Japan from the inside out

Stimulate supply, not demand

Posted by ampontan on Monday, August 23, 2010

FOLLOWING LINKS on the Internet can lead to serendipitous discoveries. Getting clicky last night popped up the Super Economy site written by a Kurd/Swede who goes by the name of Tino.

Tino usually focuses on the American economy, but he takes a look at Japan in a post from 23 May this year. The post may be three months old, but don’t let that stop you from reading it–he says what a lot of people in Japan aren’t willing to say, and his advice is not time-dependent. The title is Japan’s Problem is Supply, Not Demand, and Tino thoughtfully includes several charts. His first argument:

Japan has simply not been growing slower than other advanced countries once we adjust for demographic change.

After presenting some statistics, he concludes:

Between 1990-2007, GDP per working age adult increased by 31.8% in the United States, by 29.6% in EU.15 and by 31.0% in Japan. The figures are nearly identical!

Then he takes on Paul Krugman, which these days is like shooting fish in a barrel:

Next, to Krugman’s point that the problem is “policy makers… doing too little” (by which he means spending too little). Japan has been running Krugman-Obama sized deficits averaging about 5% of GDP for a decade and a half…Krugman is simply dogmatic when he claims that Japan’s policy of massive deficits failed because the deficits were not large enough(!)

That leads to his next point:

Krugman is obsessed with demand, and ignores the (usually) far more important factor, which is supply.

(A)djusting for population, Japan has simply not been doing that badly in growth terms. Their problem now is their debt, which they have thanks to Keynesian policies. Capacity utilization is high in Japan, including a low unemployment rate. Stimulating demand just won’t do it when the problem is supply. If Japan wants growth they have to go for supply factors, including hours worked.

He adds in an update:

Japan also illustrates the problem of over-zealous, imprudent Keynesianism. If they had not undertaken massive deficits in the 2000s (when there was no need, and perhaps not even opportunity, for policies aimed at stimulating demand rather than supply) they would have had dry powder now. There is no guarantee that two crises cannot come within a couple of decades. Instead, the Japanese state is immobilized by their fiscal past.

Here are some other ways to stimulate supply:

  • Reducing taxes
  • Reducing unemployment benefits
  • Raising the retirement age
  • Facilitating bankruptcy, particularly of companies that are deemed “too big to fail”
  • Expanding the labor force with large-scale immigration

The idea is to bring down the prices of products purchased with discretionary spending that people usually avoid because they’re too expensive. In other words, stimulating supply ultimately stimulates demand.

The last of the five methods would not necessarily benefit Japan, and might cause serious cultural problems. Very few countries are emotionally equipped to assimilate large numbers of immigrants; places such as the United States and Canada are exceptions. Further, the larger the influx of immigrants, the more likely the immigrants will refuse to assimilate.

This should have been clear from the European example, but short of starvation or immediate threats to their safety, the elites that push immigration will always choose a desktop theory over reality. In this case, the desktop theory is, “Imagine there’s no countries, it isn’t hard to do…imagine all the people, sharing all the world.”

Prime Minister Kan favors stimulus of demand, and is not at all interested in stimulating supply. His policies (or more accurately, those of his economic tutors) will not succeed in the long run.


The comments to Tino’s post are also worth reading.

Word hasn’t filtered into Japan, but Paul Krugman has become the economist’s equivalent of the bearded nut on the sidewalk. A lot of people are now entertaining themselves with the game of shooting the ideas of a Nobel laureate full of holes, and Mr. Krugman obliges by puffing himself up into a larger target.

Here’s how I stumbled across Tino. The charts alone should be of interest.

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14 Responses to “Stimulate supply, not demand”

  1. toadold said

    There has always been a long standing anti-Keynesian movement in the US, mostly associated with the “conservative” wing of the Republican Party. Is there an anti-Keynesian “group” in Japan?
    Not so much a group as scattered individuals, I think. Some in the LDP seemed to be getting the idea with Koizumi, but they’ve been unable to deal with broadcast media propaganda. There is a layer of Internet activity in the US that doesn’t exist in Japan.

