On the public choice of Abenomics

Sober Look reports:

Price increases have been driven by weaker yen rather than pricing power improvements of domestic producers. Japan is generating the “wrong” kind of inflation…The combination of declining or stagnant nominal wages and rising prices is creating serious hardships for the nation’s citizens.

Electricity and fuel prices are way up, for instance, as you will see in his graphs.  Contra Sober Look, I suspect this is the way Abenomics is “supposed” to work, and it hearkens back to a long tradition of Japanese policy toward “forced savings,” dating at least as far back as the 1930s.  Still, this decline in real consumption opportunities is exactly why I think there will be practical limits to Abenomics as a sustained strategy for economic growth.  It is rewriting real wage contracts for most workers, and most of them will never get that consumption back or bargain back to the old real wage.  Many exporters will be better off.

And by the way, if you exclude the cost of energy, there is still deflation in Japan.

Comments

If it's just energy, politically a lot of it may be received as part of the nuclear debate rather than as part of the broader economic-direction debate.

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Funny how it never sold the way it is "supposed to work".

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You can get more data here if interested - http://www.stat.go.jp/english/data/cpi/1581.htm - column M rows 70 through 81 is the Japanese equivalent to Core CPI for the past year (minus fresh food and energy). 平成24年 and 平成25年 are 2012 and 2013. 8月 means August.

Deflation in this index has basically halted (-0.1% from -0.6%) which is some progress with all the gains coming in the last three months. This still includes many imported goods, so perhaps inflation that was pretty immediate in energy prices just took a bit more time to appear in imports as inventories ran low and were replaced with purchases by weaker yen?

Living in Japan for the past year, my myopic observations were that energy almost immediately spiked with the yen devaluation (it's all imported here in Okinawa) and nothing else changed including the price of imported goods. I've also seen a lot of new business activity related to the mostly-domestic tourist industry and have seen an increasing number of foreign tourists... at least at the very-local level Abenomics seems to be going as expected with respect to international trade.

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If you ask what drives Japan's success in exports the answer would be selling increasingly energy efficient transportation. So, Abenomics does ask for one more push in efficiency advances. History in the post war predicts the Japanese can do it. But the law of diminishing return makes this more problematic each time they try it. I am voting they can pull it off one more time.

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If one excludes enough goods prices, one will always have deflation, unless one has sufficient inflation. :-)

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"I think there will be practical limits to Abenomics as a sustained strategy for economic growth"

I don't think Abenomics is aimed at long term GDP growth as much as it's related to moving NGDP into a range that is controllable by the BOJ. That's all MMT can claim to deliver anyway, right? You've got to go supply side for long term improvements.

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Price inflation through credit expansion has always had more negative effects that positive. Monetary economists have been guilty of providing asymmetric information by promoting the benefits while ignoring the costs.

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