Re: Reengineering the Fed

[Dennis R Redmond <dredmond@xxxxxxxxxxxxxxxxxxxxx>]

On Wed, 8 Oct 1997, William F. Hummel wrote regarding East Asia:
> GDP comparisons, if your figures are correct, obviously don't
> provide a very good measure of the relative living standards.  I
> don't claim any special knowledge of the Japanese monetary
> system.   I do think the cultural and work ethic differences, and
> the protective measures of MITI regarding imports explain a great
> deal about the rapid development of the Japanese economy.
> The same can be said about the South Korea and Taiwan.  Can you
> tell us some pertinent details about the BOJ and the Japanese
> monetary system.  What specific features should we adopt?

The figures are from the OECD, and reflect the exchange rate of 1996 (per
cap Japanese GDP would be maybe $32,000 today, though I tend to think the
yen will appreciate even more vis-a-vis the dollar in the long run).
GDP figures are really about the total productive capacity of
an economy, not how much people get paid. In East Asia, the big keiretsu
are the ones raking in the cash, not their workers.

As far as bashing markets goes: markets aren't inherently evil, but rather
fields of dynamic contradictions, where different cultures, nations, regions,
states and economies trade and tussle with (and occasionally, even learn
from) one another. My own, Leftwing position is that the long-term goal
ought to be equal (i.e. democratic, ecological and transnational)
exchange, and that there are elements of equal exchange within the current
system, e.g. Hewlett-Packard, Sony and Daimler-Benz all practice a local
kind of socialism for their skilled workers. The Internet is rapidly
making authoritarianism untenable in China and Indonesia; Apple Computers
probably did more to spark the Czechoslovak Velvet Revolution than Radio
Free Europe. We need more globalization, not less; but a globalization of,
by and for everyone, not just the rich.

Financially, there's much to learn from East Asia. The most important:
Japan's overloan policy, set up in the early 1950s, when credit was still
rationed and the economy shaky; banks were forced, by MITI and related
edicts, to fork over credit to industrial groups, more than they thought
they could handle. The latter promptly turned around and invested in huge
projects, and cashed in when the Korean War boom hit Japan. Later, the
keiretsu banks took over where the Government left off, aggressively
subsidizing new industries with loans galore; the BOJ, in turn, kept
interest rates negative in real terms, and recycled the capital from
Japan's enormous postal savings system into industry, through big-time
Keynesianism, public works projects, construction etc. (the postal system
bought the Government-issued bonds to pay for this). It's more complex
than this, but this is the gist of it. Other models: South Korea
subsidized interest rates for the big chaebol, and allocated export-funds
by performance, instead of political pull. Taiwan nationalized its heavy
industry in the Fifties, and then subsidized small and medium-size
enterprises by tariff walls, and an efficient developmental state.
Singapore's Central Provident Fund taxed  employers and employees and
financed an entire construction industry. Many European countries tamed
finance using similar strategies, e.g. Austria's public industries, West
Germany's Big Three banking keiretsu, Switzerland's pension fund.

Currently the Czechs, Poles and Chinese are adopting similar strategies.
Here in America, my best guess is we need a domesticated Federal
Reserve, a Tobin-style tax on Wall Street, Federally-chartered
developmental banks for our inner cities, plus a huge expansion of the
welfare state (all to be financed the good old-fashioned way, by soaking
the rich). Sure, the rich would complain, but they'd get their money
back and more, due to faster long-term economic growth.

-- Dennis