I want to start this rant with a quote from the British chief secretary to the Treasury, Danny Alexander. In discussing a review of the alternatives to the UK’s trident missile program, he announced

We are in a position where the costs of the Successor have to be paid for from within the MoD budget. There is no magic pot of money that is going to be created out of thin air to go on top of that. As a government, we have been very clear about that. Certainly myself and the chancellor. [emphasis mine]

This is an interesting phenomenon. Like most developed nations, the UK maintains a fiat currency system. That is, the government decides by an act of will (by “fiat”) how many pounds are in circulation. There is, quite literally, “a magic pot of money” that can be “created out of thin air.” Yet the current government’s chief of the treasury and its chancellor want to tell us that their is no such option for Britain. Now, it may be that creating money out of thin air carries political risks that they don’t want to bear, and a high-value strategic weapon like Trident is not worth the risk (after all, what ex-imperial power would want to invest lots of money in its military?), but they aren’t telling us this. They’re telling us that the treasury and the government are unwilling to accept the basic tenets of the financial system they are in charge of.

This little moment of magical thinking comes at a time when the Japanese government has announced a plan to do just the opposite – they’re going to spend 4% of GDP on infrastructure investment (aka “bridges to nowhere”) and introduce a huge new program of quantitative easing in order to try and get Japan back to inflation. This has the business pages of the western world in uproar, because the new prime minister (PM), Shinzo Abe, is acting against the economic orthodoxy that brought the UK its triple-dip recession, and which journalists love because their slow minds are very good at talking about “if this economy were a family” and “weaning society off the drug of government debt” but very poor at actually analyzing economic policy in a modern fiat currency. Thus we have Evans-Pritchard giving us a detailed account of how Abe is channelling his granddaddy, and we should all be worried about this (because Japan has a strict non-militarist clause in its constitution …? There are really no dots here to join). We have breathless quotes from ex-members of the Bank of England (which has a sterling record in preventing economic bangs) suggesting

‘When a large country with its own currency reaches its fiscal limit, growth ends not with a bang but a whimper,’’

Is there any sense in which this is even verifiable? What is a “whimper” in economic terms, and when did any country on the planet have its growth end with “a whimper”? Is this something we define through official statistics? Is three quarters of negative growth a whimper? What, for that matter, is a “bang”? Note that the man who coined this fantabulous piece of illusionism was a member of the UK monetary policy advisory committee and, despite that country’s spectacular recent failures, is still quoted as an expert on something (what?) by journalists.
Nothing makes economics journalists slobber more than the chance to deride Japan for its big spending, low baby economy. Thus we have Michael Pascoe essentially repeating Pritchard-evans in a cascade of frothing stupidity as he attempts to describe how terrible deficit spending is, but falling back only on the age-old canard of “Japanese men have small willies”:

Not only is a quarter of the population aged over 65, increasing numbers of Japanese women are deciding they don’t want to marry Japanese men and have their children.

I live in Japan, I know this schtick: it’s called “Charisma man.” Implicit in this kind of language is the suggestion that Japanese men are terrible and Japanese women are looking for something more … fecund. Someone who can rescue them from those terrible Japanese men who just can’t get it up. The sentence is an awkward construction, intended to emphasize that this lack of rogery is an internal problem. It’s also carefully constructed to elide any concept of progress or equality. Good societies breed. Bad societies have women who don’t want to marry. Heaven forfend that modern women might have control of their own fertility, and decide that children aren’t worth the bother.
Arguments about the need for more babies are heavily dependent on the idea that the proportion of government spending is a key measure of risk. Japan, we are told,

already runs on an unsustainable funding model, a level of indebtedness and spending that makes the Greeks and Americans look frugal.

