Chapter 222 - Final Chapter 4: {4 Alone} (20 Alone: The Progression of Cold Neoliberalism)
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After the Noguchi Cabinet, in the Minyu Party presidential election in September, Tanabe—who had been seen as having "no chance" following his previous resignation drama—was unexpectedly re-elected and returned to power, leading to the formation of the Second Tanabe Cabinet at the end of 2012.
The Tanabe administration proposed "Tanabenomics" with three arrows: "bold monetary easing, flexible fiscal stimulus, and a growth strategy to stimulate private investment." Aiming for a 2% inflation rate, it pledged to escape the deflation (Author's Note: see below 1) that had persisted since the collapse of the bubble. In other words, it announced its intention to pursue large-scale quantitative easing, the likes of which had not been seen since the Takahashi Korekiyo fiscal policy addressed the deflationary economy of the Showa Depression. On the surface, the Governor of the Bank of Japan, who is required to be "independent from the government," was effectively replaced, moving from the cautious Shirata to the proactive Kurokawa.
Regarding quantitative easing—where the central bank (the Nichigin) buys up government bonds circulating in the market (so-called "buying operations") to increase the money supply—the Bank of Japan had already implemented this from March 2001 to March 2006, as previously mentioned. However, it had not yielded significant results.
But this time, the Nichigin's aggressive purchase of long-term government bonds with considerable time to maturity (eventually reaching the equivalent of 80 trillion yen annually) bore fruit. The currency value decreased, leading to a weaker yen and rising stock prices. However, while the prices of real estate and luxury goods rose significantly in certain areas, the overall effect on price increases was minimal (Author's Note: see below 2), and economic growth rates, in both real and nominal terms, remained below expectations.
Above all, while an overall severe deflationary situation is dangerous as it invites a decrease in demand and investment appetite, it is a separate issue whether inflation caused by a decrease in currency value due to emergency easing or a type of cost-push inflation (rising final prices due to rising raw material costs) is ideal compared to natural inflation accompanying increased demand (moderate demand-pull inflation). It appeared that little consideration was given to the risk that the living standards of the common people might actually worsen unless accompanied by a corresponding increase in income.
The results of quantitative easing only have meaning if they ultimately link not just to a nominal increase in income, but to a real income increase that exceeds the rise in prices (as an extreme example, if prices triple, life only becomes harder even if wages double). The basis used to justify this was the "trickle-down (Author's Note: see below 3)" theory, but in reality, there were no specific policies or tax systems to support it, and there were almost no exceptional "upper-class" figures in the business world or economic organizations attempting to realize it themselves.
Regarding employment, including the effect of the baby boomer generation's second retirement (the transition from the "2007 problem," where the mass retirement of baby boomers was expected to be an issue, to the "2012 problem" of retirement after re-employment, i.e., second retirement), the job-to-applicant ratio for specific industries such as construction, nursing care, and food services surged (labor shortages varied greatly by industry, while clerical jobs remained at low ratios). Meanwhile, with almost no ripple effect on salaries and wages or real economic growth, the balance of long-term government bonds held by the Nichigin reached an extraordinary situation, hitting approximately 350 trillion yen (amounting to about 35% of all long-term government bonds) as of February 2016 (Author's Note: as of June 2018, it reached about 450 trillion yen, or 45% of the total).
On the other hand, in the stock market, stock prices that had fallen below 10,000 yen on the Nikkei 225 before the formation of the Tanabe Cabinet recovered to 10,000 yen due to expectations for quantitative easing. Including the effect of the weak yen, they reached 17,000 yen by the spring of 2016 (currently over 20,000 yen at the time of writing).
However, the limit for pension fund management in the stock market was changed to double the previous rate, and the amount of Nikigin ETF (Exchange Traded Funds) purchases—which effectively have the same effect as buying stocks directly—reached astronomical figures (Author's Note: see below 4) after the start of the Second Tanabe Cabinet. It could be said that aggressive intervention through the direct injection of so-called "public funds" into the stock market was being carried out simultaneously, and the rise was beginning to take on the character of a "government-made market" rather than an increase driven by economic recovery.