    – A.

  2. Roual Deetlefs said


    All I can say is Amen. Now about immigration. If immigration is that thorny an issue, what are the obstacles to raising the birthrate then?
    How do you raise the birthrate? Europeans can’t do it, and the South Koreans can’t do it either. The French managed to go from 1.8 to 1.9, and that’s with a basic Catholic population supplemented by a large Muslim population.

    Perhaps this week is the week I get off my duff and put together the demographics/child allowance posts.

    – A.

  3. Roual Deetlefs said


    When I was in the UK I heard that young mothers could get free housing.

    And from what I understand this did affect the UK’s birthrate positively. But I am not an expert on this.

    So if I’m right, if government wants a higher birthrate … they will have to pay for it.
    I don’t understand the links. The first is for a council flat for a poor family. The second is for a college student who doesn’t like living at home. None of that has to do with the birthrate, and the second example shouldn’t even be eligible. Young mothers get free housing? Were they married? If not, raising that birthrate is not desirable. The second link says single mothers go to the head of the line for council flats.

    The Japanese birthrate is something like 1.2 or 1.3, without looking it up. The replacement rate for a static population is 2.1. It’s not happening. The latest Cabinet survey shows 40% of Japanese aren’t interested in having kids.

    Wait till I get these posts together for more.

    Hold on a second. This Guardian article says the British birthrate is rising, and also says:

    Immigration is singled out as the sole mitigating factor, seen as crucial to maintaining population growth.

    Muslims do tend to have more children.

    Then there’s this article:

    The average UK-born woman has 1.84 children – an increase of 10% in just four years – while women living here who were born abroad have about 2.5 children. The ONS figures show that nearly a quarter of babies in England and Wales in 2008 were born to mothers who came from outside the UK, most commonly women from Pakistan, Poland and India.

    No word on the ethnicity of the UK-born women who’ve contributed to that 10% increase in four years.

    I suspect free housing is not the reason.

    – A.

  4. Roual Deetlefs said

    I stand corrected.

  5. Roual Deetlefs said


    Two English researches, Wrigly & Schofield, found a correlation between real wages and birthrates in England. They studied this phenomenon between 1550 and 1800 in England. Their conclusions were this :

    1) Real wages increased.
    2) People married younger.
    3) Then birthrates increased.
    4) But this after a lag of 30 years.
    5) Provided real wages didn’t decline.

    Here are some links :

  6. fuck you nigger said

    Ahahahahahahaha. You’re a racial tourist who has the gall to stick his nose where it doesn’t belong. You couldn’t hack it over here it America so you chose to go to a place you thought would coddle your stupid social awkwardness.

    AND THEN you have the gall to talk about racial birthrates like it’s pure Anglo people’s* responsibility to fight off the brown nigger horde. You’re such a pathetic cunt.


  7. Roual Deetlefs said

    … Yuck You Figger …

  8. Paul said

    I have to agree with Fuck You Nigger. The last thing Japan needs is more Japanese people. Heaven forbid a bunch of immigrants break their byzantine ideas of honor and shame.
    For those coming to the story late, a poster by the name of Paul with the same e-mail suffix used to link to his website, which had the title of “Nippon N*gg*r”. (Aceface will remember, he remarked on it.)

    – A.

  9. Paul said

    Also, maybe some more immigration would keep Japan’s politics from being so boring. It’s pathetic that whether or not married women should be able to keep their maiden names passes for a political issue there. How about a real political issue, like whether or not the Japanese should keep being hysterical pussies about guns?

  10. M-Bone said

    Whatever the case, when someone writes “I have to agree with Fuck You Nigger”, it is time for a serious reexamination of life priorities.

  11. Aceface said

    “Aceface will remember, he remarked on it.”

