Political Animal


August 10, 2012 1:18 PM Structural Reform Not Just for Labor

By Ryan Cooper

Reading the Times the other day I found probably the most explicit example I’ve ever seen of the old cannibalizing the young through deflation and a strong currency:

Increasingly, however, business leaders point to a problem that is at least partly within the government’s power to control: a high yen that has made Japanese products, from televisions to memory chips, prohibitively expensive abroad. In an echo of a debate that raged in the United States in the 1980s, the government faces growing criticism for doing almost nothing to rein in the yen, despite alarm that the record-high currency is dealing crippling blows to the country’s once all-important export machine.
One big reason, analysts and some politicians say, is simple, if generally left unsaid: A high yen benefits Japan’s rapidly expanding elderly population, even if it hurts other parts of the country.
By speeding the flood of cheaper imported products into Japan, the strong yen is contributing to deflation, a broader drop in the prices of goods and services that has helped retirees stretch their pensions and savings. The resulting inaction on the yen, according to a growing number of economists and politicians, reflects a new political reality, with already indecisive leaders loath to upset retirees from the baby boom who make up more than a quarter of the population and tend to vote in high numbers.
“Japan’s tolerance of the strong yen and deflation is rooted in a clash of generations,” said Yutaka Harada, a professor of political science and economics at Waseda University in Tokyo. “And for now, the seniors are winning.”

This is, of course, strangling the broader economy:

That victory comes at a high price, however, hastening the hollowing out of Japan’s industrial base as companies continue to move abroad, exacerbating the nation’s two-decade-long economic stagnation.

This got me thinking of the concept of “structural reform.” This is usually economist code for the classic Republican agenda: removing worker protections, sticking it to unions, cutting public sector salaries, and so forth, with the goal of making the economy look more like a neoclassical economic model. (I actually think occasionally that is a reasonable prescription—not for many industrialized countries I’m familiar with, but for the likes of South Africa, where the public employees really do make too much and there is a corrupt alliance between unions and the government.)

But if we think about the interpretation a phrase like “structural reform” is designed to inspire, this kind of behavior on the part of Japan’s elderly looks perfect. Consider this find in the piece:

“The strong yen robs from youth, but there is not much awareness here yet of generational inequalities,” said Keiichiro Asao of the opposition Your Party. One way to spur such awareness, critics say, would be to allow national pension payments to drop with falling consumer prices, as the law demands. But the government ignored the law for years rather than upset elderly voters.

Emphasis mine. So the law said that if prices fall, then pensions fall with it. The Japanese government, afraid of an elderly backlash, simply broke the law and allowed the old to make off with an even larger piece of a shrinking pie. For getting out of this situation, I’m partial to Steve Waldman’s idea of starter savings accounts. The idea is to buy off the elderly creditor class with size-limited inflation-protected accounts which would dampen their fear of price increases. For the Japanese situation, we could add some more subsidies for a change in the exchange rate. It would be tough to pull off, and vulnerable to financial parasitism, but it would make the costs of supporting the elderly explicit and contained, rather than operating through obscure economic levers that strangle output.

The other obvious candidate for reform would be central banks. As Dean Baker is continually reminding people, banks from around the country get to appoint a large fraction of Federal Reserve positions, including several of the voting members of the Federal Open Market Committee. This reform is conceptually easy, though politically impossible: just make the Fed a government agency like any other. Obviously that won’t get rid of revolving-door syndrome, but simply getting working bankers out of influential positions is a huge step in the right direction. Whoever is in charge when the next financial crisis strikes should jam this one through at all speed.

Anyway, this is just to point out that right now it’s the rich, the powerful, and the elderly that are inhibiting the full potential of the economy.

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Ryan Cooper is a National Correspondent at The Week, and a former web editor of the Washington Monthly. Find him on Twitter: @ryanlcooper


  • c u n d gulag on August 10, 2012 2:40 PM:

    This is well above my pay-grade.

    But all I know from recent experience, is that anything that is "vulnerable to financial parasitism," will be taken advantage of.

    Now, maybe NOT in Japan, which has many more stringent regulations than here.
    But in America, the usual grifters would have the money in a very short period of time. They'll figure out how to game the system for themselves, and stick it to the senior citizens and tax payers.

    I look forward to hearing from the more economically informed commenters.

  • SadOldVet on August 10, 2012 2:42 PM:

    F#ck you Cooper...

    Why the f*ck do you want another god-damnned age war added to the class war being waged on the ameriKan sheeple to divide them?

    My generation (I retired 2 1/2 months ago) are statistically due to be the first generation to receive less in payments from social security than they have paid it! Why the f*ck do you want to join the repuknicans in calling for the elderly to be f*cked over?

