The Hobbesian Salutes the Japanese!
I’m proud of the Japanese, they are breaking free from the neoliberal rhetoric and have taken control of their own destiny. For over 20 years the economy of Japan has suffered, deflation has crushed opportunities, their business has stagnated, their future looked bleak. But a new wind is blowing in Japan these days. The government of Shinzo Abe has embarked on a bold expedition, dubbed “Abenomics” the Japanese government is finally doing what it should have done years ago. The Japanese currency, long suffering from deflation has devalued substantially, from around 77 yen to a dollar in November 2012 to 99 yen per dollar (US) today. Spending has increased as well, government bond buying is putting money into the economy, corporations are becoming more competitive( partly due to the devalued yen), the Bank of Japan has even talked about the possibility of buying corporate stock! I love it.
The Nikkei has been soaring, and the fundamentals are all improving. But the Japanese progression has not just been a financial upswing, there is also a cultural uplift as well. The Japanese people are reinvigorated once again, spending is up, people are investing, this is a national effort towards a better future. All of this coincides with the election of Shinzo Abe, who many call a right wing nationalist. The Nationalism of his government is putting Japan first.
Like all economic developments, the Japanese resurgence has its naysayers. The neoliberals and laissez faire ghouls have predicted that the Japanese bond market will disintegrate, their currency fall apart and their stock market implode. These people were also the same ones who wrongly predicted that this would happen in America as well, and many of them are also the same ones who applauded European Austerity.
But those of us who know better see things differently. The stagnant growth and deflation helped fuel a liquidity trap in Japan for many years. If stocks are down, bonds virtually yield less and a currency that is constantly deflating, simply holding on to your cash could make you wealthier than actually investing it. Simply lowering interest rates and increasing the money supply may not be enough, there are times when the state needs to take action.
The Japanese are taking action, the government is making a concerted effort to embark on a Keynesian growth experiment, and it just might work. A similar event occurred in the 1930s, while the world was in the throes of a global financial crisis, one country bolted ahead from the rest of the pack: Germany. The German economic policies of the early to mid-30s were essentially Keynesian in their nature: easy monetary policy, infrastructural investment and stimulus to help private corporations and boost employment. By 1936 Germany had the strongest economy on earth. Although the economic policy of the Nazis were essentially Keynesian, Keynes himself was hesitant to point this out, as he didn’t want to be give any credit to the Nazi regime, but even the staunchest opponents to Nazism will tell you that their economy did improve in those years, while the austerity ridden countries remained stagnant. This is not to suggest that Nazism is actually a good thing, the Nazis were an awful and terrible regime. But their example does prove stimulus led economic recoveries are in fact possible.
Another interesting parallel is that both Abe and the German regime were right wing rather than left wing. This is interesting because in America and Europe most of the advocates of an active fiscal policies are big old bleeding heart liberals like Paul Krugman. The right wing in America and Europe has become thoroughly anti-government in their view of the economy along with their other ridiculous views on hyperinflation and central bank bubbles. So far the right in both America and Europe have been a major stumbling block for any kind of meaningful stimulus as of late. The tea party blocks all bills in the states and Angela Merkel, well she’s just a bitch.
Perhaps the key to a true turn around Keynesian miracle is to get the right wing on board. It would make sense, conservatives are big blowhards when it comes to culture, and they really buy into the whole nationalism and patriotism and sense of duty to one’s country. Liberals on the other hand are not going to get all choked up about these things. They may care about helping the poor and middle class, but they certainly aren’t as focused on making their country “the best”. Maybe there is a difference between simply throwing money at something for stimulus (like what Obama did) and rousing the animal spirits like Abe is doing. The US may have had a stimulus program but Obama certainly hasn’t stoked the animal spirits here, in fact if anything our cultural fabric is becoming even more pulled apart.
The Japanese bull market is not just a regular bull market, it’s a cultural transformation. People aren’t just altering their spending habits, they are altering their state of mind. After all, true prosperity is not just in the numbers, its in the Gemütlichkeit. Economic progress requires not only growth in production, but an increase in confidence and motivation as well. The Japanese know that this may be their last chance to truly break free from the economic stagnation they have been suffering over the years, so its all in at this point. If their efforts work out it will make the case for such efforts in Europe and America stronger. I am skeptical though, the right wing here is so entrenched in their anti-government nonsense that it may be hard to overcome.
The only way that something like this could spread to America or Europe is if a spirit of cultural unity reawakens, and people learn that rather than simply being self-absorbed individuals, that through the government they can achieve a greater strength. It will really only be possible if the conservatives return to their senses and abandon the anarchism that has hijacked the right wing in America. Either way, we still salute the Japanese, we are rooting for them, and hopefully the Japanese bull market will become the Japanese miracle.
