David Lazarus and Michael Hiltzik, business columnists for
the LA Times, are two good reasons to read the paper.
Their columns serve as oases of actual reporting, analysis,
and informed opinion amid the ongoing desertification of newspapers’ straight
news operations.
Hiltzik’s February 27 column on the “generational theft” meme,
Seniors vs. Kids Claim is a Sham, is a noteworthy example:
The generational theft trope has
already been receiving a vigorous workout in the press. Earlier this month, the
Washington Post gave great play to a study by the Urban Institute stating that the federal government spends $7 on the elderly
for every dollar it spends on kids. As we shall see, this is true as far as it
goes, but it doesn't go nearly far enough to render an accurate picture of
government spending.
…
This is also a bedrock argument of the
anti-deficit organizations, such as Fix
the Debt, associated with hedge fund
billionaire Peter G. Peterson. For decades he has pursued a wearisome and
spectacularly self-interested campaign to cut Social Security and Medicare
benefits for the working class so taxes won't go up too much on the wealthy.
…
So here's the truth about the
"generational theft" theme: It's wrong on the numbers and wrong on
the implications.
Let's start with that 7-to-1 spending
ratio on seniors versus children. Among the flaws in the calculation is that
the vast majority of government dollars spent on children comes from state and
local governments, which pay most of the cost of education. On a per capita
basis, state and local spending on kids swamps the federal government's
spending 8 to 1.
Moreover, there are twice as many
children 18 and under as seniors 65 and over (this 2008 figure also comes from
the Urban Institute report). Put the numbers together and you discover that
spending by governments at all levels in 2008 came to about $1 trillion on
seniors and $936 billion on children. In other words, very close to 1 to 1.
The notion underlying the comparison
of spending on seniors and children is that "if you save a dollar on
Social Security it would be transferred automatically to children,"
observes Theodore
R. Marmor, an emeritus professor of public policy at Yale and a long-term
student of social welfare programs. He traces this notion to deficit hawks and
dismisses it as "not naive, but cynical."
That's because most of the spending on
seniors is in Social Security and Medicare, and therefore has been largely paid
for by those very beneficiaries over the course of their working lives.
The “generational theft” meme is relevant to my current piece in Asia Times,
which concerns Prime Minister Shinzo Abe’s recent trip to Washington to promote
his Abenomics/”Japan is back” economic and foreign policies.
My unworthy suspicion is that Prime Minister Abe is something of an
opportunistic hack and his program of domestic stimulus, export promotion
through yen weakening, and enhanced defense spending through China-bashing will
enrich the LDP’s well-heeled backers but leave everybody else holding the bag.
Paul Krugman hopes not, since Japan is now the only Keynsian harbor in a sea
of austerity, and offers the best chance to show the world that economic growth
is best achieved through through a combination of government spending and
inflationary expectations, not spending cuts.
However, as can be seen from the ATOl piece, Abe has also been peddling the “generational
theft” meme which means when the stimulus bill comes due, he probably figures
that economic growth is not going to be able to cover it. Instead of adding to Japan’s colossal
national debt, I suspect that Prime Minister Abe intends to stick Japan’s large
and expensive cohort of oldsters with the check instead.
“Generational theft” is not a favorite of the Obama administration (for that
matter, neither is Prime Minister Abe), so I find it interesting that he
plugged this disliked right-wing talking point during his trip. Maybe, Abe wanted to shore up Japan’s
political support among the conservative, anti-Obama commentariat as he
prepares for some more aggressive foreign policy moves vis a vis China in the
face of U.S. government resistance.
This piece appeared on ATOl on February 27, 2013. It can be reposed if ATOl is credited and a link provided.
Japan's Abe raises ghost of glories past
Prime Minister Shinzo Abe aspired to Churchillian eloquence during his
visit last week to Washington. According to the LA Times, what came out
sounded more like a Terminator/MacArthur mashup: "I am back, and so
shall Japan be."
Foreign Policy's The Cable blog presented a different, more flattering, but somewhat incorrect version:
"I
am back!" Abe declared forcefully to the hundreds of experts,
officials, and reporters assembled in the basement of the Center for
Strategic Studies Friday afternoon. "And Japan is back."