Despite aggressive easing measures described as being in a "different dimension," as well as robust foreign demand and strong export performance, the reason for continued low economic growth was viewed by some as a cooling of consumption sentiment itself, as there was almost no rise in wages accompanying the economic recovery. Combined with the decrease in consumption following the consumption tax hike in April 2014, the general view seemed to be that the factors were complex. The important point was that the structure involved not just stagnant wages, but also increased expenses and burdens, such as hikes in social insurance premiums like pension and health insurance, not just the consumption tax.
The low growth of the Japanese economy continues. In other words, comparing the fruits obtained to the actions taken, if it is assumed that an exit strategy for quantitative easing must eventually be considered, it could be taken that many aspects of it are far from a success.
Furthermore, the Nichigin finally introduced the forbidden negative interest rates for policy rates, exposing its desperation to raise prices at any cost. The negative interest rates introduced in February 2014 could be seen as having worsened the profit structure of regional banks lacking financial strength as a side effect, and some argue the negative aspects outweigh the benefits.
However, partly due to the voters' distrust of the opposition parties centered on the former Minsei Party, the Minyu Party won a landslide victory in the general election of the House of Representatives at the end of 2014, which was dissolved on the grounds of postponing the 10% consumption tax hike as an economic measure (since almost all parties favored postponement, there was no longer even a grand justification). Consequently, critics of the Tanabe Cabinet almost vanished, and the administration's claims and policies became easier to pass in all situations, coupled with a cynical public opinion. One could say the public consciousness transformed from the "frenzy" under the Takamatsu administration to "resignation" or a "blank check," but in terms of being a public opinion without "deliberation," it may not have fundamentally changed.
In addition to passing the security bills in the previous year of 2015, which effectively allowed the exercise of the right of collective self-defense and marked a turning point in post-war diplomacy, the Tanabe administration appeared to be aiming for the introduction of the so-called Conspiracy Bill and the White-Collar Exemption, which thoroughly implements meritocracy and eliminates the need to pay overtime allowance.
※※※※※※※ Author's Note: see below 1
As can be seen from the "Consumer Price Index" graph in Source 1 [Attached Below], while there has certainly been no inflation after the bubble (though moderate inflation is ideal), it is clear that there hasn't been critical deflation—that is, deflation on the scale of the Showa Depression (see the "Tokyo Retail Prices" graph in Source 2). During the Showa Depression, deflation accelerated annually (note that the rate of decrease in the price index is year-on-year, so even if the graph is rising, it is still lower than the previous year if the value is negative), so it was natural for this to become a major issue.
The Consumer Price Index (usually compared using items called Core CPI, which excludes fresh foods with volatile price fluctuations) includes real estate-related items (rent and the equivalent rent for owned homes), so the crash in real estate prices after the bubble burst is partially considered in the calculation. In that case, while there was certainly no overall inflation, it is possible that many items other than real estate-related ones did not deflate much, or may have even inflated slightly (though this cannot be known without looking at individual items).
Considering this, if we look at the trend of income per "all households" (Source 3 graph), even as of 2017 when an upward trend appeared, it is clearly down by 1 million yen in nominal terms—that is, in actual amount—compared to the bubble period. From the perspective of purchasing power (disposable income), it might even be interpreted as inflation rather than deflation.
Furthermore, as seen in this graph, the peak of household income was actually around 1994–1996, a few years after the bubble burst. This also serves as a reason why the negative impact of the bubble's collapse was a lagging effect, trailing the peak of stock and real estate prices by more than five years.
In addition, comparing this with the graph in Source 5 showing the number of dual-income households (meaning multiple sources of labor income within a household), even as the number of dual-income households increased, household income did not even rise. In other words, the reality is visible that since the negative effects of the bubble burst began, dual incomes have merely been "compensating" for the decrease in income. This has increased dramatically, especially since 2010.
Also, regarding the decline in the overall average household income due to the increase in pension-income generations like the baby boomers, this applies to some extent after 2007 (the so-called 2007 problem) when the baby boomers began to retire. However, the decrease in household income began before that, so it is likely not a fundamental reason for the "trend." In the first place, many in the baby boomer generation were re-employed,
(Including the improvement in the employment rate for new graduates, it was actually the 2012 problem:
http://group.dai-ichi-life.co.jp/dlri/naga/pdf/n_1004c.pdf page 3
http://www.murc.jp/thinktank/economy/analysis/research/er_120614.pdf )
and since the negative effects of the bubble burst appeared, they have not contributed to the decrease in overall household income in such a large proportion.
