Delong on US policy toward Japan

Charles Jannuzi b_rieux at yahoo.com
Sun Jun 30 22:30:44 PDT 2002


Sorry, I've lost track of this so I'm giving it a new thread name.

BDL:


>>Then by the middle of 1995 the
consensus suddenly shifted to a belief that Japan's economy was in real trouble, that a stagnant Japan was a very bad thing for the world (and for the U.S. too, in the long run), and that the U.S. needed to stop pressuring Japan on trade issues but instead to use whatever leverage it had to get Japan to take policy steps--cleaning up its banking system, boosting consumption--to get itself back to full employment. This point of view was strengthened by the Asia crisis, for it seemed that the lack of demand for products of other Asian countries by Japan was a big factor making the Asia crisis worse... <<

Whoa, a lot of presumptions here, aren't there? That the banking system needed cleaning up (in many ways, it was the most developed in the OECD). Get an economy going and you see how little debt is a problem. If the opposite is the case, and you see all sorts of 'bad' debt.

More presumptions. That it was the US's place to pressure Japan in the first place. That the Japanese economy just simply needed a boost in consumption (how do you do that when you are in a long recession with massive restructuring etc.). But that's the first time I've ever heard about the full employment presumption. Everyone before was talking about making the Japanese workforce more 'flexible'.

Alternative takes:

The Clinton admin. backed off a cheap dollar/strong yen policy and this did indeed help reflate the Japanese economy (that is,a yen closer to PPP or a realistic level vs. the dollar did this). Then they reversed themselves again, mostly because US companies with production in China and SE Asia complained about having to compete with Japan again. Then all that debt in Asia became unpayable going from cheap dollars to dear, dear yen. Lights out all over Asia, 1997-8.

BTW, the era of the strong yen has really put Japan through sea changes, even though most Americans have no idea of what those are. For a start, Japanese companies set up production in Asia, just like so many US companies. Japan now has a huge trade deficit with China. And China is well on its way of becoming the world's number industrial producer long before it becomes the top economy (that's still a long way off I'm afraid). I think, if Japanese exporters can compete at 115 yen to the dollar, they must be about 20% more efficient at what they do than anything in the US or Europe. Asia, it's hard to figure, because currencies are pegged to the dollar and totally out of whack. I realize labor in China is cheap, as is the currency, but I wonder how efficient most of it is, in any sense of the word I can think.

Has anyone in the world of economics really figured out what happened to real consumption levels in Japan given the effects of deflation? Those Japanese who have money and steady employment seem to me to be buying more than they ever have, but for a lot less. Now not all of that is the effect of deflation on all the commodity inputs in the economy or the strong yen buying cheap imports direct. For example, retail has shifted entirely to national chains in shopping centers and malls, and there still hasn't been a complete shakeout and there is a lot of price competition to get retail share.

CJ

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