Japan from the inside out

The perpetual infancy of the political and bureaucratic classes

Posted by ampontan on Monday, December 27, 2010

Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.
– George Santayana,
The Life of Reason

IN A PAPER titled Explaining Japan’s Recession, Benjamin Powell examines the Japanese economic malaise from a Keynesian, Monetarist, and Austrian perspective, and posits that only Austrian theory can elucidate the problems:

The increase in the consumption tax and the failure to reduce government spending along with the other tax cuts delay recovery from recession. Government spending seeks to maintain the existing production structure, against the demands of consumers, instead of permitting its liquidation and reconstruction.

The repeated fiscal stimulus packages with public-works spending, the large amount of savings controlled by the postal savings system and allocated through FILP, and the efforts to prevent bank and business failures all have prevented the market process of recovery from working. These repeated government interventions have maintained the existing structure of production, delaying its necessary alignment to the particular demands of consumers.

Mr. Powell concludes (emphasis mine):

Japan’s development model over the past 50 years has emphasized government intervention and planning in the economy. During its recession, government interventions have manifested themselves as fiscal stimulus packages involving large amounts of public works, increases in the monetary base, interest-rate cuts, bailouts and nationalization of some banks, direct government lending to businesses, and increases in government spending despite some tax cuts. These interventions have tried to maintain the existing structure of production preventing the necessary market processes from working to correct the artificial boom’s malinvestments.

Japan has experienced an Austrian business cycle. The initial boom was created by a central bank-induced monetary expansion. Because of repeated interventions, the economy has not recovered. The greatest malinvestments took place in capital-intensive industries in the earlier stages of production. For Japan’s economy to recover the government must stop intervening in the economy and allow the market process to realign the structure of production to match consumer preferences.

His paper was published online on 19 November 2002.

The Koizumi administration took the first steps to bring these problems under control. The most important of these steps was the privatization of Japan Post, which would have prevented the government from dipping into the postal savings accounts for their stimulus schemes.

By the end of the Abe administration, the budget deficit had been cut from more than JPY 20 trillion when Mr. Koizumi took office to roughly JPY 7 trillion. It was only three years ago, but those days now seem like a mirage.

The DPJ promised that changes would be made. What changes have they effected? They shifted the emphasis of government stimulus programs from public works expenditures to social welfare schemes. That’s the crop.

Otherwise, they have provided expensive and unaffordable subsidies to farmers and families with children, plan to increase the income tax and the consumption tax while offering a token cut in the nominal corporate tax rate (which is not the real rate for many corporations), stopped the privatization of Japan Post, allowed businesses to temporarily forego loan repayments while guaranteeing the revenue to the banks, and plan more stimulus schemes. They even claim higher taxes will result in greater economic growth if only the government would spend the money properly. Their answer to a crisis is “more of the same”.

If the Kan Cabinet’s current budget proposal is adopted next year, the DPJ will have given Japan two consecutive record-high budgets while slathering on greater amounts of debt to the Fujiyama-sized pile already smothering the economy.

Meanwhile, the Western media referred to Mr. Kan as a “fiscal hawk”.

The perpetual infants of the political and bureaucratic classes are condemning the country to the continuation–not the repetition–of its economic malaise.

Much of the blame lies with the Finance Ministry. They’ve remained a constant. The only change has been in the puppets attached to their strings and the steps of the dance.

For years, people believed the elite educational and career path ran through the University of Tokyo to the front doors of the Ministry of Finance.

If anyone wishes to argue that the elites of the political and bureaucratic classes deserve to be called elites and are not guilty of decades-long malfeasance of their fiduciary trust, the Comment section is all yours.

Addendum: Both Europe (yes, really) and local governments in the United States are standing on the precipice of a sovereign debt crisis, but Japanese politicians are consumed instead by the question of whether Ozawa Ichiro should be forced to testify in the Diet. (He should testify, but the political class is investing more time and energy in the issue than required.)

Earlier this week, a reporter asked DPJ Secretary-General Okada Katsuya whether the party’s focus on Mr. Ozawa was detracting from their pledge to put people’s lives first. “Of course not,” replied Mr. Okada, “we’re quietly moving ahead with such issues as the reform of the Tax Code…”

Thus, in the DPJ equation, higher taxes + bigger government = putting people’s lives first.

Pardon the pessimism, but the current international situation has the potential to become the rudest of awakenings, and Nagata-cho isn’t paying attention.

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4 Responses to “The perpetual infancy of the political and bureaucratic classes”

  1. toadold said

  2. toadold said

    Off topic a bit:

    While her economic analysis is probably correct. I had to flinch at the comment attributed to Western economists about Japan being a monolithic culture not having racial and class divisons like the Western countries. Nope no distinctions driven by occupation, education, sex, religion, family name or district you live in, or anything like that……Jaysus.

  3. […] The perpetual infancy of the political and bureaucratic classes ( […]

  4. […] The perpetual infancy of the political and bureaucratic classes ( […]

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