In any case, what should have been problematic regarding deflation after the bubble burst was the clear deflationary trend in expensive fixed assets like real estate, or durable consumer goods like refrigerators and automobiles. This is a major problem because it dampens the immediate desire to invest and purchase, leading to low economic growth.
On the other hand, the deflationary trend of cheap daily necessities, led by food items with short consumption periods, is not something that needs to be viewed as a major problem, as it is impossible for people to refrain from purchasing them until the price drops. In fact, the phrase "eggs are the honor student of prices" is a compliment for prices remaining unchanged for a long time. And above all, as mentioned above, the reality is that daily necessities had almost no deflation even after the bubble burst. It is completely impossible to depend on 100-yen shops for most consumption to the extent that they are singled out for criticism.
Without considering the decrease or lack of growth in income, the course was forcibly steered toward raising prices by labeling all of this as "deflation is the problem." I believe it is highly likely that this led to a long-term decrease in consumption expenditure (Source 7).
The reason is clear: what it means when nominal household income has decreased by 1 million yen from its peak while overall prices, including real estate, remain almost unchanged, and why the current decline in savings rates, the increase in poor households, and the rise in the Engel's coefficient are occurring. To say "I don't know what the problem is" would be utterly impossible.
Incidentally, considering that annual income is not take-home pay (disposable income) but the "amount before all taxes and social insurance premiums are deducted," one must also consider that the pockets of the general public are moving in a colder direction, as they are deducted from a decreased nominal annual income by taxes that continue to increase (by clicking the tags in the Source 4 site, you can see the trend of income tax and the maximum tax rate).
【Attached Sources】
1) http://www.garbagenews.net/archives/2064125.html (Consumer Price Index)
2) https://ameblo.jp/akiran1969/entry-11987700802.html (Takahashi Fiscal Policy, Prices, and Real Wages)
3) http://www.garbagenews.net/archives/1954675.html (Average Household Income)
4) https://www.nippon-num.com/finance/tax-rate.html (Trends in Various Tax Rates)
5) http://www.garbagenews.net/archives/1954558.html (Number of Dual-Income Households)
6) http://group.dai-ichi-life.co.jp/dlri/monthly/pdf/1802_5.pdf (Relationship between Employee Compensation and Disposable Income; note that both are "nominal")
7) http://jp.gdfreak.com/public/detail/jp010050001070100001/4 (Trends in Consumption Expenditure)
Note: The author of the site in Source 2 and the person they support, Jonen Tsukasa, are "full supporters of Abenomics and Takahashi Korekiyo fiscal policy, i.e., large-scale quantitative easing." While my views differ, I have included them as sources because the information (data graphs) leading up to their conclusions is quite useful.
In contrast, the reason I cannot (fully) support large-scale quantitative easing is that "Takahashi's fiscal policy appeared successful as a process, but in the end, it never reached an exit (partly because Korekiyo was assassinated). While it brought profits to biased companies, zaibatsu, and high-income earners, the lives of the common people were only better than the worst-case scenario. As long as real wages (distinguish this from the 'actual' wages mentioned in Source 2, which is a different indicator) continued to fall, it cannot be said that things improved in a true sense."
(Real wages = nominal wages actually received by workers, with the effects of price fluctuations removed)
While it may have been an excellent method for escaping an emergency (the Showa Depression), my view is that large-scale quantitative easing is determined to be "successful or not" only after safely navigating the exit, and ultimately by whether the common people became wealthier.
Also, when the issue of real wages is brought to the table, there are counterarguments like those at https://hirohitorigoto.info/archives/351, which claim that "an increase in total income (employee compensation) is more meaningful than the average real wage." However, since household income itself has hardly grown and consumption expenditure has been decreasing as a long-term trend since the early 2000s (Source 7 graph), one can say there is "no room to spend on consumption." While I won't say it's meaningless, it is certainly not something that enriches life. Rather, as for why such a contradiction is occurring, there may be issues with single-person households, but I don't understand it well myself, so I will stop delving deeper. I suspect the possibility is the widening gap, where "total growth shifted to a biased segment"...