    Actually,I forgot.
    However,I have a concrete belief that the last thing Japan needs is more gaijins like Paul.
    We used to deal with these kinds by chopping their heads off with samurai sword back in the good ol’ days,you know.

  12. bender said

    Uh…kono hito daijobu desuka? Nippon no koto shiranai mitai desune.

    Obviously Japan has a weak demand, we’re in a deflation, duh. The low employment rate is because unemployment is contained by government subsidies…you should know this. If the government didn’t give out subsidies, Japan’s employment rate would be close to 10%. As for raising retirement age, this has already been done, and unemployment insurance in Japan isn’t much helpful in a work culture where lateral hire is still difficult. Lowering unemployment insurance will probably just make workers want to stay in their ailing companies until they really sink below water. As for bankruptcy, other than JAL, let’s tell us which company was recently deemed to big to fail? I wonder why bankruptcy lawyers I know seem pretty busy these days…

  13. Roual Deetlefs said


    This blogpost says that Japan and Switzerland needs to devalue their currencies, but is getting no support from the US. If the yen does not weaken, there will be crash of epic proportions in the Nikkei. This is not a time to be in stocks. But I also think this will be last hurrah for deflation in Japan, before inflation starts to kick in. If the yen starts to fall then, then the yen value of Japan’s US-bonds starts to rise … possible making Japan’s debt to GDP ratio a lot less burdensome.

  14. Roual Deetlefs said


    From this article :

    Keynesian economists are also guilty of deliberately obscuring the mechanism whereby the debt of the government is monetized by the banking system. They want to create the impression that the public, that is, individual investors at home and abroad buy the government paper for purposes of saving. The truth, however, is that individuals have long since stopped saving in the form of government paper, which they look at as “certificates of guaranteed confiscation”. Their role has been taken over by bond speculators who make a killing on their holdings of bonds when interest rates go down, and they make a killing on their short positions in bond futures when interest rates go up. In either case, they make their profits at the expense of the public. Recall that such profiteering is ruled out under the gold standard — the only agent that can stabilize interest rates and bond prices.

    But — and this is what Keynesians are hiding from the people — by far the largest part of government debt is held by the banking system. To the extent that banks finance government borrowing, future (as opposed to present) savings are being used, with disastrous consequences. The government sells its bonds to the banks; the banks use these as assets and create demand deposits against them, thus acting as an intermediate agency for converting the government’s promises to pay in the distant future into bank deposits that can be used immediately as cash. The ratio of reserves to deposits declines. The banks put their credit-clearing facilities and their cash at the disposal of the government. This procedure is called “monetizing government debt”. It cannot continue indefinitely: it can only continue until surplus bank reserves have been exhausted.

    Monetization of government debt by the banking system is a thoroughly bad policy. It is the engine of inflation as deposit currency payable on demand is created against the government’s promises to pay in the distant future. It is the classical example of borrowing short and lending long.

    But it could also be an engine of deflation. Here is what happens. Bond speculators are watching. When the banks get overextended as they approach the limit set by their ratio of reserves to deposits, the speculators dump the bonds en masse causing a steep rise in the rate of interest. The corresponding drop in bond prices wipes out the entire capital and surplus of all banks simultaneously, as it happened in 1920 and, again, in 1980. The banks still have not recovered from the latter episode. So many, if not all of them are zombies, operating by the grace of government on negative capital. The abrupt and steep rise is followed by a slow, extended fall in interest rates. Such a fall has the effect of destroying capital across the board, as the liquidation value of debt rises. The banks are not exempt from capital destruction. The upshot is prolonged deflation feeding upon itself. This is the true explanation of the Great Depression of the 1930’s, and this is the story behind Great Depression II now unfolding.

    Remember that under falling interest rates the liquidation value rises. What does this mean ? If you have a million yen mortgage at 5% and you win the lottery and you want to pay off the mortgage, you will retire the mortgage at less money if the interest rate goes above 5% (but your monthly payments will rise) and you will retire the mortgage at more money if the interest rate goes below 5% (but your monthly payments fall)

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