A look at the video reveals that Prime Minister Abe began his address with the awkward remarks reported by the LA Times and
concluded his speech with the sole affirmation "Japan
is back", having over the course of his 20-minute speech miraculously
accomplished his goal of restoring the Japanese nation to greatness. [1]
Fans of the US "pivot to Asia", apparently including The Cable, were
enthusiastic about the speech, which included Abe pointing to the
commemorative blue ribbon on his lapel to highlight the absolute
priority he gives to rescuing Japanese abductees in North Korea (and
rejection of engagement with North Korea), declaring the global
character of the North Korean nuclear threat, putting forward his
country as a democratic promoter of rules-based behavior on the seas,
and capping with the applause lines: "I make a pledge. I will get back a
strong Japan. Strong enough to do even more good for the betterment of
the world."
Others might have regarded Abe's remarks as a rather creepy mix of
pivot-pandering meant to ingratiate his administration to the Obama
administration, and a jingoistic affirmation of Japan's determination to
avoid "second tier" status by a more assertive security and military
posture against North Korea and a certain unnamed non-democratic Asian
power with the initials "PRC".
Remarkably, Abe-skeptics apparently include the foreign policy team of
the Barack Obama administration, as Peter Ennis of Dispatch Japan wrote:
[F]ew people in the Obama administration know Abe, and top
officials are somewhat skeptical that Abe ... will be able to restrain
... nationalist impulses and act with a clear strategic vision for
stability in the region. As Michael Cucek pointed out recently, Abe
himself declared in his "new" book (a virtual reprint of an earlier
tome) that his return to power is not simply a replacement of the
discredited Democratic Party of Japan (DPJ), but "is a fight to return
the country called Japan to the hands of the citizens of Japan from out
of the grip of postwar history." Abe's long-standing "history denier"
perspective has not changed. ...
Abe had assumed, mistakenly, that his return to office, and that of his
Liberal Democratic Party (LDP), would be met with cheers in Washington,
that an "anything but the DPJ" attitude prevailed. While greater
political stability is certainly welcomed by Obama administration
officials, many in Washington were pretty happy with the foreign and
security policies of the DPJ's Yoshihiko Noda, who is clearly more
moderate than Abe. ...
Abe had initially hoped to trumpet his plans to lift Japan's
self-imposed ban on the exercise of the right of collective
self-defense, and make clear publicly that Japan would use its missile
defenses to assist the United States in the event North Korea launched a
ballistic missile aimed at US territory. Abe assumed the new policy
would be welcomed in Washington.
That was not the case. The Pentagon, of course, would welcome the
defense planning and operational flexibility that would come from Japan
exercising its right to collective self-defense. But US officials were
concerned that a demonstration of support for such an initiative by Abe
could be misinterpreted as endorsement of the prime minister's broader
domestic agenda, including revision of the Constitution, which could
unnecessarily anger Beijing.
As Prime Minister Abe advertised his unshakable resolve to reassert
Japan's "first tier" status, the US media also noted some anxious
backing and filling. Abe felt compelled to get into China's grill about
the Senkaku Islands dispute in a Washington Post interview setting the
table for his meeting with President Obama, claiming the PRC had a
"deeply ingrained" need to challenge neighbors over territory.
The PRC's Ministry of Foreign Affairs laid into Abe:
"It is
rare that a country's leader brazenly distorts facts, attacks its
neighbor and instigates antagonism between regional countries," Chinese
Foreign Ministry spokesman Hong Lei said. "Such behavior goes against
the will of the international community. ... We have solemnly demanded
the Japanese side immediately clarify and explain."
Global Times went with "China Heaps Scorn on Shinzo Abe Remarks" and added the interesting nugget:
Echoing
the Chinese side's requirement for immediate clarifications, Japanese
Chief Cabinet Secretary Yoshihide Suga explained Friday that the
newspaper misquoted Abe's remarks and had caused a misunderstanding.
I thought this might be a piece of ingenious Chinese self-consolation,
also known as a lie, but it was true, as the Washington Post confirmed
in an article titled "Japan says Abe's quotes about China in Post
interview were 'misleading'":
"There is no comment made by
the prime minister as saying that China wants to clash or [have]
collision with other countries," Chief Cabinet Secretary Yoshihide Suga
said. "As I said, as the prime minister said, we value mutually
beneficial relations with China based on strategic interests."