Furthermore, this kind of statistical data is based on taking "samples" to estimate the whole (in that sense, there is an aspect where any data, including the supporting data for my claims, becomes suspicious as to whether the figures are truly correct. This is especially true with a government that only uses convenient data like the current one). It is said that there are suspicious parts in the employee compensation data itself (https://topics.smt.docomo.ne.jp/article/economist/business/economist-20180525164926593), and when considered alongside the current state of consumption expenditure, savings rates, and poverty, it makes me want to question whether employee compensation is truly growing.
A similar tactic by the government was recently seen in the survey of total cash earnings.
(https://www.nishinippon.co.jp/nnp/national/article/448833/)
Returning to the subject, regarding the different-dimension quantitative easing in Abenomics, there is an opinion that "given the strength of the Japanese yen, an exit from quantitative easing is not even necessary in the first place." In fact, despite the massive fiscal deficit, there is a theory that easing can be continued semi-permanently considering the scale of the economy and the foreign assets held by the Japanese government and companies. I don't think this theory is entirely without persuasion, given that the yen has not been significantly damaged in terms of exchange rates (though it could be seen as quite damaged considering the "real effective exchange rate" mentioned in Note 2 below) despite this much easing.
However, it is likely impossible for a state close to fiscal financing (where the central bank directly buys government bonds issued by the country; Korekiyo's quantitative easing was exactly this), which is currently prohibited, to continue forever. In the first place, if that were possible, Japan could cover all public expenditures with national and local bonds and even become a tax-free nation, but you can see that is "impossible." Someday a "limit will come," and I believe the current situation is exactly one of entering a game of chicken to find that limit.
And the reason the author of the site in Source 2 above supports "mere" quantitative easing is stated on that site: "This is the process by which the economy recovers from deflation, and in the process of many unemployed people gaining jobs, it is natural for the average real wage to fall. I wonder how a certain critic, who praises Korekiyo's policies while repeatedly criticizing Abenomics by saying 'real wages are...', views this?"
However, if one is to fully affirm Korekiyo's fiscal policy, it must include not just the evaluation of the process, but also the intended "result" (that real wages eventually rise as well).
Yet, Korekiyo's fiscal policy aimed for an exit without that result appearing (since corporate performance had recovered, it was supposed to shift to austerity before real wages could recover from their decline). The conclusion was as described at the beginning of Source 2: "The hardship of national life caused by the failure of economic policy created the soil for the birth of the ultimate populist Prime Minister, Konoe Fumimaro, whose dangerous ideas gathered support." In the end, nationalism was fostered precisely from poverty. In other words, I do not understand the reason for that "full affirmation." There is no result that can conclude "the lives of the people will become wealthy" beyond the process of quantitative easing.
One should only be able to reach that conclusion if Korekiyo's fiscal policy actually led to the resolution of poverty through the transition to real income growth that should have followed. However, Korekiyo only resolved "deflation" and the "Great Depression" brought by deflation (though saying "only" is still impressive). While the unemployment rate could be improved for the time being (which should, of course, be praised), the simple fact is that the poverty structure of the general public, who make up the majority, could not be resolved; rather, real income could not recover to pre-depression levels before attempting to transition to the exit.
https://diamond.jp/articles/-/31512
http://news.kodansha.co.jp/20160925_b01
Takahashi Korekiyo provided fiscal support not only for military spending but also for rural areas exhausted by the depression, poor harvests, and tsunamis (though it was a total of over 800 million yen over "three years," which is quite small compared to military spending. Military spending at the time was about 400–500 million yen per year, and in 1932 it jumped to 700 million yen due to increased military spending as economic stimulus and inflation from quantitative easing, and exceeded 900 million yen in 1934:
https://www.teikokushoin.co.jp/statistics/history_civics/index05.html).
Since I failed to mention the "Emergency Relief Works (1932–1934)" in the explanation of the "Showa Depression" that unfolded after Oshima Kaiji's monologue, that was not fair, and I have added it to the previous description in a revised version. However, with the demand for "self-rehabilitation" for rural villages, I believe the reality is that it was, for lack of a better word, a "half-baked" policy. (Criticism of the rural self-rehabilitation theory and Korekiyo's fiscal policy was also found in research from Kyoto University, so see the source at: https://repository.kulib.kyoto-u.ac.jp/dspace/bitstream/2433/134314/1/eca1442_200.pdf).
