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People in this country seem not to be good at growing “Liberal” political powers, in spite that such parties or leaders have regained in U.S. and some countries of EU at the last year… I keenly felt something like that at the last month.
Still, we can understand the reason why they had been a ruling party for over half a century if watching the policy-making of the new government. It looks going smoothly at present, but sooner or later, people may need to care about whether they will continue to be “Sages”.
【Before and After the Manifesto】
Before the election, I was dubious about the below words in their “J-file”.
“We will build the new national economic growth model, which will take in growth of oversea nations and will be tolerant of changes of external environments. It’ll become the “Hybrid Economy Nation”, in terms of being based by twin engines that consists of a trade nation and an investment nation.”
I thought that “an investment nation” meant just income balance surplus and it seemed not to be able to last for a long in today’s global economy under mercantilist mood as I wrote at the article “The Creditor’s Dilemma”…but as it turned out, it seemed that I had misunderstood a little.
“Investments” of their manifesto seems to include not only external ones but also domestic ones. That’s why, they are proposing growth strategy for acceleration of private investments as one of “3 Arrows” which was publicized after establishing the new government. Besides, policy measures of investment funds by public-private partnership are also going to be used frequently.
I can agree such a direction to a certain degree. That’s because I’ve also said “A crucial problem of our economy has caused by a money flow” or “Neither a trade nation nor an investment nation, but a nation worthy of being invested” for this several years.
Moreover, about their watchword…
“We will have to change from redistribution policy toward balanced contraction to creation of wealth by growth”
…there seems to be a sign of becoming more flexible.
For example, they’ve decided to recover redistribution function of income tax and expand tax base of inheritances even based on the “3 Parties Agreement” without delay. In addition, they are also going to realize cooperate tax credit for employment promotion, probably due to the dispute about “Labor Share” at the end of the time when they was a ruling party 3 years ago.
Of course, such policies are regarded as a context of social justice just like “reduction of disparities” at present. However, even if the haves want to leave themselves as they are, the existence of the have-nots who support them through markets is essential.
I’ve written such a thing at the articles including “Beyond dualism between Growth and Distribution” for this several years, and a part of oversea famous economists seems to have pointed out similar problems recently.
【It’s a misunderstanding ?】
By the way, I proposed a figure about current political powers before the election. From its viewpoint, the new ruling party looks like slightly shifting toward center at the horizontal axis. In this country, a broad stance of the conservative party like that has enabled to keep a ruling position for half a century.
In fact, I’m also feeling neither good nor bad at present. For example, in terms of grasping macro-economic issues comprehensively, “3 arrows” (means aggressively monetary easing, flexible fiscal management and growth strategy for acceleration of private investments) and “2 engines” (means the CEFP and the Competitiveness Council) seem to be not so bad design.
However, such a wide and broad stance is likely to be misunderstood by selfish interpretation of each and every people (including I, maybe). One of its examples is the relation between aggressive easing measures and an exchange rate.
Compared with about the time of their becoming a ruling party, Japanese Yen has depreciated by 10% against U.S. dollar in accordance with increase of an attention to “independence of the BOJ”. Still, aggressive easing is no more than a part of the 3 arrows. If you take whole arrows into account, you cannot regard them as the simply depreciation policy of Yen.
The rest 2 arrows are flexible fiscal management and growth strategy for acceleration of private investments. They will become a factor of appreciation of Yen through arousing domestic fund demand. Perhaps, it seems that they are thinking there is nothing to do without shifting both of IS and LM curves to the right forcefully at first… Therefore, the easing policy should be regarded as a measure to spread sort of margins for not to be canceled out domestic demand by external balance rather than Yen depreciation measures.
Moreover, there also seem to be some differences in understandings of the words “Pro-Business”.
Surely, they have strong concern about global capital enticement competition, for example, corporate tax reduction, special tax measures or international equal-fitting tests etc. On the other hand, there are also other measures such as recovering redistribution function of income and asset tax or employment acceleration taxation. They will result to correct distorted investment-savings balance among institutional sectors or income brackets in this country.
In addition, in their J-file, there are some ideas for regional reallocation of capital including relaxing requirements for angel taxation or tax credit for relocation to local areas of business center or key functions. Based on these, the new government has problem awareness to this stagnation under the pressure of money, which has been caused by distorted income distribution.
After all, they are a political party descent of the traditional conservatives with paternalism. To begin with, if the nation was destroyed though companies remained, they would not continue to be in power, maybe.
【Is it really convincing criticism?】
Then, I’m going to take up some opinions about the Abenomics as below.
At first, there seem to be doubts to effect of macro financial policy as representative one…”Financial policy effects is asymmetric and it’ll be limited in relaxation surfaces”, “Our economy has been in a situation of liquidity trap for a long, so a interest rate has already become in the lower limit”.
That’s correct in itself, but it doesn’t take whole policies of the new government into consideration. As mentioned above, while taking a relaxation stance in monetary policy, they are also going to take measures to arouse capital demand by fiscal policy or mobilizing private funding.