  • gab on August 10, 2012 3:00 PM:

    The question left unasked is, what would you have the BOJ do about it? Print more money to devalue the yen? They've been printing like mother effers for years, their interest rates are under 1% all the way out to 10 years (who do you think that hurts?) and yet money is flowing into Japan as a safe haven, thus pushing up the value of the yen.

    There is literally nothing they can do about it except change their mercantilistic economic model which relies on exports and thus a cheap currency. And they've been singularly unwilling to do so, or even contemplate changes to their economic structure.

  • CharlieM on August 10, 2012 3:10 PM:

    Nice touch. Extrapolating blame for our economic woes from a specific situation unique to Japan.
    What next? That a few poor people took out mortgages they couldn't afford and so brought the world economy crashing down?
    Who else is on your list of "groups we can blame" aside from the banksters who actually did it?

  • T2 on August 10, 2012 3:11 PM:

    I think SadOldVet has provided an excellent insight into the response of citizens 60+ if Paul Ryan is added to the GOP ticket..
    IF Romney/Ryan are elected, I intend for file for early SocSec the very next day and get on the books before those moron's can be inaugurated.

  • SadOldVet on August 10, 2012 3:29 PM:

    WARS being perpetuated on the ameriKan sheeple by the corporate and wealthy elites:

    - Class Warfare
    - Racial Warfare
    - Age Warfare

    I have insisted for the last 30+ years that the U.S. is engaged in class warfare. Unfortunately, it is being waged by the wealthy upon labor and the sheeple remain blissfully unaware of it.

    I have insisted for the last 30+ years that the U.S. is engaged in the promotion of racial divisions and warfare by the wealthy to keep the sheeples' minds away from the class warfare being waged upon them. The current round of Islamaphobia just follows the promotion of browns and blacks as 'the enemy'.

    In the early 1980's, Saint Ronald Raygun and Mr. Andrea Mitchell (Alan Greenspan) saved social security 'forever' by raising retirement ages and dramatically overcollecting into the Social Security Trust Fund. Their agreement included collecting SS taxes on the bottom 95% of 'earned income'. Naturally, income from capital is excluded. If that 95% was still in effect, SS would be collected on 'earned' income up to about $190,000 and SS would be 'solvent' into the indefinite future. Especially with the redistribution upward of income in this country, removing any caps on the amount of 'earned income' that SS is collected on would immediately make SS solvent 'forever'.

    Is Cooper wanting to join the repukes in insisting that SS is 'insolvent'? Is Cooper wanting to join the repukes in desiring to declare the SS Trust Fund null and void? Or is Cooper just wanting to show that he shares Kilgore's DLC/DINO/Repuke-Lite values?

  • Doug on August 10, 2012 8:53 PM:

    Let's see, because JAPANESE politicians refuse to obey their own laws and reduce JAPANESE pensions (because the elderly vote) and because central banks could stand some reform that means that "...right now it's the rich, the powerful and the elderly that are inhibiting the full potential of the econmy." Right.
    Just WHAT did you have for lunch?

  • PTate in MN on August 11, 2012 10:13 AM:

    "[structural reform] is usually economist code for the classic Republican agenda: removing worker protections, sticking it to unions, cutting public sector salaries, and so forth, with the goal of making the economy look more like a neoclassical economic model."

    True, true, the economy is stymied due to" rich, the powerful, and the elderly" people like the Koch brothers, Sheldon Adelson and Newt Gingrich! But the Republicans are about something much bigger than implementing a neoclassical economic model. An economic model implies that they are interested in "governing" but all the signs suggest that the modern Republican party is actually about "destructing government" not governing. So while we're on big ideas...I've been reading up on the emergence of the nation-state in the early modern period, and I've been struck by the key idea that led to the nation state. I'll state this key idea as a multiple choice question to make the choice clear:

    Assume that you and your family are members of a complex social group. Your opportunities and fortunes will be much better:

    a) if the members of your complex social group eke out an existence, pay taxes and try to stay alive in a petty fiefdom owned by a noble thug who constantly goes to war to seize the land and wealth of other noble thugs.

    b) if the members of your complex social group band together and agree to follow the rules of a meta-entity (call it "nation-state" or "government") created to "establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.

    The answer is b)...unless you are one of the noble thugs. Noble thugs would have a lot more of everything if the answer were a). What is good for the many is not so good for them. The point is that from the start, the challenge of the nation-state has been to convince the various noble thugs (through persuasion, bribery or force) to abide by its rules.

    What is happening in the US right now is a sustained attack by our modern noble thugs, (let's call them Lord Romney, Count Koch and Prince Ryan) who imagine their fortunes will be improved without the restrictions imposed on them by government. So, I would say that "structural reform" is just code for "eliminate the progressive democratic nation state." And in my mind, there are only two structural problems in the US right now. The first is that tax rates on the uber-rich are too low. The second is that people still think Republicans are patriots who support the US government.