Worswick, a very interesting article, but completely devoid of the special cultural and psychological conditions present in the Japanese situation, IMHO. Yes, BOJ has lost the ability to control aggregate demand with open market activities, because they got down so low on the interest rate curve that monetary actions is like pushing on a rope. Pulling on a rope works, but pushing leads nowhere.
Stitch, in response to your post on Sakakibara and his contention that Japan does not need anyone's else help. He is absolutely right, furthermore the rest of Asia is awaiting the onset of a depression if Japan does not come to the rescue. He is also right that Japan has the wherewithal to mount such a rescue, but that rescue has to be actualized by the 100 MM plus Japanese, not by BOJ or MOF.
I have posted before the steps I thought Japan needs to take to rectify the situation and get their engine going, and I have also voiced great doubts that Japan will indeed do so. However, if Japan is inclined to do what is necessary, what they need or not high finance individuals a la Rubin, but first grade marketeers a la Iaccoca.
How about a radical suggestion, mount an all out advertising campaign making it the "patriotic thing" to spend just 3% of stashed savings, for all people let say 40 or older. Japan has mobilized its population for worst causes than that in the past with demagogue like propaganda. That will put about $300 billion bucks where it is needed, aggregate final demand, without the need to increase the monetary base by an iota. One of the results of such an action will be to create a temporary trade balance deficit for Japan (which is the cardinal reason they will not do it and thus doom themselves to a lengthening of the current recession).
But, assume that Sakakibara listens to us and manage to get the Japanese "Pathos" over the fear of "foreigners" economic invasion. This should be only the step to restart the engines of this massive economy. Japan must think in terms of avoiding such a radical tool in the future. Therefore, they must set in motion a number of additional steps. Some of the obvious one have been noted by all:
a. Banking System. Restructure the banking system so that money can once more flow freely into the economy and find its most efficient use.
b. Create the background (a healthy Venture Capital infrastructure) for a dynamic economic infrastructure, capable of changing rapidly in response to what is going to be an economic environment that changes ever so faster. That includes the tools for gradual but continuous shifting of employees from old stale industries to more modern industries. Japan still has much too many farmers and assembly line workers for the second largest economy in the world
c. Distribution of Goods. The distribution infrastructure is not only rigged to counter market place forces, and exclude foreign competing goods, it adds to the costs of domestic goods sold such a large chunk that final demand of widgetts is impacted.
d. Flexibility of Investments. The Kiritsu (sp?) structure must be slowly replaced by a more "distributed" investment decision making structure (this change is tied to need of a mechanism of creating new enterprises mentioned above). Similarly, savings should be allowed to find their best competitive returns (which is already being addressed by the big bang of last April).
e. Proletarization of education.
Zeev |
