Abenomics: A danger for Japan and the world
- By Leng Baoqing
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E-mail China.org.cn, December 30, 2013
Using common sense, we can see how money-printing can resolve economic problems. Where did Japan, with a debt to GDP ratio of 200 percent, get investment for the stimulus? Abenomics consists of "three arrows," as Martin Wolf said in his Financial Times column. The first is a monetary policy aimed at eliminating deflation, but the devaluation caused prices to rise. The second is a flexible fiscal policy, aimed at supporting the Japanese economy in the short run and fiscal stability in the long run; however, this is classic Keynesian economics and government-manufactured demand and economic prosperity. The third is structural reform, aimed at raising investment and growth to truly resolve Japan's economic problems.
But so far, Abe has only printed money and increased government investment. Printing money helps to prevent deflation but doesn't help to ease people's worries about devaluation or stop them from buying in panic. This demand is not healthy. If this kind of monetary policy could work, it should have worked in the 1980s and today's crisis would not exist. Japan has a greater proportion of debt than any other developed country in the world. Thankfully, Japanese people love their country, so they buy off most of the national debt; otherwise the bond would be worthless. The risks will grow as Japan continues to increase government expenditures and investment by selling bonds. If its national debt system collapses, there will not be just another Lost Decade, but a thorough economic breakdown and recession.
I suggest that Abe deal with the deep problems of Japan's economy with the samurai spirit. But he has mistaken Ronin's recklessness as bravery.
What is Japan's problem? The first is its aging population. The working-age population is falling at a rate of about 0.7 percent a year. The employment rate, at 80 percent for 15- to 64-year-old men in 2012, is higher than in other big high-income economies. At 61 percent for women, it is not far behind the United States (62 percent), the U.K. (66 percent) and Germany (68 percent). Yes, it would be possible to increase female participation, if Abe had the time to think about what his predecessors did and really do something to encourage young people to hold regular jobs.
The second problem is low worker productivity. Japan's output per worker was only 71 percent of the United States in 2012. To achieve the growth target, productivity would have to increase at close to 2.5 percent a year. But the Abe administration has not lived up to its promised targets.
The third problem is the lack of efficiency of government investments and too much private saving. This problem is the inevitable consequence of Japan's government-led economic model of a strong government and weak society. This issue remains to this day. Abenomics' expansion of government investment is a short-term solution that will only hurt Japan.
The G20 will not tolerate Japan's over-issuance of currency. Under such circumstance, Abenomics will not work. But even worse, for the international community, Abenomics may bring dangerous results. Abe is increasing the defense budget to expand government investment. Coupled with the economic deflation and recession caused by Abenomics, Japan will likely become a militaristic nation, just like in the 1930s.
The author is a current affairs commentator.
This article was first published in Chinese and translated by Zhang Rui.
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
