The public choice approach to monetary policy

It remains neglected, even today.  Yet Martin Fackler is on the case when it comes to Japan (or try this link):

By speeding the flood of less expensive imported products into Japan, the strong yen is contributing to a broader drop in the prices of goods and services, known as deflation, that has helped retirees stretch their pensions and savings. The resulting inaction on the yen, according to a growing number of economists and politicians, reflects a new political reality, with already indecisive leaders loath to upset retirees from the postwar baby boom who make up nearly a third of the population and tend to vote in high numbers.

‘‘Japan’s tolerance of the strong yen and deflation is rooted in a clash of generations,’’ said Yutaka Harada, a professor of political science and economics at Waseda University in Tokyo. ‘‘And for now, the seniors are winning.’’

The problem, many economists warn, is that the victory comes at a high price, mortgaging the future by hastening the hollowing out of the economy as companies move abroad, and contributing to the deflation that has already exacerbated a nearly two-decade decline in Japan. It may also, ultimately, be self-defeating, threatening the very industries that created the huge trade surpluses sustaining Japan’s still comfortable living standards.

How many major political battles do the elderly actually lose?  I get a little worried about the conflation between nominal and real, and the blurring of short- vs. long-run time horizons, but still this is a point worth making:

‘‘The strong yen robs from youth, but there is not much awareness here yet of generational inequalities,’’ said another lawmaker, Keiichiro Asao, with the opposition Your Party.


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