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Abenomics Lives
What’s Next for Abenomics

With Japan back in recession for the second time during Prime Minister Shinzo Abe’s tenure, the future of Abenomics has been in doubt. Yet now we’re starting to get some idea of what’s next. From Reuters:

Japan’s government plans to raise the minimum wage and introduce other steps to revitalise the economy, but the draft of stimulus measures seen by Reuters on Monday appeared to break no new ground on reforms that analysts say are needed to end decades of stagnation.

Prime Minister Shinzo Abe’s government will also offer some financial support to people living off their pensions to bolster consumer spending, a copy of the draft obtained by Reuters showed.

Citing unnamed sources, the Nikkei newspaper said on Monday that the government is planning to raise the minimum wage by 3 percent. But the draft didn’t provide any specifics and analysts say the government will need to do more to foster durable growth.

On the one hand, the failure of Abenomics may have little to do with the wisdom of its architect. Chinese weakness is dragging down Japan and causing regional uncertainty that further undermines hopes that Japan can restore the dynamic economy it had in decades past. But, on the other, Japan has major structural deficiencies that minimum wage increases simply won’t solve. Japan has heavily committed itself to a reform-resistant blue model. Today’s globalized, increasingly automated world doesn’t support that kind of economy. Japan, like other developed countries, needs to figure out a new way to adapt.

There are reasons to be hopeful. In an information economy, Japan has a lot going for it. Its education system rightly takes heat for failing to instill a creative impulse in students (threatened cuts to humanities departments would only exacerbate the problem), but Japanese citizens are still very highly-educated by world standards. Back in the 70s and 80s, partly on the strength of its education system, Japan became a high tech powerhouse. It remains one, and as world militaries and manufacturers look to replace people with robots, Japan’s deep knowledge of automated systems will come in handy.

Washington needs Tokyo to counterbalance China and to reinforce the Asia-Pacific network of countries challenging Beijing in the South and East China Seas. Moreover, Japan is the only regional power with the economic muscle to compete with China for development contracts throughout Asia. Make no mistake: The success of Japan is a key American interest.

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  • WigWag

    It’s hard to bet on a nation who’s population will almost certainly fall from 128 million today to 95 million by 2050. To make matters worse, Japan’s elderly population represents 22 percent of total population today; this will increase to 40 percent by mid century.

    As for Japan’s education system, it really doesn’t matter how bad or good it is; Japan just isn’t producing children any more. Japan has one of the lowest fertility rates of any nation in the world.

    The United States dominated the Post War world with the help of two junior partners, Japan and Western Europe. The Americans, Europeans and Japanese created far and away the greatest prosperity in world history.

    The sad reality is that Japan is dying and so are our allies in Western Europe. We need to find new allies before it’s too late.

    • Andrew Allison

      You’re right, of course, that Japan faces a demographic crisis (albeit not as bad as you painted: https://socioecohistory.files.wordpress.com/2010/05/japan-aging-population.gif). Europe, as you point out, faces the same threat, which may explain the willingness to accept “refugees” (many of whom are economic migrants). But we face the same there at here at home. It seems (http://www.businessinsider.com/10-countries-on-the-verge-of-a-demographic-crisis-2010-2?op=1) that the poor shall inherit the Earth.

    • Jim__L

      I can’t help but wonder whether any society that does not honor men as breadwinners and women as mothers (and takes steps to prefer each in those roles) can reproduce itself.

      Darwinism over the next few generations may well slant society in favor of traditional arrangements.

      Also, people whose emotions overwhelm their reason to the point that they can’t (or don’t care to) remember condoms when they’re most fertile. And women who have bad reactions to birth control pills. In other words, only family lines that can avoid common anti-pregnancy practices are likely to survive.

  • Jacksonian_Libertarian

    Japan is 26 years into a deflationary depression. Because so many have been traumatized by inflation, they fail to realize that inflation is merely annoying, but deflation is destructive and should be deathly feared. Economies naturally fall into the “deflation trap” when private debt gets too high during a period of low inflation. You fight deflation with inflation which reverses the private debt situation by making debt both decline in value and easier to pay off. Since Government so called “Pump Priming” spending programs like TARP do nothing to affect the private debt problem, they do nothing to get the economy moving again, this is confirmed by the repeated failure of these programs. Many people say that it was the Government Spending of WWII that got the world out of “Great Depression 1.0”, this is NOT True. It was the massive debt forgiveness, default, and death benefits which literally “bought the farm” (paid off the mortgage) which reduced the economy’s private debt levels so that new loans, money supply growth, and inflation were back in control.

    Sometimes when you have more than one problem a solution can be found that addresses all of them. I believe that the Fed should pay off all foreign held US Treasuries some $6+ Trillion. And then put that money with the $2+ Trillion already held by the Fed, and use it to create individual and inheritable private Social Security Accounts for every citizen. This would increase every American’s net worth by about $30,000 and fix the Social Security Ponzi Scheme at the same time. With $6+Trillion in cash outside the US, America’s trade deficit would
    reverse itself, inflation would reignite, private debts would become manageable again, and the economy would turn around and start growing again. Once America’s economy was growing again, it would pull much of the rest of the world out of the ditch of a destructive deflation.

    Japan could also do something similar by paying off it’s debts and getting back to an inflationary growth economy.

    • Jeremy Klein

      More grossly unConstitutional tinkering to fix problems caused by earlier unConstitutional tinkering. How ’bout instead we quit breaking our own Foundational Law? Eliminate SocSec, EPA, OSHA, Depts of Labor/Education/HHS, ATF, FDA, DEA, and a host of other bureaucrazies that throw not sand but boulders into the economy, benefiting mainly the bureaucrats and the MegaCorps. Watch wealth rise, businesses from MomnPop to large corporations thrive, the poor benefit from employment and entrepreneurial opportunities they long have been unjustly denied. Watch freedom reign.
      But We the People are a lazy, corrupt Sovereign, and We won’t do that. This does not end well.

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