Thursday, 2 May 2013

Abenomics and the nuclear debate

When the nuclear power plant in Fukushima started to go into meltdown after the March 2011 earthquake and tsunami, something strange started to happen to people. Men and women who had never before in their life thought about nuclear power except in the wooliest of terms (and I count myself among them) suddenly became experts, scouring the news media, Wikipedia, and whatever they could find on Google for information, and words like microsievert, bequerel and caesium 137 entered the daily vocabulary of millions of people looking for something to explain the crisis, reassure them, or simply justify their reaction.

It didn't really help though, and rather than illuminating the discourse, these words, facts, and often non-facts, became weapons in a dispute between people whose positions as proponents or opponents of nuclear power were already fixed. Here in Japan, it took on a more personal dimension, as a person's fear or faith became an identifying mark, a litmus test providing a window into a person's moral character, science as a set of dueling swords to be wielded in support of the most emotional, unscientific motivations.

And with the recently elected Liberal Democratic Party's economic policy, we're seeing a similar, if less widespread thing. Like the nuclear crisis, the post-2008 global economic crisis has started to make experts of all sorts of people for similar reasons, as they seek explanation or just to bolster their emotional prejudices. It may not be as dramatic as a nuclear meltdown, but terms like quantitative easing, expansionary austerity, and liquidity trap, with which few people pre-crisis would have had more than a passing familiarity, became far more commonplace.

In Japan, Prime Minister Shinzo Abe's sweeping changes to the nation's economic policy, encapsulated in the ugly and misleading compound term "Abenomics" have acted as a lightning rod for comment in a similar way to the nuclear crisis. An article from Reuters on April 29th collected a number of criticisms, ranging from the wise-sounding but ultimately meaningless statement that "there are no simple solutions or shortcuts" to the utterly bizarre remarks by former finance minister Kaoru Yosano that, "Since ancient Greece and Rome, most policies that excited people ended in failure. The fact that people are pleased and in a festive mood seems to prove this policy won't work."

One of the catchiest soundbites to come out of the article was Yuuki Sakurai of Fukoku Capital Management's claim that Bank of Japan policy was like "shooting a sparrow with a cannon." It's a nice image, and again it sounds wise, although comparing an economic slump now more than twenty years long with a sparrow might seem to some to rather underestimate the scale of the actions required to deal with Japan's economic woes. In a way though, as with the nuclear power argument, its the debate over Abenomics that is what's really trying to hit a sparrow with a cannon.

There are apparently some claiming that it's the magic bullet to solve all Japan's economic problems (I have yet to see any evidence that this is anything other than a straw man used by critics, although it's probably fair to say that within the LDP, there will be party shills willing to parrot this line) and there are certainly many who seem implacably opposed to Abenomics in its entirety, and its within these arguments that the scalpel rather than the cannon needs to be employed.

First, what does Abenomics promise? Well, primarily, it seems to be a plan by the bank of Japan to target higher inflation rates and expand the monetary base, combined with promises of greater public investment. In theory, and economists like Martin Wolf at The Financial Times and Paul Krugman at The New York Times have been calling for policies like these for a long time, this combination of higher inflation and greater public investment, if sustained credibly, should be able to stimulate demand put the economy back on a growth track without resulting in catastrophic hyperinflation or Greece-style debt disaster. There's nothing intrinsically new in it, since the policies basically conform to the Keynsian IS-LM economic model that has been a pretty accurate predictor of economic events since the crisis (and this is why I say "Abenomics" is a misnomer), but it's certainly a big step by a major economy in the current climate.

So what doesn't it promise? Well, for a start, inflation targeting can only work if investors trust the Bank of Japan to continue its expansionary monetary policy until growth is well underway, something previous BOJ chairmen have consistently failed to do. Despite current chairman Kuroda's insistence that he will do what takes, it might fail if people simply don't believe him. Also, the policy has nothing to say about how the fiscal stimulus will be targeted. It's widely suspected that Abe's government will use it like a bribe to bolster their position in key electoral areas, and to put money in the pockets of their friends. In macroeconomic terms, this shouldn't matter to the overall economy, but individually, region by region, worker by worker, this is important. Also, there are issues like the increase in sales tax, which may stimulate consumption in the short run, but which is a regressive tax that will hurt the poor more than the well-off. And then there's the vague sounding promises of "structural reform," which is so often a buzzword for relaxing environmental regulations and limiting employment rights, especially in view of the recent praise Abe has heaped on Margaret Thatcher.

Abenomics also has nothing to say on the biggest problem facing Japan's economy, namely the growing shortage of Japanese. Without a sudden boost to the birthrate (not going to happen) or a more relaxed attitude to immigration, the Japanese economy is on a long term relative downward trend. More can be done to maximise the participation of women in the workplace, something that all parties claim to support, but concrete action on which is rarely forthcoming, but in the end, immigration is the elephant in the room.

Just as the nuclear debate turned into a binary for or against slanging match, leading to important discussions of the extent and enforcement of safety regulations, the unhealthy way energy companies, government and media are intertwined, and Japan's commitment to the longer term fight against global warming being lost, discussion of Abenomics is so often depressingly black and white, obscuring the real issues surrounding its execution and longer term economic policy.

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