The United States is unlikely to be impressed by the Japanese
government's transparent desire to present itself to the US as the
unshakable axis of the pivot, while rather abjectly backpedaling vis a
vis the PRC. Also, the prominent play that the Washington Post gave to
this embarrassing story seems indicative of the bemused contempt with
which the Obama administration regards the seemingly endless parade of
Japanese prime ministers that it has witnessed over the past five years.
It is also open to question how seriously the Obama administration takes
its own proposal for the "Trans Pacific Partnership" or TPP, the "high
standards" free-trade zone that will exclude China and reward the Asian
democracies for their willingness to risk the PRC's economic retaliation
by aligning with the US pivot to Asia.
The root problem of the TPP is that everybody wants to boost exports,
including the United States. The official line as the LA Times reported
is that the US and Japanese economies are complementary, "except for
cars". The report went on to state: "Japan's biggest imports from the US
are airplanes and corn, while America's largest imports from Japan are
cars, aircraft parts and printing machinery."
Perhaps the solution is for both countries to discard the automobile
altogether and rely on Adam Smith's law of comparative advantage to fill
their garages with the appropriate mix of airplanes and printing
presses. [2]
However, for Prime Minister Abe, in a nation in which the political
lifetime of prime ministers has recently been measured in weeks and
months, not years, the vagaries of North Korea, the ongoing phony war
over the Senkakus, or the pie-in-the-sky dreams of a Trans Pacific
Partnership are not the tickets to national resurgence.
Central to Abe's political strategy is to breathe some life into the
stagnant Japanese economy through "Abenomics", a combination of 10.3
trillion yen (US$112 billion) in infrastructure spending and a loosened
monetary policy that will pump 36 trillion yen in extra currency into
Japan's economy in a bid to achieve an inflation rate of 2%.
Beneath the brave theoretical talk of Abenomics and jumpstarting
investment through the creation of inflationary expectations, the core
of the current government's economic strategy is a not particularly
sophisticated or principled exercise in monetary policy: print money in
excess of economic growth, thereby triggering inflation to devalue the
currency, boost exports, and reduce the real costs of servicing Japan's
impressively large national debt.
The political downside of this scenario is that Japan's fixed-income old
folk will bear the burden of the reduced purchasing power of their
inflated yen. This is a price that the LDP appears increasingly willing
to accept, as reflected in Finance Minister Taro Aso's widely reported
recommendation:
Taro Aso, the finance minister, said on
Monday that the elderly should be allowed to "hurry up and die" to
relieve pressure on the state to pay for their medical care.
"Heaven forbid if you are forced to live on when you want to die. I
would wake up feeling increasingly bad knowing that [treatment] was all
being paid for by the government," he said during a meeting of the
national council on social security reforms. "The problem won't be
solved unless you let them hurry up and die." [3]
Prime Minister Abe clearly shares Aso's mindset, although he declared
that he wants to empty the bank accounts of the oldsters, not
necessarily yank out their IVs. In his remarks to the CSIS, he made the
case for elders sacrificing their savings, presumably by paying out of
pocket for luxuries like medical care, so that the young could enjoy
lower tax rates:
"The big savers, mostly aged population, must be able to give their
money to the younger generation with smaller tax burden."
The weakened yen promises to make things difficult for Japan's
neighbors, both friends and strategic competitors, as well as its senior
citizens. The most immediate victim of a weak yen is South Korea. In
the official security equation, South Korea is a steadfast democratic
partner in the Asian security alliance; in Abenomics, the it looks more
like the competing exporter whose lunch Japan hopes to eat first.
Incoming President Park Geun-hye is not amused, according to Reuters:
"...
the global economy hasn't recovered from recession yet our companies
are having more trouble as the weak yen offensive is following," she
said at a meeting with the Korea Employers Federation on Feb 20,
according to her YouTube site.
Her remarks have gone down well with those suffering most from Abe's
hyper-easy monetary policy that has seen the won jump 5% this year
versus the yen after a 23% gain in 2012. South Korean and Japanese firms
compete against each other in a range of products, from cars to
televisions and computer chips. [4]
As for the PRC, its distorted economy and overextended banks are not
going to have an easy time of it if the weakened yen cuts into Chinese
exports - both to Japan and into competing markets. This might be a
feature of Abe's geopolitical strategy as he tries to come up with an
economic riposte to the damage that China has inflicted on Japan's
exporters and enterprises over the Senkakus dispute.
