Political Animal


April 06, 2013 9:25 AM Saturday Morning Japanese Economic History

By Ryan Cooper

Japan was for many years the paradigmatic example of how poor monetary policy could put one’s economy into a semi-permanent depression. But on Wednesday, the Abe government announced a strong new effort to reflate the economy. Noah Smith has the goods:

Now, 60-70 trillion yen is about $600-700 billion, which is about the size of America’s recent “QE1” and “QE2”. Japan will basically do an new “QEx” every year. In addition to buying long-term government bonds (which the Fed did in QE2), Japan’s central bank is going to buy stock and real estate. This is exactly the sort of reflationary policy that Miles Kimball recommended as a cure for depressions, back when I took his macro class. In any case, the move is very very big. George Soros says that the BOJ’s plan is “three times as big” as the Fed’s attempts at QE. People from big banks and research companies are saying much the same thing.
Anyway, so Abe defied my expectations and really implemented a serious policy change. Now, we get to see how well monetary policy really works, in an economy with a deflationary trap and well-anchored deflationary expectations. A dramatic (though uncontrolled) natural macroeconomic experiment is being carried out in Japan - probably the biggest thing since Volcker whipped U.S. inflation in the early 80s.

Aside from being a notable bit of good cheer for a country on the edge of derping itself into another recession for no reason, this is a great excuse for a bit of Japan history from Mark Blyth’s book Austerity. Similar to how US elites have this maddening fixation on cutting the budget deficit now now now, back in the 30s it was much the same, with the even less justifiable gold standard:

[Finance Minister Junnosuke] Inoue got his wish and Japan rejoined the gold standard in 1930, right at the point that the rest of the world’s economy was contracting. The result was the Showa Depression, the greatest peacetime collapse in economic activity in Japan’s history. Japan’s growth rate fell to -9.7 percent in 1930 and -9.5 percent in 1931, while the yen rose approximately 7 percent against the dollar. Demand in the United States for Japanese manufactures fell as the yen appreciation and the general collapse strangled trade. Average Japanese household income fell like a stone from ¥1,326 in 1929 to ¥650 in 1931.
Interest rates were raised “into the teeth of the depression” and government spending was cut almost twenty percent from an already low level.

Eventually, a military supporter assassinated the prime minister, Hamaguchi, and after a coup plot was uncovered, the government resigned. The new government reversed course and Japan grew strongly from 1932-36. But the amazing thing is how not even the total failure of his policies and a spate of murders of those who espouse them convinced Inoue to give up the austerity: he “was still campaigning for a return to the gold standard when he was assassinated in 1932.”

Ideas are powerful things.

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 April 06, 2013 10:50 AM:

    BAD ideas are powerful things.

    They help the people who don't need any help, and hurt the ones who do.
    And the 'Serious People" like and support them.
    Because they themselve don't need any help, and, consciously or subconsciously, they enjoy reveling in the agony of others.

    And no idea can possibly be a "good" one, if it helps people who may need some help, because the "Serious People" say those ideas come from Liberal DFH's, and can't possibly be "serious," and so must be discounted at best, and reviled at worst.
    Best of all, don't ever mention it again. Ignore it, lest people start to hear it, and give it some credence.

    And so, is born the meme that the government's budget should be treated just like a families budget.

    Providing, of course, that that family never took out a house loan, a car loan, a college loan, and pays for everything with cash.

    And who spreads that meme?
    Why, the "Serious People," of course - who are, themselves, wealthy and powerful enough so that they never had to take out a house loan, a car loan, a college loan, and can afford to pay for everything with cash.

    Paging Dr. Santayana.
    Paging Dr. George Santayana.
    Paging Dr. Santayana.

  • mb on April 06, 2013 10:52 AM:

    People who believe in the gold standard think gold has mystical economic powers. A local crank told me once that the price of an ounce of gold has always been approximately the same as the cost of a high quality custom-tailored suit. Makes perfect sense. Obviously, the Universe wants everyone to look their best. Why not provide an element that will consistently purchase sartorial splendor? Apparently, Savile Row was an inevitable outcome of the Big Bang.

  • dr2chase on April 06, 2013 11:05 AM:

    Didn't realize that 2nd amendment had application to economics.

  • James E. Powell on April 06, 2013 11:42 AM:

    'Austerity Now!" is not a policy as much as it is a religion. Consider how many arguments in support are moral or social rather than economic.

    And, as c u n d gulag points out, there is no downside for the advocates of austerity. In fact, their lives are improved by it. It's easier to get a table at the best new restaurants when so many people are out of work.

  • RepubAnon on April 06, 2013 12:23 PM:

    More explicit forms of human sacrifice used to be popular as well. It seems to be linked to a belief that the only path to happiness is through a vale of sorrows. After all, if all that work sowing and tending crops brings a successful harvest, isn't it only natural that enough misery should bring you happiness?

    Flagellation (from Latin flagellare, to whip) was quite a common practice amongst the more fervently religious. Various religions, like the cult of Isis in Egypt and the Dionysian cult of Greece, practiced their own forms of flagellation. In ancient Rome, eunuch priests of the Phrygian goddess Cybele, the Galli, flogged themselves until they bled during the annual festival called Dies sanguinis (Day of Blood). Women were flogged during the Roman Lupercalia to ensure fertility.
    At first, flagellation became a form of penance in the Catholic Church, especially in ascetic monastic orders. (From Wikipedia: http://en.wikipedia.org/wiki/Flagellant)

    Of course, it's also telling that the folks typically carrying out the various forms of human sacrifice rarely sacrifice themselves - it's usually someone else that appeases the gods by being thrown into the brass god's flaming belly by the priests. One rarely sees the priests jump in themselves (although the flagellants in the Middle Ages did physical harm to themselves as form of worship).

  • Frank Wilhoit on April 06, 2013 4:38 PM:

    "Ideas are powerful things."

    A truism, but, in the context of this article, an unrelated throwaway tag. You're not talking about ideas. Things that are clung to in the face of failure and death are not ideas; they are beliefs. There is a difference.