Edward Harrison

Japan: The Problem Is Taxes

Chap, I'm glad you noticed the contrast to my post. This is my colleague Marshall talking, not me! He and I see this issue differently (and Seeking Alpha reproduces most of the posts on my site whether by me, Marshall or guest authors).

Also, AEP is a monetarist I believe and he believes in QE. Marshall sees fiscal policy as more effective and QE as ineffective. I understand you are more in AEP's camp. I think AEP is wrong here on QE because the demand for credit is lacking in Japan and QE just inflates asset prices and produces a carry trade in conjunction with low nominal rates. This is what is happening now in the US as well.


On Nov 04 07:27 AM chap08 wrote:

> Edward, I'm confused, or maybe you're confused. This article seems
> to be by your colleague, but appears under your name without comment,
> so I take it to represent your views.
>
> The article appears to advocate monetization of government spending.
> That is the only way that "Debt is serviced by data entries". If
> Japan are servicing debts through "debits and credits to securities
> accounts and transactions accounts at the BOJ" then that is monetization.
> Otherwise debt has to be serviced by real interest payments to 3rd
> parties. If you are making interest payments to 3rd parties, then
> the debt trap risk that Evans Pritchard discussed is very real. It
> is not "ludicrous".
>
> So, the article advocates monetization of spending. But yesterday,
> in your article on Japan, you said that you were against QE. I am
> curious to know how you could be against QE and yet support monetized
> spending. Although they have different objectives, in some senses,
> QE is just temporary monetization of spending. Please clear up my,
> or possibly your, confusion.

Japan's Cautionary Tale: Stimulus Without Reform Leads to Policy Cul de Sac

Chap, you are right, I should separate the two. The reason I am lumping them together is because they are both designed to reflate the economy and I have growing scepticism about the political process behind fiscal stimulus.

QE doesn't work - flat out. I am more supportive of fiscal stimulus. The question I have is whether fiscal stimulus is used as an excuse to not reform or reduce overcapacity as it has been in Japan.


On Nov 03 06:55 AM chap08 wrote:

> Edward, I think that you should make a clear distinction between
> fiscal and monetary stimulus. The big difference between us and Japan
> is monetary policy. This is fundamental. As Evans Pritchard says
> of Japan, "QE was too little, too late". They did nothing on monetary
> policy for over a decade and concentrated wholly on fiscal stimulus.
> Whatever else you say about the Fed, you can't say that they have
> ignored monetary stimulus.
>
> So when you say "What this illustrates is that stimulus cannot be
> seen as a cure-all in an economy which lacks in domestic demand or
> in which debt burdens are high", you are not comparing like with
> like. You might still be right, but Japan provides you with no supporting
> evidence. Indeed, what the evidence does show is that, after Japan
> introduced QE in 2001, their economy was transformed.
>
> Monetary stimulus is not a free lunch either of course, but I think
> that you are wrong to worry about the impact on private sector savings.
> What exactly are you worried about? Is it consumer debt? Well, for
> those with debt, there is plenty of incentive for this to be paid
> down, without increased savings rates. Increased rates only make
> it harder for them to achieve it. Is it the impact on investment?
> Fear not, there remains an excess of bank reserves and other funds
> to support any viable investment. Remember that the last decade has
> been a story of both low savings rates and massive (mal)investment.
>
>
> I agree with a gloomy outlook for Japan, and for us, but the two
> are not the same and are being given different stimulus.