If and when the LDP wins the upper house elections in July and secures a
mandate to drive the yen to 100, we'll see if the PRC's leadership will
respond to the challenge with a profound economic restructuring toward
efficiency, accountability, and domestic demand, or simply throws more
infrastructure money at the economic and social problems associated with
slacking exports.
Or China might decide Japan deserves a taste of its own medicine, and
returns to its old, yuan-depreciating ways. That would not be a good
thing.
In the worst case, known as "beggar thy neighbor", everybody else
follows the example of the major economic powers and devalues their
currencies, leading a global rush to the bottom resulting in goodness
knows what, but perhaps to a sag in purchasing power for the world's
consumers, not just Japan's inconvenient oldies, and a new global
recession.
Count Stephen King, chief economist of HSBC, among the Cassandras: "Mr
Abe's policies may ultimately deliver the goods but there is a very good
chance that, instead, his measures will only lead to further global
financial instability, in turn triggering an increase in economic
nationalism," King wrote. [5]
There has been a chorus of public anxiety, led by Brazil and Germany,
expressing concerns about an imminent currency war, and behind the
scenes insistence at the Group of 20 of a "don't ask don't tell"
reticence by Japan on the obvious but not openly acknowledged linkage
between its inflation, currency devaluation, and export-promotion goals.
The United States, possibly because it is the first and biggest offender
(with three rounds of quantitative easing and a commitment to increased
inflation) has been markedly silent. The European Union, on the other
hand, is still maintaining what one might, with a straight face, refer
to as the "responsible stakeholder" attitude, opposing the mercantilist
adventurism of Washington and Tokyo.
There is considerable poo-pooing of currency war anxieties in the
financial press - along the lines of "the IMF is there to relieve the
misery of unwise and unlucky laggards in the currency revaluation game" -
but the New York Times' Harry Campbell seemed to have the most honest
take on the situation:
Bigger, more mature countries are responding to their own
economic downturns by adopting easy money policies. But the problem is
that the emerging market economies can't respond with similar
effectiveness because of their own economic or political issues. [6]
Said "economic and political issues" are the unwillingness to lose
exports, revenues, and jobs to US and Japanese exporters. The US and
Japan, by flooding the money supply, are inflicting a massive stress
test on the world economy, particularly the "emerging market economies".
A look at the nationalist truculence of Japan's LDP does not inspire
confidence that the powerful tool of the monetary policy of one of the
world's largest economies will be carefully and responsibly wielded.
When informed of German reservations, the attitude of Abe's close
associate and inflation advocate, Kozo Yamamoto: Bring it on! "If they
think Japan has gone too far, then they should try it themselves," said
Yamamoto. "That's what a floating exchange rate system is for." [7]
Paul Krugman, who abhors austerity/budget balancing talk and is a
vigorous advocate of deficit spending and inflationary monetary policy
as a solution to America's slow-growth headache and, therefore,
supportive of Abenomics, paid the LDP the mother of all backhanded
compliments:
[Abe] is not anybody's idea of an economic
hero; he's a nationalist, a denier of World War II atrocities, a man
with little obvious interest in economic policy. If he's defying the
orthodoxy, it probably reflects his general contempt for learned opinion
rather than a considered embrace of heterodox theory.
But that may not matter. Abe may be ignoring the conventional wisdom on
spending, and bullying the Bank of Japan, for all the wrong reasons -
but the fact is that he is actually providing fiscal and monetary
stimulus at a time when every other advanced-country government is too
much in the thrall of the Very Serious People to do something different.
And so far the results have been entirely positive: no spike in
interest rates, but a sharp fall in the yen, which is a very good thing
for Japan.
It will be a bitter irony if a pretty bad guy, with all the wrong
motives, ends up doing the right thing economically, while all the good
guys fail because they're too determined to be, well, good guys. But
that's what happened in the 1930s, too ...
Krugman, loath to violate Godwin's Rule against invoking the name of a
certain German dictator in contemporary debate, fails to mention that
the "pretty bad guy" who did "the right thing" in bootstrapping his
country out of the Great Depression was one Adolph Hitler.
As for Japan, perhaps we can now relaunch the yen as "Official Currency
of the Japan Sole Prosperity Sphere". What could possibly go wrong?
"Prime Minister Abe, China, and "Generational Theft""
No comments yet. -