Japan Falls into Recession • Hacker News Board

Re: Japan Falls into Recession

#41

Post by jusben1369 » Mon, Nov 17, 2014, 2:52 AM UTC

efjhewjfnkew wrote: post #3

Here's the thing: you actually need a strong middle class to buy your products. No amount of artificially inflating the value of the stock market through quantitative easing will give you a healthy economy. QE is like putting a fresh coat of paint on a house with a rotten interior: it makes things look pretty, but the structural integrity of the building is almost non-existent. Employees working themselves to death f…

You only have to look at the US and Euro economies post 2008 to see the real world benefits of QE. Europeans went down the austerity route and are stuck with consistently underperforming economy and the threat of deflation. The US has turned the corner and is a job creating machine again including the first real signs of inflationary pressure through rising wages. The most unusual thing I can see about Japan is it's trying to take the US and Euro approach together at the same time. Their problem is deflation. Deflation tells consumers not to buy as you wait 6 months and it'll be cheaper. It's a deadly downward spiral. So the Japanese are trying to stoke their economy to create inflation which in turn spurs consumption. Yet they go into this with a massive amount of debt already so are raising consumption taxes at the very time they need consumption. Something has to give.

Re: Japan Falls into Recession

#42

Post by TulliusCicero » Mon, Nov 17, 2014, 2:55 AM UTC

a8da6b0c91d wrote: post #37

techdragon wrote: post #18

Earlier quoted context omitted.

Immigration is painfully unlikely due to cultural issues. It's oft suggested by non Japanese people looking at the problem but at least from what I can see, the majority of the Japanese voting public don't want immigration. There's reasons if you want a fun read. Particularly interesting is the history of people of Korean decent who are native Japanese residents for a generation or two.

> the majority of the Japanese voting public don't want immigration The vast majority of the American public don't want it either, but businesses do, so it happens anyway.

Nah, almost all Americans are fine with at least a moderate amount of immigration. The contention about immigration is mostly about whether we want to let in huge numbers of skilled workers in, and what to do about undocumented immigrants.

Re: Japan Falls into Recession

#43

Post by dimitar » Mon, Nov 17, 2014, 2:56 AM UTC

Here is the common ground and controversy between most economists on the situation, I think it is interesting how much common ground there is:

The common ground:

* The government of Japan faces budget constraints; it cannot tax more than a certain amount and that includes seigniorage (taxing using inflation).

* Right now Japan doesn't seem to be immediately close to those constraints since interest rates and inflation are low.

* Lowering taxes, spending more and depreciating the currency will expand the economy, but rates will increase and so will inflation (among with wages).

* Inflation expectations can create actual inflation. It can be generalized that different people will demand higher prices in advance if they can, since they know their costs will rise. The same applies to interest rate and there is a link between them (investors demand higher yields if inflation is expected).

* Default and excessive inflation can be a result of too much expansionary policy (eventually, what is too much is up for debate), but they can destroy the gains and make the economy worse off.

The disagreement (you can see that its actually a spectrum of opinion and there are differences between the details of the policies, but for clarity I've divided them neatly into two camps):

* School A believes expansionary policy will make Japan default because the government will have lost control, since expectations can make interest rates and inflation jump rapidly. They site that the level of Debt to GDP is over 200% as evidence. They say the government should not lose credibility or else.

* School B believes that the expansionary policy is so hard to actually pull off that some expectations of inflation and higher rates are desirable. Since rates stay low and deflation is always around the corner it seems that the government can easily reverse too much expansionary policy, far before a default appears to be likely. Additionally Increased GDP will bring more revenue, decreasing the need to rely on inflation after a certain point. They joke that the "government should credibly promise to be irresponsible" to get out of the bad equilibrium that is the lost decades.

-----

A political compromise appears to have been made by mixing expansionary policy with the decision to increase the sales tax. Since this caused a recession school B feels vindicated - getting to a default and inflation path is really hard. Interest rates and inflation refuse to bulge.

However the lack of progress will add even more to the debt to GDP, perversely aiding school A (even thought some of them might agree that B were right in the previous period). So the end result has been 20 years of the government oscillating between those two positions, without reaching a point where either side can victory (default or significant GDP growth).

Re: Japan Falls into Recession

#44

Post by desdiv » Mon, Nov 17, 2014, 2:57 AM UTC

deciplex wrote: post #24

techdragon wrote: post #18

Earlier quoted context omitted.

Immigration is painfully unlikely due to cultural issues. It's oft suggested by non Japanese people looking at the problem but at least from what I can see, the majority of the Japanese voting public don't want immigration. There's reasons if you want a fun read. Particularly interesting is the history of people of Korean decent who are native Japanese residents for a generation or two.

It's often suggested that Koreans in Japan are somehow deprived of Japanese citizenship. This is not true. Rather they are not allowed to naturalize in Japan while retaining their Korean citizenship (yes, I realize that is not the whole story and there is a lot of history there - nevertheless, there is nothing stopping a Korean who has lived in Japan long enough, or was born there, from acquiring Japanese citizenship…

Up until 1983 you couldn't naturalize unless you adopted a Japanese family name. Maybe that's what OP was referring to.

Re: Japan Falls into Recession

#45

Post by rrggrr » Mon, Nov 17, 2014, 2:59 AM UTC

oska wrote: post #33

rrggrr wrote: post #19

Demographics. Fukishima. China. Japan faces enormous challenges. Aging population means increased healthcare costs supported by a (temporarily) declining workforce and decreased tax revenues. Fukishima's costs are incalculable but impact broadly healthcare, manufacturing, farming and fishing. Much Japanese manufacturing has moved to China and adding to that expense is Japan's need to increase its defense spending to…

> adding to that expense is Japan's need to increase its defense spending to provide a small measure of balance in its territorial disputes with its neighbor Japan's military spending is 7th or 8th largest in the world, depending on who's measuring it. [1] Any conflict with China that actually goes beyond posturing is going to be a small scale skirmish. If that happened both countries would rapidly seek to de-escalat…

I would categorize Russia's incursion into Ukraine as small scale, and with that deescalated conflict as a recent guide, I think it makes sense for Japan to invest heavily in defense for regional stability.

