Re: Yen still overvalued

["Charles Jannuzi" <jannuzi@xxxxxxxxxxxxxxxxxxxxxxxxx>]

Re: Yen still overvalued


> Gil writes:>The interesting question, in light of Peter's assessment, is
why
> the Japanese
> government can't use traditional Keynesian fiscal tools to pull itself out
> of
> the recession.<
>
> 1) the IMF and the assembled economic pooh-bahs argue against it.

Yes, Japan is the darling of the World Bank but has never had good relations
with the US-dominated IMF. And O'Neill was over here before Bush and read
the MofF the riot act.

> 2) they've already done it a lot, building a lot of infrastructure, much
of
> it useless, but never enough to get the Japanese economy moving again.

No, it worked to quite an extent throughout the 90s. This is why, if you
take growth in GDP from 1990 to 2000, the US barely edges out Japan. But
Clinton reversed on the cheaper yen in 1996 and that was it. The Asian
crisis came and the Japanese economy tanked.

> 3) they don't want to get into raising government consumption (building
> pyramids, as Keynes suggested) and they're still restricted from doing
> Military Keynesianism.

Japan has sizable expenditures in military spending, but you are right,
these are pretty stagnant. About 1% of GNP and staying there.

>
> But that doesn't mean that fiscal policy couldn't be used. My idea is that
> they should stimulate the Japanese economy by giving foreign aid to poor
> areas (such as East St. Louis, IL) that's "tied," i.e., can only be spent
on
> Japanese goods. This is what the U.S. did for many years.


This would then come up in trade talks with the US and Japan would be told
to stop. The last area to get huge amounts of gov't aid was the Kansai,
after the devastating earthquake in 1995. Far more people died in this quake
and far more property was destroyed than 9-11. It was actually quite a blow
to the country as a whole.

In some ways, what you advocate is the source of the political problems in
Japan. The people in less populated areas get a disproportionate share of
representation in the gov't, and their vehicle for accomplishing this is the
LDP. The LDP has traditionally been about these things: dealing with the
difficulties of the world trade system (keeping the US happy), developing
the countryside (though this has actually helped the cities to sprawl out
and enjoy the suburban and exurban lifestyle), subsidizing small farms to
produce self-sufficiency in rice and truck farmed produce. The urban
populations tend to swing toward populist figures who promise that finally
they'll get their equal share.

Charles Jannuzi