>Sometime this week there was a story in the WSJ about Krugman's
>recommendation that Japan should print yen madly. What would the class or
>distributional consequences be of the resultant inflation? Would such a
>strike against deflation and reduction in real interest rates indeed yield
>that elusive investment boom?
The last thing Japan has to worry about now is inflation. Their latest CPI is -0.4% year on year (April), and the PPI is -2.7% and accelerating downwards. (The 3-month PPI is -5.0% annualized.) The first step is just stopping the rot; any investment boom would be a distant dream. It's clear they need a big government bailout, a la the US S&L rescue. It's ironic that the country known worldwide for its industrial policy can't get its shit together to take the necessary step of socializing losses, while the country known worldwide as the enemy of industrial policy had no problem at all. It's striking how ineffectual the Japanese ruling class looks in the face of this crisis, unable to come up with a program or get the state to do its bidding - in contrast with the U.S., where $200 billion (present value) can be spent on the S&L bailout with hardly any political debate.
>Would the devaluation of the yen be a
>catastrophic blow to all the little geese high-flying Japan was supposed to
>be leading?
The yen is already weak, and the region is suffering from that as well as Japan's general political and economic stagnation. If they could organize a coherent bailout, I bet the yen would turn around.
>As for the Keynesian and AFL-CIO view that
>"there-is-no-savings-shortage-so-let-the-govt-spend" , are we all in
>agreement with the following logic: "while Keynes is no longer politically
>popular, [Robt]Pollin's collection suggests that he may nevertheless be
>right--any successful efort to increase the aggregate saving rate will hurt
>corporate investment. Increased saving shrinks the market for goods,
>depresses the capital consumption allowances that finance gross investment,
>and dampens current and future profits. Thus deficit reduction in the name
>of freeing up aggregate saving for private investment is worse than simply
>a misplaced effort: by depressing aggregate demand and thereby hurting
>corporate saving, it actually harms real investment." Michele Naples,
>review of R Pollin's Macroecon of Saving Finance and Investment in
>Challenge, May June 1998.
So why did the U.S. deficit reduction since 1993 have such a benign outturn, then? I keep asking Keynesians how they explain the U.S. expansion, and don't hear much in the way of a good answer. The closest any of the PKT list denizens came was Paul Davidson, who attributed it to exports. Keynesians could explain the 70s stagflation very well, and now they can't explain the U.S. 90s very well. Well, at least Keynes had a good prose style.
Doug