“Maybe there is a difference between simply throwing money at something for stimulus (like what Obama did) and rousing the animal spirits like Abe is doing. The US may have had a stimulus program but Obama certainly hasn’t stoked the animal spirits here, in fact if anything our cultural fabric is becoming even more pulled apart.”
Exactly. Spending that is not going to raise expectations (so that people become optimistic of investing, spending, and borrowing) is pointless. It does suck that the majority of the right wing in the US has been influenced by the libertarians and now take as given that everything that government does is bad, especially when talking about active government policies to help reduce the impact of certain negative externalities. The last decent ring winged US president is Eisenhower
And I think this view of reducing government’s role , especially in the economy, is itself an anti-right winged mentality. It ruins the whole notion of civic virtues, for example. They still hold onto the label of “right wing” or “conservative” but ignore the political philosophy that goes with that label.
“Exactly. Spending that is not going to raise expectations (so that people become optimistic of investing, spending, and borrowing) is pointless.”
-I would think that most Keynesians would say that at the very least it prevents things from getting worse, so as to not be entirely pointless. For example, just because there is a liquidity trap doesn’t mean that we should go back to a tight money policy since a loose one won’t boost us, since a tightening of money would make things worse. But its important to realize that the liquidity trap itself is based on expectations, and those expectations can come from a variety of sources, whether purely market based (I don’t trust the health of the finance sector) or something that is entirely outside the market place (I think a war is coming, I think the climate is changing, I think our government is ill equipped to deal with the challenges of our era). If its the latter, then yes, simple investment and spending is not going to change that, the real key is to combine the stimulus with some kind of reparative measures to show that those real expectations should be changed. I will probably write a blog about this one time, but my primary theory for the major business cycles (the big crises like 1929 and 2008) is that it primarily comes down to technological advancement outpacing institutional structures so that our institutions are ill equipped to deal with the challenges of the new world they are in. This can be seen in the outdated tactics of WW1, the poor response to 1929, and the inability of governments today to properly deal with this recession. In my opinion the current market rut and lack of improved expectations is ultimately a political problem, with the governments of Europe, America and Asia (including the middle east) being unable to solve simple problems in an effective way. If people were shown some sign that the governments of the world could be able to handle the political, economic and ecological problems facing our species I am convinced markets could snap out of this funk rather quickly. But in the mean time, I still support easy money policies and infrastructural investment if not for the sake of keeping us afloat.
“And I think this view of reducing government’s role , especially in the economy, is itself an anti-right winged mentality. It ruins the whole notion of civic virtues, for example. They still hold onto the label of “right wing” or “conservative” but ignore the political philosophy that goes with that label.”
That’s true, and I actually have a new blog post I’m working on that tries to show that Liberals are really the new conservatives, at least in America. Right wing and Conservative, and Left wing and Progressive are not always interchangeable terms. Also, the role of government for the conservative depends on the kind of conservative. Paleo-conservatives of the Old Democratic party were always highly skeptical of the federal government. While traditional conservatives were supposed to trust it. But both of these are still conservative. See Conservatives ultimately oppose change, whether it be political, economic, cultural, etc. So getting rid of the government would be contrary to the notion of “keeping things the way they are”, which is what traditional conervatives want. But Paleo-Conservatives are more reactionary, and they see a government that is actively changing society. Ever since democracy and republicanism have taken over, governments have been more egalitarian, and focused on helping the poor and minorities. There is no doubt that things like the Civil Rights Act have radically altered our culture and economy. So the Paleo-Conservative sees the government as a threat to the old order, because quite frankly, it is. The Liberal wants to see this change. The Right wants a hierarchical society, the left wants a less hierarchical society. I would say that the current anti-government mentality of the Right is in fact a resurgence of Paleo-Conservativism which really didn’t take off until the mid 20th century when our States became more focused on Civil Rights and equality for women, minorities, homosexuals, etc. But by calling for abandonment of these things, Paleo-Conservatives can also be radical. Which puts Liberals in the odd position of defending the government. And this makes me think that we could be going through one of those “switching” trends, like what happened in 60s where the Democrats became Left Wing and the Republicans became Right Wing. Democrats are now being more conservative, while Republicans are becoming more radical. Because 80 years in, things like the welfare state and finance regulations have become the status quo, and even if these institutions are progressive in what they do, defending them, in some ways makes you a conservative. A strange world indeed.