Re: Re: Re: Re: Rentier's hoarding ?
I think that all of this agreement about the cause of the Japanese depression. Japan used macroeconomic policies to prop the economy up in the wake of the oil shocks, leading to rapid accumulation and a wild run-up in land prices. Finally the overhang caught up with Japan. I would like to add that the Japanese depression seems to be unprecedented in the sense that, for what I understand, relatively few people have been severely hurt in the process. I've never heard before of an Atilla-less depression -- although I understand that quite a few people in the second and third year manufacturing sectors have been hurt, still seems small by capitalist standards. Jim Devine wrote: Doug is suggesting that the problem _might_ be solved the good old Maggie Thatcher or Attila the Hun way, imposing a shake-out that drives out the weakling capitalists and imposing wage cuts, deunionization, etc. on the working class. This would raise the rate of profit and eventually stimulate accumulation and recovery, if it doesn't cause underconsumption. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Re: Re: Rentier's hoarding ?
At 02:00 PM 3/24/00 -0500, you wrote: I said I thought Japan looked to be in the throes of a classic overaccumulation/profitability crisis. For decades, state policy and the financial/governance structure permitted firms to invest to gain market share without paying much attention to ROI. Now they've had their reckoning - but state policy has still put a floor under the deflation, preventing the full-scale liquidation that might clear the way for a new round of accumulation. Also, the Japanese ruling class seems not to have had either the power or the confidence to crush its working class the way the Americans have, a la Volcker/Reagan in the late 1970s/early 1980s. In standard macroeconomic terms, this says that Japan's problem isn't the matter of the "liquidity trap" (horizontal LM, perhaps due to the fact that nominal rates can't fall below zero) but a vertical or very steep IS curve. In prose, businesses won't accumulate fixed capital and people won't buy (very many) new houses or consumer durables no matter how low the real interest rate is. This means that the Krugman plan (inflation driving real interest rates negative) won't work, because businesses don't want to accumulate further debt or more capacity, while consumers also don't want more debt. A low interest rate would most stimulate the Japanese economy if it caused the Yen to fall, encouraging their net exports to rise. That is, it would help Japan only at other countries' expense. (Of course, the US is the world's buyer of last resort at this point, so that the US helping to keep Japan from falling even lower.) Doug is suggesting that the problem _might_ be solved the good old Maggie Thatcher or Attila the Hun way, imposing a shake-out that drives out the weakling capitalists and imposing wage cuts, deunionization, etc. on the working class. This would raise the rate of profit and eventually stimulate accumulation and recovery, if it doesn't cause underconsumption. Jim Devine [EMAIL PROTECTED] http://liberalarts.lmu.edu/~jdevine
Re: Re: Re: Re: Rentier's hoarding ?
Doug is suggesting that the problem _might_ be solved the good old Maggie Thatcher or Attila the Hun way, imposing a shake-out that drives out the weakling capitalists and imposing wage cuts, deunionization, etc. on the working class. This would raise the rate of profit and eventually stimulate accumulation and recovery, if it doesn't cause underconsumption. There are also significant risks to this strategy, if taken seriously. If such "restructuring" were to provoke a more general banking / financial system crisis, Japanese would dump all those dollars, bonds, and dollar-denominated assets that it holds, which could spell the end of the U.S. ability to act as consumer of last resort--and hence, to its "New Economy" euphoria. (I think Taggart Murphy makes this point pretty well in his NLR piece.) All best Christian
Re: Re: Re: ? Rentier's hoarding ?
Barney writes: ... the question is, does anyone still hoard? There are plenty of virtually risk free, short term financial instruments. The municipal bond market seems pretty damn liquid these days. And for those of us of more modest means, there are interest bearing checking accounts. More to the point, does the concept of liquidity preference still make any sense. Consumers certainly don't have to worry about liquidity - we have credit cards. Consumers aren't the problem, though, since most are net debtors and not in the business of financing business investment. The advent of deposit insurance certainly has changed the nature of hoarding for small savers. But big savers never put their money under the mattress, even in Keynes' day. The issue with "hoarding" is that, if big financiers -- institutional investors and very wealthy individuals, net creditors who supply most of the financing for new investment -- are bearish on bonds, prices will fall and yields rise. The "liquidity" you perceive in the municipal bond market is illusory. To be sure, there is a broad market and it's usually easy to find a buyer, but there's no gaurantee that you can sell at the price you paid. The idea of liquidity preference, in it's more modern post-keynesian version, is that financiers will, if they become bearish on bonds and stocks (due to rising interest rates or the expectation of rising interest rates, or due to a market crash), refuse to lend long-term. They may be willing to hold bills and commercial paper, but business borrowers can't undertake major long-term investments if they have to refinance every 6 months, so the unwillingness of financiers to lend long dampens lending. Keynes called this situation a liquidity trap and felt this was a good argument for fiscal policy and government investment programs. Unlike private firms, the federal government can finance long-term projects with short-term debt. Ellen
Re: Re: Re: Re: ? Rentier's hoarding ?
