Responses: Charles Jannuzi wrote:
> "Peter Dorman" > > > Let me try another tack here. My understanding has been that Japan has > > been historically locked into a pattern of development characterized by > > high savings rates and high investment shares of GDP (the > > "exhilirationist" model). > > What do you mean by high investment shares of GDP? Aren't all developing > countries that are growing rapidly (actually developing) like this? Japan > went from worse than the Philippines in 1945 to a fully developed country by > most standards by 1970. This historical fact, more than anything, was what > was most appealing to other Asian countries looking for a development model. > For one thing, it was the Japanese, not the Americans, who could understand > where these countries were and where they wanted to go. Also, Japanese > products and services often better fit these countries not for cultural > reasons but just for the fact that Japan was a modern country with two > living generations who had experienced and remembered disaster and grinding > poverty (which might help explain the personal penchant for stressing > savings in big banks and postal savings and insurance). How Americans in > 2002 could say their town or family business benefited from a World Bank > loan? I'm not saying the high savings -- high investment rates weren't warranted, just that this pattern can be difficult to maintain. > > >Each validates the other, and both are made > > feasible by a large trade surplus: this prevents the high rate of > > savings from becoming a Keynesian burden and it generates the induced > > demand for investment. > > > According to this view, Japan is in the midst of a protracted adjustment > > crisis, which can either be explained by increased competition with > > other east Asian exporters for the available (i.e. US) markets, or by > > the "maturation" thesis, according to which domestic consumption can no > > longer be constrained and the economy loses its export advantage. > > This obsesses on "exports" as if they were something other than just > something you shipped and sold overseas for a loss or profit. They are not > the key to understanding deflation or lack of profitability in the domestic > economy. The Japanese didn't lose the car market in America to cheap > exporters from Asia. Rather, the high yen squeezed their profits on the > quotas they have been allowed to sell in the American market. Meanwhile, > profits have always been limited in Japan in cars because of the intense > competition among all the Japanese producers of cars. Take away automobiles > and parts and some very advanced electronics, and Japan runs trade deficits > with the rest of the world. Yet no where in the developed world even has it > been agreed that by principles of free trade these industries should be > surrendered to Japanese dominance. In fact, quite the opposite is the case > if you track trade policy and its results from about Reagan II onward. > My comment was not about profits but the adequacy of effective demand. High investment leads to high capacity which requires high demand. If it ain't domestic, it comes from net exports. In recent years Japan has run bilateral trade deficits with several east Asian countries, no? > > In > > either case, much of the capital stock is revealed as "misinvested" -- > > and this on top of the bad bets made during the bubble period. > > If companies and their banks can't decide what is and what is not well > invested, who can? God? > > Also, what is normally a good bet in a modestly growing economy can be > something quite different in a recession, don't you think? > Yes, that's my point. With changing sources and patterns (and levels) of demand, investments that made sense during the planning phase can be revealed as mistaken ex post. > > The > > Japanese system of pooling financial risk supposedly slows down the > > adjustment process; hence the outside calls for restructuring via > > write-offs and default. > > I think if you could think like an 'analyst' at an investment bank in Tokyo > (most linked to interests in the US) you would see the calls have nothing to > do with a slow Japanese adjustment process and the ineluctable need for > 'restructuring' but rather the need to find profits now that the North > American equity market is flat. I say Japanese companies operating on > microeconomic principles not much different than what Americans or Europeans > are used to have restructured and altered radically in the past decade. > Perhaps far more radically than anything that's been going on in North > America or Europe. > This hasn't miraculously turned around the non-growing economy or deflation. > There is debate about this, as I understand. The question I've seen posed is, how can you accelerate the writeoff of nonperforming loans if doing so would erase the equity position of much of the banking system? I realize there are powerful vultures out there, but that doesn't mean that any critical analysis of Japanese financial practices is purely self-interested. Has the main bank system completely vanished? > > > > > If this is true, the problem shows up in Keynesian fashion (reduced net > > exports), deflationary pressure (competition with lower-wage producers > > in the region), and persistent financial fragility. > > Is this what the Clintonites were thinking when they said 'if it takes one > yen to the dollar to balance trade with Japan, we'll do it'? As if the > Japanese economy wouldn't collapse long before that level had been reached > (when it hit 79 yen to the dollar it had people ready to jump out the > window, nearly 100 percent of all businesses realized they had become > unprofitable overnight). > > I think a good case could be made that the strong yen hurt all of Asia but > redoubled its hurt on Japan. A lot of the bad debt goes back to what > happened elsewhere in Asia, since Japan was a huge creditor in yen > denominated debt throughout the region. Not only did Asian countries prove > unable to pay their debts to Japan, their domestic markets shrunk. Their > economies became one dimensional: dependent on selling cheap (relative to > Japan's) exports to the rest of the world pegged to a cheap dollar. The strong yen is a response in part to the overvalued dollar. My reading is that xrate imbalances reflect longstanding imbalances in global flows on the current account (more than vice versa), but that's a story for another day. > > > > > Comments? > > Such explanations always seem to 'make some sort of sense' because basically > they overinterpret 'reality' based on far too little real information. > Charles Jannuzi I'm hoping you didn't mean what these words seem to say. I'm no expert on Japan, but I have read a few books and try to keep up with the news as it trickles across the Pacific. FWIW, my two hypotheses are also Bill Tabb's (last I checked), although he leans more to the maturation model, and I lean more to the impact of capacity expansion in east Asia (and especially China). That doesn't make this point of view correct, of course, but it isn't helpful to argue that points of view that differ from yours must be based on being people being overopinionated and underinformed. Peter
