Deflationary pressures?

Charles Jannuzi b_rieux at yahoo.com
Sun Jan 19 22:52:36 MST 2003


HCKL:

>>Not quite. It would be much worse in the US.<<

What would be worse? Deflation? I don't think so.
I think the US is headed smack for a new type of
stagflation (low growth matched by low but real
inflation) this year because of a political
economy artificially steered to higher oil and a
cheaper dollar. Japan has been long exposed to an
overvalued currency in an era of relatively cheap
oil. But remember, unlike the US, Japan has no
functional resource hinterland. It import over
60% of its food and all of its fossil fuels. And
it is exposed to global flows in trade in goods
and services outside of exclusivist trade
pacts--that is, it is not in anything comparable
to NAFTA or the EU.

>>Japan, as an Asian culture, places importance
on the national economy and operates as if
individuals and companies can only prosper if the
national economy prospers.<<

I don't think the record shows Japan has been any
more obsessed with strategic trade policies than
the US, and would argue it has been less so than
late Bush I, Clintons I-II, and Bush Jr.

>> The US economy operates as a "natural"
calculus of individual survival. To Americans and
American corporations, a national economic boom
has no meaning unless the individual unit first
benefits. <<

I agree in the sense that Americans are thought
of first as 'individual consumers'. But a lot of
this has to do with the dominance of empty
economist rhetoric at think tanks, government
policy organs, academia, the media etc. ad
nauseum.

>>As markets globalize, this creates problems for
management in both cultural regimes. For Japan,
bailouts are normal, while in the US bailouts,
though they occur, are exercised with
apologies.<<

I disagree completely. The levels of corporate
bankrupties in Japan are high and getting higher,
and all differences aside, can be said to be
quite comparable to the US or UK. Bankruptcy
brings great shame upon the management of a
Japanese company; it is entered into with great
reluctance; and it tends to bring a company's
brand name down. Bailouts bring in outside
management, and are also considered marks of
shame and embarassment. Most in the west don't
seem to know what 'bankruptcy' for Japan's banks
means (everyone thinks they are being bailed out
all the time). Huge banks have been forced into
bankruptcy (also cryptically called
'nationalization). Once forced into bankruptcy by
the government, this is what happens to a bank:
the bad stuff goes on a bill to be paid by the
taxpayers; the good stuff goes to outside control
(in the case of LTCB now Shinsei, the control
went to a US non-bank private equity group,
Ripplewood).

I think it is true that in Japan banking
relationships and loan officers do more to manage
debt crises at companies whose loans are in a
bank's portfolio of loans, and that court-run
bankruptcies are used less, but I've not seen
anything that makes me think the difference
across the countries are fundamental. The goals
remain the same: either rehabilitate the company,
or break it up and sell it off. So compare what
is happening with Daiei (the Walmart of Japan, if
you will) and K-Mart.

 >>When in trouble, the US economy historically
sacrifices quickly the weak and the small, while
the Japanese economy punishes the strong and big
gradually.<<

I think the weak and small go all the time
everywhere. But what happens to the big and
politically influential?

Look at the repeated lifelines given zombies like
Enron and WorldCom. Or look at the way even the
federal government intervened to help out the
airlines.

>>When the long-overdue US recession hits,
Americans will see their faith in market free
enterprise shaken as the Japanese have been
losing their faith in their command economy,<<

Far too much begged here in the question. After
the war, at least up until the Dodge plan, Japan
had a command economy and a black market. The SAC
ran the command economy, and the black market was
catch-as-catch-can--probably even included US
military collaborating with yakuza. After the
Dodge Plan, the economy became much less command
in nature and run by the Japanese, though the
keiretsu were not comparable to the former
zaibatsu, and many companies outside of the
keiretsu flourished. I would even argue that the
Japanese national government has been less
dirigiste than France's or the German federal
system.


 >>despite the fact that the government has been
reasonably effective in insulating the Japanese
public from economic pain.<<

A while ago someone asked about Keynesianism.
Pain has been prevented, to some extent, by huge
supplementary budgets over the past decade in
Japan. But that is getting increasingly hard to
do because the IMF and the American and UK
ratings agencies keep making it harder for
anything Japanese to issue more debt.

Keynesianism started in Germany when it too,
saddled with an appreciated DM, reunited with E.
Germany and went hugely info deficits to do so.

I can assure you the pain in Japan is real and
has not been assuaged by a command economy--it
has not been assuaged and the command economy you
speak of doesn't exist. For one thing, as
households have been distressed by layoffs or
restructurings, they have tapped into more of the
famous Japanese savings. Second, bonuses, which
are actually an important part of incomes for
company and government jobs, have been reduced.
More and more middleaged people have retired
early and live off savings. More and more young
people stay in tertiary education and job
training to avoid the ravages of the job market.
And more and more of everyone is trapped in
part-time nowhere jobs. Homelessness has
increased and is quite visible as shantytowns in
Tokyo and Osaka.

The thing that will distress Americans more than
the Japanese in a depressed economy aren't what
HCKL has said, but rather, (1) lack of medical
insurance and (2) too high levels of debt and
lack of savings when unemployment hits home.

C. Jannuzi
Fukui, Japan


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