Keynes called this situation a liquidity trap and felt this was a good argument for fiscal policy and government investment programs. Unlike private firms, the federal government can finance long-term projects with short-term debt. Ellen How do you think the situation in Japan reflects on Keynes' theory? Is it a case of financiers refusing to lend long--after all, there is plenty of long-term government debt floating around, but there seems to be no demand for funds in the private sector. Even if the government expenditures are overstated, should not Japan's fiscal policy to date stimulated more demand for savings? Also, there would seem to be an argument to be made that consumers in Japan *are* hoarding, as they have been dumping savings into the postal savings system, taking them out of private sector banks since 1990 (currently 37% of total Japanese savings are in the postal savings system, compared to 29% ten years ago). All best Christian
Re: Re: Rentier's hoarding ?
I think that we could say that Keynes was right as far as he went. Japan is probably is good example of a liquidity trap as you can get. The problem is that Keynes didn't go very far. The liquidity trap is fairly reflection of the psychological state of investors. Unfortunately, he does not do a good job of linking the psychological states to real economic forces. Here we will do better than looking to Marx even though Marx worked alone without the benefit of a Keynesian circus and died before he ever got a chance to finish. "Christian A. Gregory" wrote: Well, Doug said that Japan confirms Marx rather than Keynes. I didn't catch this. Doug, would you repost your comments? Isn't there something more fundamental going on, namely competition between nations based on the production of automobiles, computers, and capital goods such as machine tools? In the world capitalist economy, there are winner nations and loser nations just as within a capitalist economy there are success stories like Bill Gates and loser stories. Well, I was looking at it in terms of fiscal, not monetary policy. But sure, at the end of the day, you could say there's something more fundamental going on--i.e. that this is the malign invisible hand, wrecking an economy with enormous overcapacity and insufficient exit from unprofitable lines. But Japan's overcapacity was an effect of the asset bubble at the end of the 80's, itself the effect of monetary easing after the 1987 US market crash (to support the dollar) and the asset management strategies after the Plaza Accord (to restore Japanese "competitiveness") that induced the bubble. So there is competition; there are winners and losers. But there's no getting around the "externalities" that make up the field. (And I don't think it's not Marxist to say this.) All best Christian -- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
Re: Re: Re: Rentier's hoarding ?
I don't really understand the situation in Japan, but I found the article in the most recent New Left Review by Taggart very interesting. Bill Tabb wrote a very illuminating piece on Japan for Dollars and Sense last year, as well. Taggart argued (I think) that the analytical categories of free-wheeling Anglo financial markets simply don't hold in Japan, where lending criteria and bank structure were designed to facilitate Japanese nation-building, not to meet US accounting standards. So I don't think the Keynesian notion of a liquidity trap -- where market-driven financiers hang on to liquidity even when the return is zero -- is relevant. The Japanese financial system isn't market driven. Ellen [EMAIL PROTECTED] writes: I think that we could say that Keynes was right as far as he went. Japan is probably is good example of a liquidity trap as you can get. The problem is that Keynes didn't go very far. The liquidity trap is fairly reflection of the psychological state of investors. Unfortunately, he does not do a good job of linking the psychological states to real economic forces. Here we will do better than looking to Marx even though Marx worked alone without the benefit of a Keynesian circus and died before he ever got a chance to finish.
Re: Re: Re: Re: Re: ? Rentier's hoarding ?
Title: Re: [PEN-L:17381] Re: Re: Re: Re: ? Rentier's hoarding ? Re the relevance of Keynes's idea of the liquidity trap for an analysis of the current situation in Japan. For reaons Keynes himself gives, the functioning of psychological factors in Japan is likely to differ in important ways from their functioning in, say, the U.S. He did, however, believe that certain psychological factors were general to capitalism - they constituted, if you like, its spirit and provided the dry bones for analysis, bones requiring, however, much fleshing out to be made fully applicable to a particular economy at a particular time. According to him, the three fundamental psychological factors relevant to the analysis of any capitalist economy are the psychological propensity to consume, the psychological attitude to liquidity and the psychological expectation of future yield from capital-assets. (General Theory, pp. 246-7) Having said this and admitting that I have little if any knowledge of the particular circumstances in Japan that would be required for such a fleshing out in Keynes's terms, I suspect his ideas of the psychological propensity to consume and the psychological expectation of future yield from capital assets are as relevant as his ideas of the psychological attitude to liquidity and the liquidity trap (this should really, in my judgement, be traps since Keynes points to more than one kind) to explaining the current Japanese situation. Explaining the relation of the slump of 1930 to the crash of 1929, he says: The pessimism and the atmosphere of disappointment which the stock-market crash collapse engendered reduced enterprise and lowered the natural rate of of interest [i.e. the rate of interest which would keep investment at the level necessary to absorb saving at full employment]; whilst the 'psychological' poverty which the collapse of paper values brought with it probably increased saving. The last point is important, and we may pause upon it for a moment. It may suggest a generalisation of permanent value. A country is no richer when, for purposes of swopping titles to prospective gain between one of its citizens and another, people choose to value the prospects at twenty years' purchase, than