Japan is on the verge of economic collapse. Negative interest rates, major deflation during all of covid. Barely pulling out of deflation and trending back downwards.
Japan is in deflationary spiral due to high taxes and tremendous debt. Deficit spending to temporarily pull themselves out of deflation and recession will only makes things worse in the long term.
This feels like the hallmarks of a system that over values 'hard work' but doesn't value entrepreneurship or risk taking.
Corporate rent seeking is proper up by a strong welfare state.
"Herein lies the unique twist that Piketty’s theory takes on in Japan: the disparity is not so much between the super-rich and everyone else, but between large corporations, which can retain earnings and accumulate capital, and the individuals who are being squeezed in the process."
>Is there some reason why a country experiencing deflation can't print money and hand it out to voters until inflation returns?
That's a great question. Japan has been doing this for about a decade. Shinzo Abe kind of called it abenomics; aka quantative easing. https://en.wikipedia.org/wiki/Abenomics
It has worked, no question, effectively exactly as you propose. The problem is that it clearly didn't solve the problem. While also creating new problems and since the original problem never gets solved, when you are forced to cut spending because the cost of debt has become too crippling. You retain all the new problems and now feel the old problems.
Japan is so bankrupt that nobody else will hold their not properly rated debt.
Mind you, Japan's clearly bankrupt central bank cannot actually go bankrupt. There is no gold standard, there is no bank run, there is no liquidation requirements. So what? You just magically keep raising the imaginary numbers with no consequences?
This is where OP happens.
Flipside, I am curious about an alternative approach to fixing the issue like Greece did. Japan is headed toward a situation where their currency will be worthless and their people own nothing. Yes it will mean all retirees pretty much have to go get a job but the federal gov will effectively take ownership over most land. People who actually own their homes will effectively become fiefs.
I bet bitcoin and similar coins is beyond popular in Japan right now.
They also have substantial foreign assets that can be sold. The situation in Japan is very unusual because the financial system has a massive synthetic net short JPY position. Because rates are so low, savings have been effectively dollarized in an economy that isn't dollarized (this is why USD/JPY is so correlated with rate differentials)...so I don't think anyone really knows how this will works out (there aren't a lot of historical examples, no country that held so many claims denominated in a foreign currency has been such a large part of the world economy...this is the end game of the export-oriented, mercantilist political economy...Germany is a ways down the same road).
It makes no difference whatsoever that JGBs are held domestically in practice because it is harder to push through a debt restructuring politically when voters are the ones losing money (you have seen this in Italy too, they have "bailed in" domestic savers which has significantly reduced their options...if the debt is owned by foreign investors, you can usually restructure and point at them: look at these greedy capitalists, terrible...but we have no choice).
On some of the other stuff mentioned above, the reason why Japan is in such a mess is because their financial/corporate sectors is totally screwed. There is no real demand for money, corporate balance sheets are loaded down with cash, no-one wants to invest, demand for money is so low that Japan's savings banks are huge players in US corporate lending, banks seem to have no actual capacity to make corporate loans...they don't know how, they just buy US bonds and call it a day, monetary policy (counter-intuitively) is making this worse, it is reducing the supply of "safe assets" but hasn't increased the capacity of institutions for "non-safe assets", it has led to a significant reduction in lending within Japan because rates overseas are so much higher...it is a real shit storm, but it all comes down to monetary policy officials not understanding money transmission (unusually for Japan, in the 1980s the govt was involved in directing lending on a loan-by-loan basis so they have a history of real control over monetary transmission).
The problem is that economists still require fiscal accountability for the government, which was a rule to mainly prevent runaway inflation. This is obviously counter-productive to what they want right now. There should be a policy framework to allow the central bank to just directly invest in the economy, no need for government to incur debt.
To be clear, I'm not talking about QE, but specifically minting of actual paper currency and just handing it out to every citizen. It seems like that should directly create as much inflation as you want, without creating any debt.
Japan is a very rigid economy where doing things a bureaucratic, traditional way is prized and new innovations are difficult and slow. They have low immigration and culturally non-Japanese cannot assimilate fully. Their birth rate is low, they can't replace population with immigrants, and an ever increasing percentage of those who are alive are old, no longer productive / contributing to the economy, and spending money on end-of-life things in retirement.
No matter how much money they print, it can't solve for an economy where there are fewer consumers and producers every year.
I think the Bank of Japan might be more innovative than you give them credit for, seeing as how they were the first to deploy almost all of today's unconventional policies, including QE itself.
A low birth rate also is certainly not some immutable characteristic of Japanese culture; they had very high birth rates through most of the 20th century. It's clearly the result of economic circumstances and incentives, like the high cost of childcare and long working hours. These do seem like things that government and monetary policy cannot control directly but can certainly influence. In some respect the low birth rate might be both a cause of deflation itself and also a result.
Lastly,
> No matter how much money they print, it can't solve for an economy where there are fewer consumers and producers every year.
It might not solve the economy, but speaking strictly of inflation, it doesn't seem imaginable that no matter how much money they print it won't create inflation. They must just be printing the wrong kind of money. (As this economist explains, there are indeed different kinds: https://youtu.be/4xgHbW2A9KE )
If they were giving it out unevenly it would be unjust.
If they were giving it bout evenly, there’d be no difference. Nominally, the price of goods would increase but so would your reserve. So there’be no added incentive to buy.
Helicopter money is not like a stock split, because you aren't handing it out in proportion to how much money people already have. When prices go up it certainly creates an incentive to spend your savings, even if you're getting new money to offset the costs.
In theory, they could. In practice, the typical way to "print money" is to do things like lower interest rates (incentivizing more borrowing, which increases the money in circulation) and lowering bank reserve requirements (letting them loan more in proportion to their reserves). Both depend on people voluntarily taking out loans, which they might avoid if they're pessimistic about the economy or expect deflation.
That's why I was wondering about not doing that, and literally minting new cash and using handouts / UBI instead. We can't expect people to borrow money to spend on consumption, even at low interest rates, because they'll be worried about paying it back. No wonder they always just put it into asset purchases. Give them the money no strings attached and they'll spend it.
Normally the downside to that is inflation, but since that's the goal anyway it seems like a win-win.
Good summary but slightly out of date. What they rely on now is QE, with the central bank buying assets from banks to free up money for investment. Ends up similar to lowering reserve requirements, but without the drawbacks of lowering reserve requirements.
Japan is dealing with it by massive infra projects like the new maglev Shinkansen. So when we are talking about loans, we aren't just talking about consumer credit, although that can be a major component in a consumption-led economy.
Supply Side vs. Demand Side very different though.
Poor people buying stuff they 'need' is different than coaxing businesses to invest more broadly with slightly cheaper loans but with the demographic decline still on their daily charts.
Japan is on the verge of economic collapse. Negative interest rates, major deflation during all of covid. Barely pulling out of deflation and trending back downwards.
https://tradingeconomics.com/japan/inflation-cpi
Japan is in deflationary spiral due to high taxes and tremendous debt. Deficit spending to temporarily pull themselves out of deflation and recession will only makes things worse in the long term.