Sunday, March 23, 2014

Scott Sumner's Favorite Economic Magazine Not Sounding Very Market Monetarist

     Here the Economist sounds a lot more like Richard Koo:

     "THE year 2014 was already going to be a trial for the economic programme designed by Shinzo Abe, prime minister of Japan. But recent weeks have added a particularly worrisome handful of bad tidings to the cauldron. At the start of April the government will raise the consumption tax, Japan’s version of value-added tax, from the current low rate of 5% to 8%. The worry is that the tax rise could choke off an ongoing recovery in consumer sentiment and spending. After the most recent such hike, in April 1997, the Asian financial crisis rolled around and amplified the negative effect—as did a sharp fall in government spending on public works. The combined effect was to send the economy back into a slump."

    "GDP in the fourth quarter of 2013 now looks like 1.0% on a real, annualised basis; far below the 2.8% that economists had expected. After lacklustre growth of 1.1% in the third quarter, the fresh result put an end to the glad news from earlier in 2013, which had it that that Japan was expanding more rapidly than any other G7 economy. Real GDP had grown by an annualised 4.5% in the first quarter, and by a ruddy 3.6% in the second."

    "The chief explanation for the fourth-quarter setback was poor exports. While robust domestic demand and government spending together boosted growth by 3%, a steep fall in the trade surplus subtracted 1.8%. This in turn called into question one of the main planks of Mr Abe's economic plan, the devaluation of the yen."
     Incidentally, Koo had an interesting thought in his Holy Grail of how to jumpstart the Japanese economy: turns out they have very few paid vacation days typically in Japan-considerably less even than us here in the US of A, just about 5 days a year. Even we get about two weeks a year so there's not much time there to consume as they're all at work. 
    He actually thinks the place that this consumption should be driven is in luxury goods under the theory that necessities are going to be bought regardless as you can't do without them. In his textbook, Mankiw talks about a luxury tax in Congress hurt all the poor people who work in the industry and that it was promptly dropped.


  1. Mike, O/T: you might like this one:

  2. Another OT: