tag:blogger.com,1999:blog-17232051.post5077568046621910214..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: The Japanese tragedy, causes and consequencesNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger56125tag:blogger.com,1999:blog-17232051.post-59937412038318280622012-08-11T07:45:38.740-04:002012-08-11T07:45:38.740-04:00And here is a summary paper of Hayashi=Prescott(20...And here is a summary paper of Hayashi=Prescott(2002), which is a famous - at least in Japan - study related to this topic.<br />http://www.esri.go.jp/jp/prj21/forum04/pdf/summary4.pdf<br /><br />Guy Sorman once wrote an article about it.<br />http://www.koreatimes.co.kr/www/news/opinon/2009/09/137_52003.htmlhimaginaryhttps://www.blogger.com/profile/03409531853330541896noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-91693339628525982802012-08-10T07:08:26.637-04:002012-08-10T07:08:26.637-04:00So Indeed I am right. I think. Assuming your answe...So Indeed I am right. I think. Assuming your answer is the standard Economist response again, the error in your argument then is the assumption that these new competitors began to be consumers of Japanese products. But What really happened is that nearly all Asian economies liberalized only their exports and not their imports. For example in India you cannot really import a car without paying double the price So nearly all car manufacturers setup plants here. Japanese cars sell the best in India but they are made in India. Infact just recently India has begun exporting Motorbikes to Japan because it is cheaper to manufacture them here.<br /><br />So broadly Japan faced 10X competition in the markets it served while the new competitors closed their economy to Japanese products made in Japan.<br /><br />I mean is there any other way to see this.Kabir Gandhi Khanhttp://www.desigyan.org/noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-79572191227771190802012-08-10T00:23:37.720-04:002012-08-10T00:23:37.720-04:00Several of the nine monetary transmission channels...Several of the nine monetary transmission channels enumerated by Frederic Mishkin act through asset prices, which monetary policy has the ability to affect. The appropriate thing for monetary policy in all cases is to stabilize the growth of nominal GDP. This does not however imply that the central bank should target asset prices.<br /><br />"And does the resulting drop in the ROI reflect a drop in the actual MPK, or in the perceived MPK towards the actual one?"<br /><br />There is only one MPK, and that is the MPK that results from a given level of aggregate demand or nominal GDP. And since the central bank controls nominal GDP they control the MPK. <br /><br />The decline in fixed investment in Japan is more due to the decline in private sector investment, not investment in "bridges to nowhere." Although the Soviet Union also engaged in a high level of capital investment, little of it was by anything one could construe as private.<br /><br />True, the paper I cited doesn't directly address the issue of *wage* cyclicality but it's not hard to tell a story where the wages themselves are countercyclical and individual earnings are procyclical based on compositional bias. If nominal wages are fixed and prices rise due to an expansion, real wages fall. However as individuals get promoted and others enter the labor force, their earnings rise. So in aggregate real wages may rise. <br /><br />It's true that many New Keynesians theorize that the reason why real wages are procyclical is that wages are less rigid than prices, however I think the evidence for that is weak. <br /><br />My hypothesis only states that real wages are countercyclical, not that aggregate real wages are countercyclical. Uemployment may not have risen much in Japan, but there is significant underemployment.Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-1319624232393388812012-08-09T02:24:07.556-04:002012-08-09T02:24:07.556-04:00Mark,
Wealth rises and falls all the time. By it...Mark, <br /><br />Wealth rises and falls all the time. By itself a temporary crash (e.g., Black Monday) does not have significant real impact. Unless we are talking about the bursting of a bubble, which implies the mallinvestment Noah has been talking about. So what is the appropriate monetary policy response to such corrections? When the price of overvalued real estate collapses what should the central bank do, reinflate it? How? Force people to buy something they no longer think is worth what they were paying for, and are therefore unwilling to buy it at the same price despite lower interest rates? And does the resulting drop in the ROI reflect a drop in the actual MPK, or in the perceived MPK towards the actual one? If people are not as wealthy as they thought they were (this by the way is a drop in real wealth), because capital is not as productive as they thought it is, continuing to build bridges to nowhere is hardly a remedy for success despite the capital deepening. Soviet Union, where high capital intensity was accompanied by exceptionally low TFP, is a good example. This is not to say that, as Noah points out, monetary easing shouldn't have been more aggressive.<br /><br />Second, doesn't the paper you cite state that due to composition bias the real wage is MORE procyclical than in aggregate statistics? It is not an issue of whether there is some rigidity at all, but rather which is more sticky (prices or wages) and for how long. So what I gather from the existing evidence is that prices are not stuch forever, or they wouldn't have gone from rising to falling, and wages are even less rigid than prices, since the real wage is procyclical. The other article you cited also states that despite some stickiness in wages, "Japanese wages responded flexibly downward to the recession of 1997–1998, but with a lag". <br /><br />But again, you are using tools meant to describe the behavior of the economy during the business cycle to explain a 15-year period. If one is to take your hypothesis at face value then they should conclude that over the last 15 years the real wage has been rising(since prices are falling but wages are not, or at least not as fast). So Japanese workers should have seen a significant increase in their real income, and the share of aggregate income paid to labor should have risen. Is there evidence of that? And how on earth were firms able to survive such an increase in labor costs without significant job cuts (unemployment did not rise all that much)?CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-25506323383687705762012-08-09T00:51:10.462-04:002012-08-09T00:51:10.462-04:00If you don't mind me asking, what of Richard K...If you don't mind me asking, what of Richard Koo's work did you read? Did you read <i>The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession</i>? I have that book, but I have yet to finish reading it.Blue Aurorahttps://www.blogger.com/profile/02044362251868221897noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-10060419458429264522012-08-09T00:36:34.470-04:002012-08-09T00:36:34.470-04:00If nominal wealth and income expectations rise ind...If nominal wealth and income expectations rise individuals will tend to increase their consumption. The increase in consumption will raise demand for products. Since capital stock cannot adjust instantaneously existing capital earns rents and so MPK will rise. <br /><br />Aggregate wages are procyclical, but the wages themselves are not. Solon, Barsky and Parker amply addressed the issue of compositional bias in estimates of wage cyclicality nearly 20 years ago:<br /><br />http://www.nber.org/papers/w4202<br /><br />The ECB paper you linked to even mentions the compositional bias problem in the introduction.<br /><br />The issue of whether there are nominal rigidities in wages is, in my opinion, such a settled empirical fact I'm astonished we're even debating this. See for example this recent paper by the Fed:<br /><br />http://www.frbsf.org/publications/economics/letter/2012/el2012-10.html<br /><br />For papers dealing specifically with Japan:<br /><br />http://ideas.repec.org/a/eee/jjieco/v15y2001i1p50-67.html<br /><br />http://www.sciencedirect.com/science/article/pii/S0889158300904659<br /><br />As for how long, probably as long as there is deflation. People don't like having their nominal wages cut.Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-42955561111742445822012-08-08T19:09:02.151-04:002012-08-08T19:09:02.151-04:00"it also functions through nominal wealth and..."it also functions through nominal wealth and income expectations which affects MPK..."<br /><br />Can you be more specific?<br /><br />And nominal rigidities are much more of a factor with wages than with prices<br /><br />But then wages would be counter-cyclical. However, empirical research suggests otherwise about Japan:<br />http://www.ecb.int/pub/pdf/scpwps/ecbwp1003.pdf<br />http://www.sciencedirect.com/science/article/pii/S0922142597000017<br /><br />And, once again, rigid for how long?CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-48988581764213849552012-08-08T18:37:46.217-04:002012-08-08T18:37:46.217-04:00CA,
Tight monetary policy not only functions throu...CA,<br />Tight monetary policy not only functions through expected rates of inflation and consequently expected rates of real interest it also functions through nominal wealth and income expectations which affects MPK and hence ROI. That's the circularity problem. <br /><br />Nominal rigidities have a greater effect in a low inflation/deflationary environment precisely because it is easier to decrease a rate of increase in nominal wages or prices than it is to lower them. And nominal rigidities are much more of a factor with wages than with prices. I suppose with enough experience the Japanese will adapt but until I see evidence of a truly successful deflation there, or anywhere, I doubt it.Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-64449393411674752172012-08-08T12:12:20.809-04:002012-08-08T12:12:20.809-04:00Mark,
a low ROI is consistent with a Solowian ste...Mark,<br /><br />a low ROI is consistent with a Solowian steady state with a high saving rate (as Frances points out below, perhaps reflecting an aging population preparing for retirement). The wastful investment described by Pettis (see his Big in Japan piece) could have pushed it in negative territory. Even in Solow, the ROI can be negative; while MPK is positive, MPK minus the rate of depreciation need not be. With a depreciation rate of about 8%, any MPK below that will lead to a negative ROI.<br /><br />Also, what is the mechanism by which tight money acts? If it is the real interest rate, then it is not clear why Japan did worse than Germany or France, given that its lending rate has been lower than theirs even after accounting for the mild deflation. And how can one justify nominal rigidities in the presence of deflation? Japanese firms went from raising prices by about 3% in 1991 to lowering prices by half percent in 1995 and 1996 to increasing prices by half percent in 1997 and 1998 to lowering prices from 1999 until now. Isn't that proof that prices are not sticky over reasonably-long time-horizons? I mean, even with adaptive (and not rational) expectations, it shouldn't take more than half a decade for firms and workers to adjust their price setting to the new reality.CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-18932040071004685982012-08-08T03:06:59.768-04:002012-08-08T03:06:59.768-04:00I'm just going to throw this out here, just ou...I'm just going to throw this out here, just out of curiosity:<br /><br />I'm still studying Wallace 1981 AER when I can make time. Here's a puzzle:<br /><br />For the example of section IIe, the economy has no abilty to produce other than its annual endowment of Y; that is the gross return vector, X, has a geometric average of 1. So why is the lifetime consumption in his proported equalibrium greater than the endowment, and for all time? Each individual h, and this is true of every generation, only gets a lifetime endowment of y, yet his expected lifetime consumption is y/2 + .5(3y/8) + .5(3y/4) = 8.5/8y?! And there's no way for him, or his fellow identical clones, or the government, or anyone else, to invest or produce with a positive expected return?Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-52415079088634612552012-08-08T01:33:56.263-04:002012-08-08T01:33:56.263-04:00Noah,
You'll have point me to what Michael Pet...Noah,<br />You'll have point me to what Michael Pettis is saying about negative Japanese ROI. I can't find it.<br /><br />CA,<br />If prices keep falling then additional downward adjustments must take place. There's no question that nominal rigidities exist. Just because price adjustments may not be necessary doesn't make them go away. <br /><br />The Solow steady state is a separate factor from the negative ROI. The Solow steady state is dependent on the savings and depreciation rate. Note that in the typical Solow model MPK is always positive. But it is still possible for ROI to be negative. <br /><br />The principal problem I see with the negative ROI hypothesis is its circularity. Tight money also lowers the ROI.Mark A. Sadowskihttps://www.blogger.com/profile/08259309059705236763noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-45934518927557785442012-08-07T23:47:03.841-04:002012-08-07T23:47:03.841-04:00A couple comments:
1. The decline of the average ...A couple comments:<br /><br />1. The decline of the average Japanese workweek means you have more people not working/working part time and the people who are working are working the same amount they always have. Although I think Japanese should relax more this is not what this measure indicates.<br /><br />2. The decline in hours and employment-to-pop are both endogenous to monetary policy.<br /><br />3. In 1990, economists knew full well about the Solow model's prediction that Japanese growth would slow. In fact, Japanese growth had already slowed from it's rapid growth in 1950s and 1960s.<br /><br />4. To be balanced, you should at least acknowledge that the Bank of Japan should not have raised interest rates in 2000 when they had 1 percent deflation. That's what you call grossly negligent central banking. You should also show evidence that you actually understand what a liquidity trap is. You also might point out that they should have gone all the way to zero in '94 or '95 rather than waiting until '99. <br /><br />5. Go read Obstfeld's very readable "Time of Troubles" http://www.nber.org/papers/w14816.pdfAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-6975935100344352992012-08-07T23:32:25.096-04:002012-08-07T23:32:25.096-04:00Nope -- there was no change toward liberalization ...Nope -- there was no change toward liberalization from 80s to 90s to 00s.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-66350275772718942252012-08-07T23:24:19.410-04:002012-08-07T23:24:19.410-04:00Thanks!!Thanks!!Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-55646933658430751982012-08-07T23:20:45.133-04:002012-08-07T23:20:45.133-04:00Hoshi & Kashyap are absolute crap. They don...Hoshi & Kashyap are absolute crap. They don't even know what a liquidity trap is.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-268805940614545442012-08-07T22:10:53.056-04:002012-08-07T22:10:53.056-04:00It occurs to me--and I'm trying to dig into th...It occurs to me--and I'm trying to dig into the data--that the aging of the Japanese population has probably contributed to the slowdown there, in ways that are not true in (for example) the US or Germany. The population has aged in the US, and in Germany, but I suspect it has done so at a much slower rate, that the proportion of the population age 55 and over is smaller than in Japan. And I suspect that this has occurred not because birth rates have fallen more in Japan (although they might have fallen somewhat further), but because the US and Germany remain much more open to immigration than Japan does. That greater immigration would allow the prime-age part of the labor force to grwo faster, and thus to enhance productivity growth. We'll see what I find when I actually have some numbers.Don Coffinhttps://www.blogger.com/profile/07198988872512792834noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-12854459115172661492012-08-07T21:45:14.068-04:002012-08-07T21:45:14.068-04:00Again, the standard reply is that it is not a zero...Again, the standard reply is that it is not a zero sum game. All that extra competition employs people now who would previously be subsistence farmers, and now they can, in aggregate, buy more stuff than they could before. <br /><br />Is it possible that through clever economic policy the East can de-industrialize the West to such an extent that there are only three kinds of employees, the white collar banker-lawyer (the capitalist), the white collar-noah-smith-tenure-for-lifer (the court jesters) and the vast vast hordes of mcdonalds workers (the hopelessly doomed consumers of asian slave products)? Sure. Or at least it appears so. <br /><br />But manufacturing as a share of American production has stayed more or less the same, it just declined rapidly as a share of employment. Of course, the transformation of America into a Latin American country in terms of inequality is its own problem but its not based on trade with the vast host of Asia. To paraphrase Brad De Long, as long as the apocalyptic death cult, otherwise known as the Republican Party, continues to maintain its deadly grip on the throat of American public policy Americans will continue to get a sorrier end of globalization stick than they should be. But that is a political question, not an economic one.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-73248128828344644412012-08-07T17:51:43.065-04:002012-08-07T17:51:43.065-04:00Noah:
Here is the Japanese Labor Standards Law
h...Noah:<br /><br />Here is the Japanese Labor Standards Law<br /><br />http://www.ilo.org/dyn/natlex/docs/WEBTEXT/27776/64846/E95JPN01.htm#a032<br /><br />Section 4 describes the work week limitations. The last change here was in 1995, but it's possible that this change was made previously. Not sure if there is any way to tell on this particular page.Paulhttps://www.blogger.com/profile/09171128489655848952noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-90944971729329420062012-08-07T16:20:34.501-04:002012-08-07T16:20:34.501-04:00Mark,
but after 15 years of the same, why would s...Mark,<br /><br />but after 15 years of the same, why would such rigidies exist? As someone pointed out earlier, none of the popular explanations (menu costs, money illusion, etc.) can justify 15 years of rigidies. <br /><br />Moreover, if capital deepening depends on the cost of funds on one hand and the ROI (or MPK) on the other, then it is not clear why monetary policy is responsible for the decceleration of capital deepening. Since 1995 the real prime lending rate in Japan has been lower than that in the US or France, and quite lower relative to Germany's. So it must be the case that the low lending rate is met by an also low ROI. This is consistent with Noah's hypothesis of wasteful investment. It is also consistent with his Solowian hypothesis. Capital deepening may have slowed down simply because, as Japan approached its steady-state, the ROI shrunk.CAnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-24261501068087185792012-08-07T13:44:14.738-04:002012-08-07T13:44:14.738-04:00No specific source. I recall only because I was w...No specific source. I recall only because I was working for the man in Japan at the time. Here's a link to the Ministry of Health, Labour and Welfare's Chronological Table. Refer to the Measures column in 1987.<br /><br />http://www.mhlw.go.jp/english/wp/wp-hw3/dl/appendix-3.pdf<br /><br />In looking for this link, I was reminded that the workweek changes were phased in between '88 and '93. Although this surely wasn't what policy makers had in mind in the mid-80s when they were contemplating this legislation, I wonder to what extent these changes slowed the increase in the unemployment after the Bubble burst - almost like an accidental job-sharing program. Didn't save my ass, however...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-26628876469491752972012-08-07T09:40:38.940-04:002012-08-07T09:40:38.940-04:00Yes, I think that probably showed up in slow TFP g...Yes, I think that probably showed up in slow TFP growth, but I didn't want to get into that in this post.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-88242125684657591652012-08-07T09:39:35.366-04:002012-08-07T09:39:35.366-04:00Wow, I didn't know that!! Do you have a link f...Wow, I didn't know that!! Do you have a link for a source? I want to post that.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-80638923455006064672012-08-07T07:44:31.194-04:002012-08-07T07:44:31.194-04:00Noah wrote:
"The steady drop in working hour...Noah wrote: <br />"The steady drop in working hours since 1988 (most of which, interestingly, happened before 1995) corresponds to a reduction in the Japanese workweek from about 47 hours per week to just under 42. In comparison, the U.S. workweek is just under 39 hours, and the European workweek is just under 38.<br /><br />Whose story does this support? It depends on what you think Japanese people's work habits would be if monetary policy had been looser. If the Bank of Japan had circumvented the zero lower bound by doing a bunch more quantitative easing, would Japanese people still be working 47 hours a week? Maybe, maybe not."<br /><br /><br />There was a revision to the Labour Standards Law in 1987 that changed the maximum work-week from 48 to 40 hours. That revision also stipulated that overtime pay must include a premium. So, looser monetary policy by the BoJ would not have preserved the 47-hour work-week. It had already been legislated out of existence.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-7593370044559888952012-08-07T06:19:10.026-04:002012-08-07T06:19:10.026-04:00Hoshi & Kashyap 2004, JEP suggest an explanati...Hoshi & Kashyap 2004, JEP suggest an explanation for low TFP: misallocation caused by the malfunctioning financial system.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-54580598537865678332012-08-07T04:27:50.340-04:002012-08-07T04:27:50.340-04:00In complete agreement with your thinking there. I ...In complete agreement with your thinking there. I would only add deservedly so.Kabir Gandhi Khanhttp://www.desigyan.org/noreply@blogger.com