Japan needs deep seated cultural changes, especially ones directed to greater female empowerment and more openness towards immigration. Japan needs a series of structural reforms – like those under discussion around the third arrow – but these would be to soften the blow of workforce and population decline, not an attempt to run away from it. Monetary policy has its limits. As Martin Wolf so aptly put it, “you can’t print babies”.
Author: Edward Hugh
Japan’s deflation problem is overdetermined – there are multiple causes at work, any one of which could account for the observed phenomenon. Those who have been following the debate can simply choose their favourite – balance sheet recession, liquidity trap, fertility trap – each one, taken alone, could be sufficient as a cause. But I would here like to use the term “overdetermination” in another, less technical, sense, since it seems to me Japan’s problem set is overdetermined in that we always seem to be facing at least one more problem than we have remedies at hand.
The aim of the above header is to link two names in people’s minds, both of them Italian: Mario Draghi and Matteo Renzi. Naturally the idea is not original, the FT’s Peter Spiegel recently published an entire blog post (Does Renzi owe his job to Draghi?) trying to establish some sort of connection between the arrival in office of Italy’s Matteo Renzi and the recent German Constitutional Court ruling. But this post is not about rumour, it is about coincidences.
Against a backdrop which offers an eerie parallel with events which took place somewhat to the North more than 30 years ago, Catalonia is now threatening to separate from Spain. In so doing the region seems to be putting at risk both the future of the host country and beyond that the outlook for the Euro currency and the process of European unification.
The recent IMF proposals to help stimulate growth and job creation in Spain at least deserve serious consideration. What the IMF are saying is that if you leave the situation as it is then growth will not be sufficient to make any significant change in the unemployment rate. Thus they estimate that on the basis of present policies the rate will still be 25% in 2018.
What follows is an interview I did over the summer with the Madrid based publication The Local.
Czech voters are deeply dissatisfied and in a highly skeptical mood, since following seven quarters without growth the country’s economy is evidently stuck in the doldrums. The worst part is things look highly unlikely to improve anytime soon.
In a number of posts recently I have highlighted the impact of declining workforces on economic growth and the way the policies pursued to address the Euro debt crisis are having the impact of accelerating the movement of young people away from the periphery and towards the core thus accelerating the decline in their working populations and exacerbating their growth problem.
There is an experiment being conducted in Japan, but the experiment isn’t Abenomics (which I suspect won’t work, and could end very badly). No, the experiment is about learning to grow old with dignity, not as individuals, but as societies.
Japan is stuck in a shrinking population trap, and neither monetary nor fiscal policy will adequately solve the problem. Continuing to run fiscal deficits in a deflationary environment will only means that government debt is pushed onward and upwards leading to a variety of possible scenarios as to what the end game will finally be. Reining in the deficit, by raising consumption tax, for example, will probably only make deflation worse with a one year time lag, as happened in 1997, and will almost certainly force the economy into more economic shrinkage which in any event makes the debt issue worse.
The current crisis – which is arguably no longer a crisis but rather a way of life – has all now gotten so complex that the issues involved are almost certainly, and in principle, “beyond their ken.” Spain’s economy will continue to march boldly forward towards what now seems almost guaranteed to be long term decline, while from within the captain’s tower, far from an acceptance that what is happening really is happening, we will continue to hear yet one more crazy and implausible story after another telling us “if only this”, or “if only that” even as representatives of the Plataforma de afectados por las hipotecas (or equivalents) start to assemble outside the local version of the winter palace looking for their hides.
By Edward Hugh According to the Economist’s Buttonwood, “desperate times require desperate measures”. I am sure this is right, times in Spain are certainly getting desperate and many of the measures being implemented in Brussels, far from representing radical and innovative solutions look much more like continually closing the barn door after the horse has bolted. The issue Buttonwood draws […]