Next, in related to that, there seems to be anxiety about sustainability of fiscal management. However, it’s looking only at an expenditure side, and in reality, they also scheduled measures for fiscal reconstruction such as the consumption tax hike in a revenue side. Although they are going to take corporation tax rate reduction and various special tax credits, we will be able to expect better performance of elasticity coefficient of corporate and income tax revenue if a certain nominal growth realizes in this marginal situation around break-even points.
Partly, there are opinions that such fiscal anxiety caused recent rising of long and ultra-long term interest rates… but we need to discount capital transfer toward risk assets by inflationary expectation.
Moreover, there is an opinion about demerits of Yen depreciation in accordance with a change of our trade structure after the quake. Still, Abenomics is not just kind of currency wars as above.
In addition, it’s a fact that currency depreciation is more meaningful in terms of macro income acquisition because income balance surplus have become more than half of our current account surplus. Of course, whether it’ll bring wealth to the general public is depend on the rest 2 phases of macro economy (distribution and expenditure), anyway we cannot say it’s crucial criticism.
Furthermore, there is criticism against “exports” of inflation and bubbles due to excess liquidity. However, we must also remember that the new government is going to take measures to arouse domestic fund demand.
Surely, external demand is not so strong compared with mid-2000s. Because of this, there will be possible that money having nowhere to go will unproductively flow into resources or assets… but a part of it can be regarded as factor price equalization caused by improving productivity of emerging countries.
In addition, except a part of emerging countries being surplus, it may become a kind of lifeboats for deficits countries with a growth model dependent on capital inflow. That’s because they’ve been harassed by the capital repatriation triggered by the credit crisis recently.
【The Result of Two Self-Righteousness】
Nevertheless, they may be harassed by self-righteousness of markets and the government in course of time. Perhaps, it will be likely to govern their fate.
In today’s global economy, self-fulfilling expectation of markets has trifled with fates of economies of each countries and regions through capital flow, as I mentioned at “Disequilibrium Economics”. That can be regarded as self-righteousness of markets, and it may be one of reasons of recent depreciation of Yen and a rise of stock prices.
However, excessive understanding about “Pro-Business” as mentioned above (for example, “It’s a kind of mercantilism, so the new government should not hesitate to participate into the Race to the Bottom” etc.) will have to be revised sooner or later. Otherwise, if their understanding is right, that will cause a crisis for continuing to be a ruling party.
On the other hand, there also exists self-righteousness of the government due to their discretionary-oriented stance. For example, I was dubious about the next description of their “J-File”.
“Under the Competitiveness Council, we will aggressively develop the “New Targeting Policy”. We will make a selection of growth industrial sectors, build up cooperation of industry, government and academia, and intensively inject special tax and fiscal policy, for example, regulatory reform, tax reduction, or funding measure etc.”
That’s expressed a viewpoint of the vertical axis of the figure, and they are discretionary resource allocation oriented. That is tradition of the conventional conservative party, and it’s very different from the early (means before deterioration triggered by a dispute about the “Growth Strategy”) DPJ’s stance.
It’s likely to be pointed out as something like revival of vested right and interest politics, but even if so, there is little real harm as long as their targets are not wrong. Still, such “Strategies” and “Targets” have never succeeded for the past 20 years. If it doesn’t succeed again, various problems will be actualized such as fiscal deterioration by political dynamics with asymmetry to revenue and expenditure.
Moreover, friction between both of self-righteousness will bring more serious problems.
The more discretionary resource allocation loses touch with market needs, the more production factors are allocated to inefficient sectors, and then, attraction as a nation worthy of invested may be lost. An issue about labor force may be more serious, because re-transformation of labors immobilized in inefficient sectors will need more and more efforts than capital.
”We will make a selection of growth sectors, and realize creation of more wealth”… such words sound lively and aggressive, and also look reliable especially in paternalistic culture in this country. However, I don’t know how much they recognize risks in their own words.
If thinking about workaround of this friction, they may have to consider institutional methods to control and create markets without fiscal or monetary policies in the course of time.
For example, about public-private fund, I agree that fund demand cannot be aroused without taking risks by a public sector at present. Yet, those who take initiative and responsibility ultimately should be a private sector, so a public sector must hand over its role to a private sector at an appropriate stage. Then, it must specialize in managing institutional infrastructure for their success.
Possibly, one of its crossroads may become the placement of the Council for Regulatory Reform among the “3 arrows” and the “2 engines”. In addition to deregulation which has been its main theme for a long, they should take up regulation for creating markets just like environmental fields. Besides, it may be required to control excess capital transactions in view of keeping steadiness of actual economy by tightening of regulation in some cases.
To sum up, about broader theme in more sensitive situations, they will be tested to continue to seek overall optimization beyond individual interests.
While being discretionary resource allocation oriented, that has to be realized by controlling and handling markets effectively with institutional measures… Can they become sages of Nagatacho who have an ability to complete such a task ?
Probably, we can make sure that at least May or June when the “Honebuto” will be published, I guess.
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