And it might be interpreted that Korekiyo's fiscal policy and his rural self-rehabilitation theory were the precursors to today's biased monetary policy and neoliberalism, which "claims an apparent meritocracy."
In other words, the structure is that while the targets forced into meritocracy are weak (worker) individuals, the (large) corporations and high-income groups, who should naturally have leeway and be the strong, receive policy favors unilaterally or excessively. If the tax rate on the profits made through such favors is also reduced, it could be called a policy of "giving a reward to a thief," to put it bluntly.
In the end, as I wrote before, my own conclusion is that Takahashi Korekiyo's fiscal policy is "not something that can be supported wholeheartedly." Of course, Korekiyo himself was quite honorable and a person capable of self-restraint despite being in a position of power, but for that reason, he may have been harsh toward others as well.
In any case, unless the "social redistribution of profits" beyond quantitative easing is clear as a policy, there is little meaning in the future of quantitative easing. One should only evaluate Korekiyo's policy—or in other words, large-scale quantitative easing—as "good" after safely exiting the easing. In reality, he was assassinated before results were achieved in either case, leading from the Sino-Japanese and Pacific Wars to hyperinflation after the disastrous defeat.
Of course, since Korekiyo was assassinated halfway through, it is unknown what kind of vision he had for the exit of quantitative easing (though there is no doubt he was trying to exit). However, it can be said to be a spitting image of the current structure where "despite the decrease in unemployment and improvement in employment rates due to monetary easing, for some reason the lives of the common people do not improve, and the gap widens in both upward and downward directions."
http://www.esri.go.jp/jp/workshop/forum/180621/data/180621_siryo05.pdf
Meanwhile, Abenomics has already resorted to too many forbidden moves (not just in terms of policy means, but also in terms of policy ethics) besides large-scale quantitative easing, and my impression from the massive injection of Nichigin ETFs (Note 4 below) is that it is losing sight of an exit while still successful (though it's debatable if it can be called a social success in terms of cost-performance).
Setting aside that personal view, the economy is built on a very delicate balance: the high growth and rapid inflation triggered by WWI; the hardship from workers' incomes not keeping up with inflation; and then, when the economy entered full-scale deflation after the decrease in foreign demand and the Great Kanto Earthquake, workers' employment itself was lost, and they had no choice but to accept falling real wages. It makes me feel how difficult it truly is.
In that sense, it also means how much post-war Japan was blessed with good fortune (in addition to the Cold War, it was also built on the misfortune of others through war procurement) until the bubble burst. I believe what is happening before our eyes now is, in one aspect, a repetition of pre-war history.
Naturally, it goes without saying that the Japanese economy rose to the top level because of the "policies" that skillfully utilized that post-war luck, and the philosophy and humanity of some corporate managers, politicians, and bureaucrats during Japan's high economic growth period.
※※※※※※※ Author's Note: see below 2
In reality, however, due to the currency depreciation caused by Abenomics, while the prices of food items themselves haven't changed much, many instances of reduced content for the same price have occurred (Author's Note: so-called shrinkflation). In fact, inflation of over 10% has occurred, centered on processed foods. Because the consumption tax hike was involved, one could also adopt the view that the economy declined and stagnated again over the long term after the 8% consumption tax hike. Anyone who does their own shopping for food and the like should well understand this as a feeling of real inflation.
What must be noted here is that even if the nominal exchange rate is the same 120 yen to the dollar, the value of 120 yen in the 1990s is different from the 120 yen during the Koizumi and Abe administrations.
The rate recalculated from the face value by comparing the dollar not just with other currencies (this perspective alone is the "effective exchange rate") but also taking global prices into account is called the "real effective exchange rate."
From that perspective, the recent exchange rate level is actually said to be not much different from the early 1980s when 1 dollar was over 200 yen (meaning the currency value has become that much lower than the nominal value). It can be seen that this is affecting the import of food raw materials as an exchange cost. In fact, the yen is excessively weak for the current Japanese economy. While the large number of tourists coming from abroad may be due to policy appeals or a Japan boom?, it can also be said that compared to overseas prices (which continue to inflate steadily and moderately), Japanese prices are excessively cheap due to the yen being weaker than the nominal rate, creating a strong sense of value.
