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LIST  December 2013

LIST December 2013

Subject:

Re: Wolf says Abenomics misdiagnoses the problem.

From:

Alexander Arthur <[log in to unmask]>

Reply-To:

NBR's Japan Forum <[log in to unmask]>

Date:

Tue, 17 Dec 2013 22:06:35 -0500

Content-Type:

text/plain

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Parts/Attachments

text/plain (29 lines)

I have been discussing Martin Wolf's points for some time on this forum.

To recapitulate: Japanese households have relatively low incomes because firms keep too much of their income to themselves, either in liquid assets or in over-investment. Japan's capital stock relative to GDP is many times higher than in the US or other rich econoies. Private investment as a share of private output, likewise, captures roughy 5 percentage points more than in the US, despite slower growth.

So, households get screwed many ways: their savings earn abysmally low returns; income that could be paid to households, instead, is held by firms or wasted in low-returns investments; and over-investment in capital means smaller demand for labor. 

Why does this happen? My hypothesis is that corporate governance does not require high returns or efficient use of capital. Despite many real changes over the past 15 years, I do not yet see an overall shift in corporate behavior despite my earnest squinting at the data.

The old notion that long-horizon Japanese managers and financial institutions were good for the economy was never true as an accurate description or, if true, as a harbinger of a better economic future.

Arthur Alexander


On Dec 17, 2013, at 9:02 PM, John Campbell wrote:

In today's Financial Times, behind the paywall, Martin Wolf writes that a decent rate of inflation is achievable (though tricky not to overshoot); however, the target of sustained 2% growth is very tough.  With population decline and worker participation rates already pretty high (above average for men, not much below for women), output per worker would have to go up a lot.  But here is the main problem:
> Nor is what is under discussion relevant to dealing with Japanís structural imbalances: excess private savings absorbed by huge fiscal deficits, which have then emerged as soaring levels of public sector debt. Indeed, the Japanese debate simply ignores the huge financial surpluses of the corporate sector and the low shares of household disposable incomes and consumption in GDP. So fiscal policy is aimed at raising taxes on consumption, which is now too low, and lowering taxation of corporate profits, which are too high. . . Without a shift in incomes from corporate profits to households, the structural fiscal deficit cannot be eliminated, unless the current account surplus shifts into a gigantic surplus. It is bad enough that the eurozone is pursuing that strategy. Japan should not expect to do the same thing.
> 
Personally I am a bit more optimistic about improving productivity in the service sector (if wages actually go up), but in general I think this hits the nail on the head. The whole column is worth reading but I should not excerpt more than this.

John Campbell



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