Can “Abenomics” Revive Japan’s Economy? Part 1

Junji Tokunaga, Guest Blogger

This is the first part of a two-part post on the economic policies of Japan’s prime minister, Shinzo Abe, and on alternatives to neoliberal “Abenomics.” Junji Tokunaga is an Associate Professor in the Department of Economics, Dokkyo Univeristy, Saitama, Japan. He is the co-author, with regular contributor Gerald Epstein, of a multi-part series for Triple Crisis on “Global Dollar-Based Financial Fragility in the 2000s” (Part 1, Part 2, Part 3, Part 4).

Japanese Prime Minister Shinzo Abe won a landslide victory in the snap election for the lower house of parliament on December 14, 2014. Abe’s Liberal Democratic Party (LDP), the leading conservative political party, and its partner party in the ruling coalition have won 326 of 475 seats, which enabled the coalition to secure a two-thirds supermajority in the lower house.

Why did Abe win the election? Since the end of 2012, the Abe government has carried out an economic revitalization program, called “Abenomics,” consisting of “three arrows”: more aggressively quantitative monetary easing, massive fiscal stimulus, and structural reforms. The main reason of his emphatic victory is that Abe  succeeded in persuading the electorate to stay the course, with slogans like “Abenomics is progressing” and“there is no other way to economic recovery,” while shifting the electorate’s attentions from more delicate political matters such as restarting Japan’s nuclear power plants and bolstering its military forces.

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The Invisible Hand of Alan Blinder

John Komlos, Guest Blogger

Guest blogger John Komlos, author of What Every Economics Student Needs to Know and Doesn’t Get In the Usual Principles Text, takes on economist and Princeton University professor Alan Blinder’s criticism of Jeffrey Madrick‘s recent book Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World. A recent Triple Crisis post by Madrick summarizes some of the book’s central arguments.

Alan Blinder’s review of Jeffrey Madrick’s Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World (Knopf, 2014)[1] is critical of Madrick’s characterization of the role of economists in the financial meltdown of 2008. Madrick suggests that their role was “central,” while Blinder claims that economists contributed merely a “bit” and even that bit was limited to “conservative economists.” I think that Madrick’s characterization is much closer to the truth and so does Joseph Stiglitz, who said in a lecture, “I have to blame my colleagues in the economics profession. Not all economists got it wrong; but a lot of them did and they provided arguments that politicians used, people in the industry used for stripping [regulation] away…. The basic argument was a very simple one, a variant of Adam Smith that markets, unfettered markets always lead to efficient outcomes…. they [regulators] were just doing what they said economic theory said you ought to be doing.”[2]

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Equality, Solidarity, and Sustainability, Part 2

In this second part of a four-part interview, regular Triple Crisis contributor Jayati Ghosh summarizes some major themes in her work and thought, including the prospects for the transformation and revival of socialist movements, the transfiguration of the world capitalist economy and the reproduction of structures like the core-periphery division and landlord domination, new challenges of international labor solidarity and environmental sustainability, and the way forward towards egalitarian societies. (Part 1 of the series is available here.)

Jayati Ghosh

Change and Reproduction of Core and Periphery

D&S: A half century ago, the most influential radical view of economic “underdevelopment” focused on the dominance of industrial-manufacturing “core” economies over raw-materials-producing “periphery.” Has that story changed in the current era of neoliberal globalization, with many developing countries moving out of mineral and agricultural exports and into export-oriented manufacturing (often “offshored”)?

JG: Geographical and locational changes in productive structures do not negate the idea of “core” and “periphery” operating within capitalism. Global capitalism has, throughout its history, experienced such shifts.

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What We’re Writing, What We’re Reading

What We’re Writing

Matías Vernengo, Growth forecasts and Latin American underperformance

Juan Antonio Montecino and Gerald Epstein, Have Large Scale Asset Purchases Increased Bank Profits?

Kevin Gallagher, Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance

 

What We’re Reading

Gabriele Köhler, On the Cusp of a Genuinely Transformative Agenda?

Oakland Institute, The Corporate Takeover of Ukrainian Agriculture

Lynn Parramore, Welcome to the European Hunger Games, Brought to You by Mainstream Economics

Ian Morris, The Measure of Civilization: How Social Development Decides the Fate of Nations

Triple Crisis welcomes your comments. Please share your thoughts below.

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India’s Climate Strategy Needs Revision

Sunita Narain

Climate change negotiations are by now predictable. The already-industrialised come to each conference of the parties (COP) with a clear game plan, that is, to erase their contribution to the emissions already present in the atmosphere, thereby effectively remove the differentiation between their responsibility and that of the rest of the world to act. This would rewrite the 1992 convention on climate change and let them evade the obligation to provide funds and technology for action in the developing world. The problem is that developing countries do not come with an equally clear plan or proactive position. As a result, in each meeting, including the recently concluded COP20 at Lima, developing countries lose. The terms of the agreement change progressively and deliberately against the poor and the Planet.

Indian negotiators believe they can maintain the status quo and delay any new agreement, but as climate negotiations show, this tactic does not work. We block but the rich countries shove and the ground slips from under our feet. We need to revise our strategy.

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Equality, Solidarity, and Sustainability, Part 1

In this interview, forthcoming in Dollars & Sense magazine, regular Triple Crisis contributor Jayati Ghosh summarizes some major themes in her work and thought, including the prospects for the transformation and revival of socialist movements, the transfiguration of the world capitalist economy and the reproduction of structures like the core-periphery division and landlord domination, new challenges of international labor solidarity and environmental sustainability, and the way forward towards egalitarian societies. This is part one of a four-part series.