This seems pretty strange to me. Good old unsustainable Japan, 10th most populous country in the world with no natural resources to speak of, 3rd biggest economy in the world, one of the world’s largest aid donors, the world’s major source of manufacturing exports, with many of the biggest manufacturing and service companies, the lowest infant mortality and the longest life expectancy. Also with very low unemployment and very low levels of inequality by any standard you care to measure. Poor, unsustainable Japan. What is it to do?
Never fear, another vapid journalist has a host of suggestions, because he understands “the merits of skepticism.” We are told that “Japan has become a nation that can’t proceed without the economic equivalent of a walker.” Remember, there is no magic pot of money, so any solution which involves government investment must be, by definition, “a walker” – even though almost every country on the planet is dependent on Japan for almost all its heavy manufacturing and high tech needs. There is no multiplier from government spending, not even if you’re a British company buying high speed trains from a country that developed advanced heavy manufacturing on the back of 100 years of industrial policy and targeted deficit spending. Fortunately, our intrepid journalist knows better. Debt is bad, government spending is bad, and Japan can’t sustain more. So we need to consider alternatives, encapsulated in these questions for Abe:

does he have a plan to make Japan more competitive to take on China or halt Sony’s slide toward irrelevance? How about ideas to make the labour force more flexible and international, starting with a new immigration policy? Or a strategy that inspires young Japanese to start new companies or families? What about freer trade? Increasing women’s role in politics and business? Even an energy plan that champions something other than the nuclear reactors Japanese fear amid earthquake risks? None of the above.

So this journalist wants Abe to simultaneously find a way to make Japanese technology competitive against a nation 10 times its size, wants to make it possible for women to enter the workforce and start families, wants more immigration to a nation with one of the most challenging language contexts in the developed world, and wants to dismantle nuclear energy policy – without spending a yen of government money. How is this going to happen?

The last time this idiot journalist traveled on a shinkansen, did he consider the effects of eliminating the government spending that made the train possible, while simultaneously dismantling the nuclear power system that propels it?
I think he didn’t. He also didn’t think about the actual barriers to immigration policy in Japan (most especially, the fact that Japanese don’t speak English) or the barriers to workplace flexibility. Japan maintains an excellent system of public maternity leave. Good luck getting your employer to give you the time off to use it – but this is the government’s fault, right?
Here we see a classic symptom of the modern commentator on Japan. Wherever Japanese government has achieved success, we hear economics pundits and journalists screaming about government incompetence. But wherever the truth might lie in the overwhelming power of Japanese corporations and business elites to determine policy, we hear a sudden silence about the role of government in weakening those forces. Anyone who has worked in Japan knows that the single biggest force influencing people’s decision to delay childbearing is the difficulty of finding family friendly work. This is a classic situation where government intervention and public spending can make a difference – but no commentator will consider those options. And so we have a strange situation where massive government spending has made Japan one of the most successful economies on the globe (without natural resources), but modern lack of growth is taken as a sign of the complete failure of government spending to make Japan better; while the private forces that dominate ordinary Japanese people’s lives are completely ignored.
The truth is that, while Japan has massive government spending and is one of the most equal societies in the OECD (with all the benefits for social cohesion that this brings), it is also one of the most schizophrenically neo-liberal economies in the OECD. Japan has limited workers rights, limited licensing laws or restrictions on the entertainment economy, businesses are self-regulating to an extreme degree (see e.g. TEPCO), university education is almost entirely fee-based, there is very little social welfare for the unemployed, and many utilities and services are essentially privatized. Yet when I read neo-liberals commentating on Japan I never read anything about how the Japanese economic model might present an example of a neo-liberal pathway to equality and happiness. Instead we have unsustainable spending, women who won’t breed (with dubious hints that they are waiting for a white man to show them what it’s all about) and the dead hand of government. Why can’t market commentators move beyond their fixation on Japanese government spending and start looking at the Japanese economic and social system as a whole? I don’t think I’ve ever read a discussion of Japan’s declining birthrate in the mainstream press that discusses the role of workplace culture in preventing child-rearing decisions. Ever. I’ve never read a discussion of Japanese government spending that mentions the bullet train, although it’s implicit in much of the discussion of Japan’s past. Every failure of the Japanese economy is slated home to the government, but all its successes – born on the back of a conscious industrial policy and a massive program of public spending spread over 40 years – are just good luck and corporate endeavour.
So my challenge to neo-liberals is: put your money where your mouth is. Admit that Japan’s laissez faire labour market practices are the real reason for its declining birthrate, admit that government spending worked to make Japan great, and then move on to construct a narrative in which Japan’s neo-liberal market elements and laissez-faire social order created, or helped create, equality and wealth. Spin me a story – how does this work? Is your knowledge of Japan and your ability to analyze economic systems more than skin deep? Or is the extent of your analytical ability “government spending bad, Japan proof?” Are you an economic commentator, or a neo-liberal parrot? Surprise me!

 

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