Japan, of course, relies on exports, but it also has a high volume of imports, and it goes without saying that an excessively weak yen also brings considerable negatives in other aspects. I won't say the nominal face value isn't important, but if you don't also consider the real value, you will greatly misjudge.
https://zuuonline.com/archives/105338
https://moneyzine.jp/article/detail/214985
※※※※※※※ Author's Note: see below 3
Trickle-down theory
https://ja.wikipedia.org/wiki/%E3%83%88%E3%83%AA%E3%82%AF%E3%83%AB%E3%83%80%E3%82%A6%E3%83%B3%E7%90%86%E8%AB%96
What worked well for a long time as an internal policy after Japan's high economic growth was the birth of a thick middle class through forced distribution to the lower classes via high income and corporate taxes from the top income bracket. It can be said that there is no clearer empirical example as a rebuttal to the trickle-down theory. Please check the site in Source 4 in Note 1 above for the trend of tax rates favoring high-income earners and corporations.
In any case, now that it has become a simple fact that trickle-down in a natural form is "impossible," it is natural that the government should "force" it through the tax and legal systems rather than just "requesting" it from corporations with "words alone."
※※※※※※※ Author's Note: see below 4
Change in pension management ratio
https://www.nikkei.com/article/DGXLASFL31HDQ_R31C14A0000000/
Note that the ratio of public pension management invested in stocks and the like is not high compared to public pension management organizations in other countries.
However, it is also a fact that when the management ratio of the Government Pension Investment Fund (GPIF), which has an astronomical amount of assets, suddenly doubled, the pressure to raise the market by inviting foreign capital was quite high.
I will also record the transition of Nichigin ETF purchase amounts.
https://www.simplexasset.com/etf/column/021.html
Nichigin ETF purchase amount (2010): Total 28.4 billion
http://traderstreet.net/bojetf/2010.html
Same (2011): Total 800.3 billion
http://traderstreet.net/bojetf/2011.html
Same (2012): Total 639.7 billion
http://traderstreet.net/bojetf/2012.html
Same (2013): Total 1.0953 trillion
http://traderstreet.net/bojetf/2013.html
Same (2014): Total 1.2845 trillion
http://traderstreet.net/bojetf/2014.html
Same (2015): Total 3.0694 trillion
http://traderstreet.net/bojetf/2015.html
Same (2016): Total 4.3820 trillion
http://traderstreet.net/bojetf/2016.html
Same (2017): Total 5.6069 trillion
http://traderstreet.net/bojetf/2017.html
From the above data, it is clear that the brakes have failed since 2015. It is said that the only central banks that directly and aggressively invest in the stock market are Japan's Nichigin and Switzerland's Swiss National Bank (though the European Central Bank also seems to be purchasing). Moreover, while the Swiss bank seems to aim for "management to gain profit," it is no exaggeration to say that the Bank of Japan is now doing it solely for the "purpose of raising stock prices," so the background and objectives can be seen as quite different.
https://jp.reuters.com/article/column-central-banks-idJPKBN1JS062
https://style.nikkei.com/article/DGXMZO23504840V11C17A1000000?channel=DF130120166349
Due to this situation, the favorable profit situation of large corporations from foreign demand, and the upward phase of overseas stock markets, fortunately, the pension management results are excellent. However, if a reverse boost occurs, it goes without saying that it will spin backward since public funds are being poured in. However, even if losses become large, the actual amount managed is not that large relative to the total pension holdings, so there is no need to worry that pensions will suddenly "disappear."
https://www.gpif.go.jp/gpif/faq/faq_05.html
(FY2007 was the Subprime Crisis, FY2008 was the Lehman Shock, FY2010 was the Great East Japan Earthquake)
But the biggest problem I must emphasize is that this method ultimately results in nothing more than providing direct benefits to specific wealthy individuals (for example, founders of major clothing retailers or telecommunications companies who hold many Nikkei 225 listed stocks). and that includes the policy ethics aspect.
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