when these are valued at ten years' purchase; but the citizens, beyond question, feel richer. Who can doubt that a man is more likely to buy a new motor-car if his investments have doubled in money value during the past year than if they have been halved? He feels far less necessity or obligation to save out of his normal income, and his whole standard of expenditure is raised. For their paper profits and their savings out of current income are not kept by most men (as perhaps they should be) in entirely separate compartments of the mind. In the actual example before us the market value of the securities listed on the New York stock exchange rose from $70,000 million in April 1929 to $90,000 million in September 1929, and had fallen back to $64,000 million by December 1929. The public cannot be expected to see their nominal wealth increase by $20,000 million in six months and then lose $26,000 million in three months, and to maintain precisely the same style of life during the second period as during the first. I conclude that they are more likely to 'save' (in my sense of the word) when they are 'losing' than when they are 'making' hundreds of millions of dollars a week - more likely to refrain from new extravagances and to pay off the instalments of their former purchases. (Treatise on Money, VI, pp. 176-7) Explaining why a significant drop in interest rates, even where it is both feasible and realized, may not pull the economy out of a slump, he says (in the General Theory): It is this ['the collapse in the marginal efficiency of capital'], indeed, which renders the slump so intractable. Later on, a decline in the rate of interest will be a great aid to recovery and, probably, a necessary condition of it. But, for the moment, the collapse in the marginal efficiency of capital may be so complete that no practical reduction in the rate of interest will be enough. If a reduction in the rate of interest was capable of proving an effective remedy by itself, it might be possible to achieve a recovery without the elapse of any considerable interval of time and by means more or less directly under the control of the monetary authority. But, in fact, this is not usually the case; and it is not so easy to revive the marginal efficiency of capital, determined, as it is, by the uncontrollable and disobedient psychology of the business world. It is the return of confidence, to speak in ordinary language, which is so insusceptible to control in an economy of individualistic capitalism. This is the aspect of the slump which bankers and business men have been right in emphasising, and which the economists who have put their faith in a 'purely monetary' remedy have underestimated. (General Theory, pp. 316-7) My
Re: Re: Re: Re: Re: Rentier's hoarding ?
Christian writes: There are also significant risks to this strategy, if taken seriously. If such "restructuring" were to provoke a more general banking / financial system crisis, Japanese would dump all those dollars, bonds, and dollar-denominated assets that it holds, which could spell the end of the U.S. ability to act as consumer of last resort--and hence, to its "New Economy" euphoria. (I think Taggart Murphy makes this point pretty well in his NLR piece.) What I found interesting about the NLR piece was the suggestion that the Japanese are far less worried about the situation than Americans are. The Japanese economy is in a "crisis" from the perspective of American firms who would like to invest in Japanese businesses and banks, but can't, given the condition of their balance sheets. But the economy is not yet in a "crisis" from the perspective of the Japanese. Recall Marx's famous line about the insanity of a crisis of overproduction. The Japanese are not starving and, with all their foreign asset holdings, have a few more cards to play in the international economy. So why should they worry that their balance sheets look grim by US accounting standards? Ellen
Re: Re: ? Rentier's hoarding ?
Barney writes: ... the question is, does anyone still hoard? There are plenty of virtually risk free, short term financial instruments. The municipal bond market seems pretty damn liquid these days. And for those of us of more modest means, there are interest bearing checking accounts. I'd say that instead of hoarding, what can happen today is that the illiquidity premium goes up (relative to cash), so that the illiquid assets have to pay more for tying up one's assets (as people get wary about capital losses on such assets). In this case, most people's portfolios would shift toward more liquid assets (T-bills rather than corporate stock). (It works out differently for those of us who have portfolios of debts rather than portfolios of assets.) I think it is Tobin who argues that in recent years (on occasion) there's been flights to quality rather than to cash. During the 1930s, people fled to cash, because the whole banking system was going belly-up. In the SL and related crises, there was a flight to more conservative banks from the SLs. This change of course is due to deposit insurance. More to the point, does the concept of liquidity preference still make any sense. Consumers certainly don't have to worry about liquidity - we have credit cards. But even though it's possible (with cash advances and the like) to pay Mastercard with Visa, eventually you have to pay with cash. The longer you avoid paying, the more interest fees you have to pay. Jim Devine [EMAIL PROTECTED] http://liberalarts.lmu.edu/~jdevine
Re: Re: Re: ? Rentier's hoarding ?
I'd say that instead of hoarding, what can happen today is that the illiquidity premium goes up (relative to cash), so that the illiquid assets have to pay more for tying up one's assets (as people get wary about capital losses on such assets). In this case, most people's portfolios would shift toward more liquid assets (T-bills rather than corporate stock). It would be interesting to know how the composition of the non-equity part of porfolios has been changing recently. But even though it's possible (with cash advances and the like) to pay Mastercard with Visa, eventually you have to pay with cash. The longer you avoid paying, the more interest fees you have to pay. ^ That's certainly true. But with revolving credit, consumers don't have to hold cash very long. And being caught up short is a less pressing problem. -- Barnet Wagman email: [EMAIL PROTECTED]
