Reform - Japanese style

[Rakesh Bhandari]

I see that Krugman has a new book out *The Return of Depression
Economics* which I shall try to read in the bookstores. Seems to be a
defense of "beyond-the-pale" Keynesian manuvers in Japan and Southeast
Asia. In particular, he seems to be recommending an inflationary expansion
of the money supply in Japan to overcome a liquidity trap; recognizing the
dangers of competitive devaluations, he hopes that pride will not
interfere with radical Keynesian actions that will have the consequence of
devaluing the yen and putting an end to the yen's search for its place
among intl reserve currencies. He does not seem to be recommending a govt
fiscal stimulus recognizing the dual pressures of an already high debt/GDP
ratio and the burdens of providing for a greying population. 

He argues that Japan has been in a growth recession for quite some time,
and that it may slip into a growth depression. Unless of course Japanese
leaders are willing to stave it off at the right time by the adoption of
his proposals. 

In addition to this question of the limits of Keynesian measures in the
second largest economy in the world, there is also the question of what
Japanese difficulties mean for the revision of the socialist project
proposed by John Roemer and friends. 

In the 1980s the renegade school of matrix  algebra Analytical Marxists
had exprssed ambivalence about workers' control and instead proposed as
the goal of the socialist project the bank monitoring of firms as a
successful alternative to the stock market Indeed Pranab Bardhan
explicitly suggested that the system of managerial control outlined by
John Roemer was based on the role of the banks in Japanese capitalism. 

Does recession and instability in Japan suggest the limits of this model?
Especially given the limits of interest rate manipulations?

As Tom Mayer summarizes in his book  Analytical Marxism (sage) , "The
nature of govt intervention represents  Roemer's  most original
contribution to the  theory of market socialism. By simply regulating the
interest rates at which firms borrow money, govt planners can, as Roemer
and his colleagues show, achieve virtually any technically feasible
composition of investment..Such regulation of interest rates is a
nonintrusive but effective form of central planning. Neither  output nor
prices not the distribution of labor is centrally planned--only the
composition of investment. Investment planning is not the arbitrary
imposition of a govt bureacracy: the broad features of investment are
decided by democratic plitical processes. Roemer considers political
determination of investment necessaryt to avpoid possible market failures.
For example, equilibrium investment levels often fall below the social
optimum." p. 273

One wonders whether the political manipulatin of interest rates or even
the money supply is enough to achieve the "social optimum".

yours, rakesh