Re: Japan Falls into Recession

#46

Post by tsotha » Mon, Nov 17, 2014, 3:00 AM UTC

logfromblammo wrote: post #34

efjhewjfnkew wrote: post #8

Earlier quoted context omitted.

I didn't mean for it to be interpreted too literally. Since QE increases the value of the stock market at the expense of a currency's value, it is actually eating away at the wealth and savings of individuals and redistributing it to stockholders. These stockholders tend to already be quite wealthy themselves. Herein lies the problem. Very wealthy individuals tend to spend a much smaller fraction of their accumulated…

This is correct. The concentration of capital grows so large that the owner literally cannot spend it faster than it grows. If it was simply vaulted and ignored, deflation would result, from that cash being removed from circulation. Thanks to our central banks, any deflation pressure is seen as a license to print more money, which is a tax on non-circulating savings. To avoid this, holders of cash do their best to in…

In theory investment creates jobs by providing companies the cash they need to grow. But right now the government is flooding the financial markets with newly created money, so investments by wealthy people probably aren't having any effect.

Re: Japan Falls into Recession

#47

Post by lovemenot » Mon, Nov 17, 2014, 3:04 AM UTC

rrggrr wrote: post #19

Demographics. Fukishima. China. Japan faces enormous challenges. Aging population means increased healthcare costs supported by a (temporarily) declining workforce and decreased tax revenues. Fukishima's costs are incalculable but impact broadly healthcare, manufacturing, farming and fishing. Much Japanese manufacturing has moved to China and adding to that expense is Japan's need to increase its defense spending to…

These challenges are indeed real and enormous, as you point out.

Nevertheless, we should also keep in mind Japan's proven ability to utterly transform itself in a short time. Meiji and post-WWII are two precedents. Each of these change events required the following conditions:

- clear development model to proceed towards

- external pressure creates (perceived) existential threat

Such conditions do not pertain in Japan now, yet they may do so again in the future. I feel sure that the first is a necessary condition to transformative change. The second condition is perhaps optional.

Re: Japan Falls into Recession

#48

Post by tsotha » Mon, Nov 17, 2014, 3:06 AM UTC

jvm wrote: post #32

techtivist wrote: post #28

Here's the biggest underlying problem. Contrary to what one would expect, Japanese firms are actually flush with money, but due to Abenomics, the weakness of Yen means they are investing more and more abroad, rather than putting the resources in improving its own infrastructure. We all know about Softbank's recent investments in India and South East Asia. And it's not just limited to Tech or even the private sector,…

> the weakness of Yen means they are investing more and more abroad Shouldn't a weak yen make it cheaper to invest at home relative to abroad? What's the mechanism that causes the opposite effect?

If your investment generates profit you'd rather have that profit in USD or Euro than a weak yen, particularly if the yen is weaker when the investment pays off than when you invest.

Re: Japan Falls into Recession

#49

Post by kyledrake » Mon, Nov 17, 2014, 3:09 AM UTC

jusben1369 wrote: post #41

efjhewjfnkew wrote: post #3

Here's the thing: you actually need a strong middle class to buy your products. No amount of artificially inflating the value of the stock market through quantitative easing will give you a healthy economy. QE is like putting a fresh coat of paint on a house with a rotten interior: it makes things look pretty, but the structural integrity of the building is almost non-existent. Employees working themselves to death f…

You only have to look at the US and Euro economies post 2008 to see the real world benefits of QE. Europeans went down the austerity route and are stuck with consistently underperforming economy and the threat of deflation. The US has turned the corner and is a job creating machine again including the first real signs of inflationary pressure through rising wages. The most unusual thing I can see about Japan is it's…

I agree. They eased and increased taxes at the same time, which was not a smart move. Now they're back to square one, and they don't have much room left to maneuver because of the already high debt. If they wanted to accomplish their goal (more inflation) they should have stuck with the hail mary, rather than changing the play right in the middle of it.

This, plus Japan's anti-immigration policy and rapidly ageing population, spells a pretty bleak future for Japan. They need some really radical reforms, not just economic policies that devalue their citizen's purchasing power and then get cancelled out by a huge raise to the consumption tax less than a few years later.

What Japan really needs is a major reform of their overbloated corporate and banking infrastructure, combined with less-xenophobic immigration policies and improved workforce participation by women, but I'm not holding my breath.

Re: Japan Falls into Recession

#50

Post by mc32 » Mon, Nov 17, 2014, 3:15 AM UTC

a8da6b0c91d wrote: post #37

techdragon wrote: post #18

Earlier quoted context omitted.

Immigration is painfully unlikely due to cultural issues. It's oft suggested by non Japanese people looking at the problem but at least from what I can see, the majority of the Japanese voting public don't want immigration. There's reasons if you want a fun read. Particularly interesting is the history of people of Korean decent who are native Japanese residents for a generation or two.

> the majority of the Japanese voting public don't want immigration The vast majority of the American public don't want it either, but businesses do, so it happens anyway.

It's more than not wanting immigration in Japan --they're allergic to it. It's very, very hard to be in Japan illegally. Police do immigration raids routinely --the only way to be in Japan illegally is to work for the local mob --where they take a cut of your measly income. And legal immigration is less than one tenth of that of the US, for example. the situation is not comparable.