather than pensions and welfare handouts.

The copy-cat syndrome means that, in Japan, positive multipliers can have very strong stimulatory effects, as we saw during the bubble years. Indeed, it is quite possible that a massive stimulus would, via multipliers, expand both the economy and government tax revenue enough to cover the cost of the stimulus. Debt levels would fall, not rise.

Do not expect such contrarian common sense to prevail. Foreign and conservative criticisms over the debt will push the planners even further back into their shells. The AA minus rating will soon be A minus, or worse.

緊縮財政がいかに日本を弱くするか 逆転的発想


 1970年代80年代のほとんどを通じて、日本はこの泥沼を知らなかった。ケインズ流の分別ある経済政策 経済が落ち込めば財政刺激、過熱したら引き締め を採用して来たためである。



1995年の終わりには、経済は4%成長を記録した。銀行制度を救済するために不可欠な地価のソフトランディングは可能性が見えていた。だが、これが下り坂に転じるのは、橋本政権(1996 98年)で反ケインズ的な財政引締め政策が採られるようになってからのこと。この変化の一つの理由は、バブル後の公的債務の増加に対する懸念である。もう一つの要因はよりイデオロギー的なもの 当時巾を利かせていた米英の反共的レーガン・サッチャー・オーソドックス主義は、ケインズ経済学の時代は終わった、これからはサプライサイド(供給側)経済学だ(小さい政府、規制緩和、市場原理主義)と主張した。


 小渕、森(1998 01年)のケインズ流刺激政策によって正常に戻り、短いながらも非常に成功した時期があった。だが小泉体制の下で(2001 09年)経済はすばやくサプライサイド派たちの堂々巡りに戻ってしまった。厳しい支出抑制で、橋本政権下をはるかに上回る破綻の連鎖反応を引き起こした。:地価下落によって、銀行の不良債権が拡大、それが破産の増加、地価の更なる下落、税収の更なる落ち込みへつながった。

 小泉時代には、公的債務を減らす政策のはずが、逆に200兆円も大幅に拡大した。(今日債務は900兆円を越えている)経済は例によって輸出に頼ることで つまり内需より外需で 辛うじて救われた。




 政府支出の厳しい削減は 緊縮と今では呼ばれているが 経済を冷え切らせ、税収減が、政府支出削減よりも大きくなってしまう事態にまで容易になりやすい。現在のギリシャの例、また橋本、小泉時代の日本の例が示すように、財政赤字は減るどころか拡大する。緊縮政策の提唱者は時々経済を、急ブレーキをかけないと口をあけて待ち受ける財政赤字という崖っぷちに突進する車に例える。正しい例は全くちがう。あなたの車が横滑りしたら、どうすべきか。まず本能は、ブレーキを強く踏むことだろうが、よいドライバーなら、それは横滑りを一層ひどくするだけと知っている。その代わりにアクセルを踏み、横滑りを脱出すべきなのだ。日本がバブル崩壊後の短期間ケインズ方式による回復期にそうしたように。ブレーキが必要なら、その後にかけろ。逆転して考えろ。



 たしかに、ヨーロッパとイギリスの経済は、日本とちがい、景気後退の最中でさえ消費者の自信は弱まりにくいので、何とか切り抜けることができるかもしれない。彼ら市民は結局は、常に消費したい気持をもっている。またそれらの経済はまちがった政策によって生じた通貨切り下げの刺激を享受している。そして適切な金融政策 金利引下げ、量的緩和、 が、誤った財政政策から生じた弊害に立ち向かうこともできよう。



過剰な預金蓄積: 銀行預金や現金という形で眠っている個人金融資産は依然として600兆円を越える膨大なもの。それが意味するのは、政府がデフレ圧力を下げるためだけにでも、この金を借りて使うことが求められているということだ。

慢性的需要不足: 日本の消極的な消費者にもっと金を使わせ、企業にもっと投資を促すために、とくに規制緩和を含め、あらゆる可能な手を尽くすべきだ。適切な移民受入れ政策も有効だろう。アメリカやヨーロッパで人気のリバース・モーゲッジ制度は高齢者に劇的な消費を促すだろう。

人まねメンタリティ: 他のどの地域にも見られない程、人々は他人のやること言うことに対して敏感に反応する。その結果、景気後退はより深く進行する。税収増が必要なら、需要を殺す消費税ではなく、気まぐれな消費者に水を差すことの少ない生産段階課税方式で、特定の製品やサービスに対する課税を進めるべきだ。

最後に、その他の手段が全て失敗した場合、そうなることはほとんど確実だが、もう一度逆転の発想に戻ろう。ショック療法を考えよう。 小党連合の国民新党リーダー亀井静香が提唱する公的支出の大規模注入がそれだ。昨年彼は、予算へ100兆円注入を提案した。だが実際に獲得したのは、わずか1兆円だった。

ショック療法では、資金は雇用と消費に強い乗数効果を持つプロジェクトに集中することがカギだ たとえば、腐敗のない公共事業、さらには幼稚園/保育園さえ年金や福祉のバラマキよりはよいだろう。