getting scared straight
Cable network A&E is now into its third season of Beyond Scared Straight. This is the latest iteration in the Scared Straight genre, created in the 1970s, in which budding criminals visit prisons and are supposedly frightened back onto the straight and narrow by Ghost of Christmas Yet to Come-like interaction with the inmates. I’ve never had enough interest to try to figure out how much is real and how much is staged.
There is a real-life Scared Straight, though, for economics and public policy. It’s called Japan. Maybe we should send our elected officials in Washington for a visit.
The Japanese economy has been in neutral for almost a quarter-century, during which the standard of living for average Japanese citizens has steadily eroded. The workforce is aging (it’s actually been shrinking for about a decade) but Tokyo doesn’t allow immigration. Weak management is slowly (sometimes, not so slowly) killing even iconic companies, but foreign turnaround specialists aren’t allowed to take control.
Worse, the government borrows heavily to spend on pork barrel “stimulus” projects that yield no economic return. As a result, national debt now exceeds 2x annual GDP. That’s a Greece-like number. Perversely, because Japan is almost devoid of good new investment opportunities (small “counterculture” companies run by younger managers are an exception), citizens continue to plow their savings back into government bonds, even though they yield next to nothing–creating a continuing cycle of misery. The Diet has not been overwhelmed by the interest expense of its reckless borrowing, nor has it had trouble, so far, in raising fresh funds to squander.
There’s an election on Sunday, in which the hapless Democratic Party of Japan is likely to be replaced by the Liberal Democrats, who have been the dominant force in modern Japanese politics. The DPJ was voted in a few years ago to change the patronage culture, but almost immediately lost its way in a frenzy of intra-party bloodletting.
why the election is interesting–and maybe important
Shinzo Abe, who will become the Prime Minister if the LDP wins, is running on a platform that includes dismantling the independent central bank. If Mr. Abe gets his way, the bank will be forced to print money as fast as the presses can turn, until this action creates at least 2% annual inflation.
I guess the idea is to weaken the currency so that even arthritic export-oriented manufacturing companies will be able to make a profit. There’s also the “advantage” that the currency markets, rather than the legislature, may take the blame for the immense loss of national wealth that would ensue. At the same time, to the degree that the LDP is successful in creating inflation, it will also likely triple or quadruple the interest rate on new government debt–potentially making it impossible for Tokyo to service. Scary.
Implosion isn’t imminent. Mr. Abe hasn’t won yet. Maybe he’ll change his tune after he’s in office. Maybe the Bank of Japan won’t simply roll over and do what he says. But, to mix metaphors a bit, that’s kind of like saying that the fuse to the dynamite that’s being lit is very long. Japan could be an Asian version of Greece if a few years.
the really scary part for the US
In a nutshell, Japan’s basic problem is that since the early 1990s it has chosen to prop up the status quo, in the face of a changing world, no matter what the cost. What’s really scary for an American is that Washington seems to be taking a turn down the same road.