Jayati Ghosh

Prospects and Barriers for a New Socialism

D&S: We are scarcely two decades removed from the supposed global triumph of capitalism, the death of socialism, and (maximum hubris) proclamations of the “end of history.” And yet we’re seeing a revival of socialist movements—what you have called the “emerging left in the emerging world.” What are the key factors explaining this revival?

JG: I think it is now becoming more evident to most people across the world that global capitalism—especially in its current neoliberal manifestation—is not likely to deliver genuinely better material conditions, security, and justice. This is generally still a largely inchoate and diffuse sense of unhappiness with the state of things in many parts of the world. It is true that in some regions, like Latin America, there is a more developed sense of how neoliberal policies pushed the advance of aggressive and extremely unequal capitalist forces.

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Free Markets: Yellow Brick Road to War

John Weeks

Troglodyte – pronounced trog-luh-dahyt, 1) prehistoric cave dweller, 2) a person of degraded, primitive, or brutal character, 3) person living in seclusion, and 4) a person unacquainted with affairs of the world.

Troglonomics – pronounced trog-lo-nomics, the social institutions of production & exchange as viewed from a cave by a person degraded & corrupted intellect unacquainted with the affairs of the world; also known as “neoclassical” economics.

The troglodyte economics of the mainstream (a.k.a. neoclassical economics) functions as a virus of the mind. Like a computer virus, it corrupts the brain’s operating system, creating shot-circuits that by-pass both common sense and the brain’s analytical software. Once contracted through formal training in the classroom, troglonomics proves almost impossible to remove from the thought process. We find evidence of the difficulty of freeing the mind of the neoclassical virus in the writings of the few self-exiles from the mainstream who consider themselves progressive—and are so considered by the public.

Joseph Stiglitz represents an obvious example of a prominent mainstream-trained economist whose progressive views are not up to the task of purging his mind of the basic principle of troglodyte ideology, that resources are scarce and human wants unlimited (see the first chapter of his macroeconomics text with Carl Walsh, and the teeth-grinding “Thinking like an economist” boxes scattered through the book).

It is a mystery how an intelligent person (not withstanding his so-called Nobel Prize in economics, actually awarded by the Central Bank of Sweden, not the Nobel Committee) could live in a world of persistent unemployment and believe that resource scarcity is the central problem of a capitalist economy (my critique of resource scarcity is in Chapter 4 of my new book).

Krugman on War (yet again)

But few progressives are more virus-inflected than Paul Krugman. Despite his commendably progressive views on a range of social and political issues, Mr/Professor/Laureate Krugman remains a true believer in the virtues of international trade, his critique of which is limited to concerns about “market failure” (see his 1997 book Pop Internationalism, which to my knowledge he has not disavowed).

This loyalty to the mainstream ideology on trade goes far to explain his singularly bizarre view of the causes of war. In the August 17 edition of the New York Times he argued that since ancient times wars have been fought “for fun and profit” (his exact words in “Why We Fight Wars,” and see a critique in my Huffington Post blog).

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Protecting Money or People?

Amid climate change, what’s more important?

James K. Boyce

the latest round of international climate talks this month in Lima, Peru, melting glaciers in the Andes and recent droughts provided a fitting backdrop for the negotiators’ recognition that it is too late to prevent climate change, no matter how fast we ultimately act to limit it. They now confront an issue that many had hoped to avoid: adaptation.

Adapting to climate change will carry a high price tag. Sea walls are needed to protect coastal areas against floods, such as those in the New York area when Superstorm Sandy struck in 2012. We need early-warning and evacuation systems to protect against human tragedies, such as those caused by Typhoon Haiyan in the Philippines in 2013 and by Hurricane Katrina in New Orleans in 2005.

Cooling centers and emergency services must be created to cope with heat waves, such as the one that killed 70,000 in Europe in 2003. Water projects are needed to protect farmers and herders from extreme droughts, such as the one that gripped the Horn of Africa in 2011. Large-scale replanting of forests with new species will be needed to keep pace as temperature gradients shift toward the poles.

Because adaptation won’t come cheap, we must decide which investments are worth the cost.

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Bretton Woods After 70 Years

“The End of (Monetary) History”

Erinç Yeldan

As we are about to wrap up 2014, it may prove worthwhile to celebrate the 70th anniversary of one of the most innovative and exciting episodes of homo economicus: The Bretton Woods Monetary Conference. Convened in 1944 at the Mount Washington Hotel in New Hampshire, the conference established the World Bank and the IMF (later referred to as the “Bretton Woods Institutions”) and set the gold standard at $35.00 an ounce with fixed rates of exchange to the U.S. dollar.

Based on John Maynard Keynes’s famous dictum, “let finance be a national matter,” and on the productivity advances of Fordist technology and institutional structures, the global economy expanded at a fast rate over the postwar era, from 1950 to the mid-1970s. Per capita global output increased by 2.9% per year over this period, which later came to be referred to as the “Golden Age of capitalism.” (In contrast, the average rate of per capita growth over the whole century has been estimated at 1.6%.)

The conditions that created the Golden Age were exhausted by the late 1960s, however, as industrial profit rates started to decline in the United States and continental Europe due to increased competition, particularly from the Asian “tigers” or “dragons” (Republic of Korea, Taiwan, Hong Kong, and Singapore). In the meantime, Western banks were severely constrained in their ability to recycle the massive petro-dollar funds and the domestic savings of the newly emerging baby-boomer generation. Trumpets for the “end financial repression” intensified with the so-called McKinnon-Shaw-Fama hypotheses of financial deregulation and efficient markets. A global process of financialization was commenced, lifting its logic of short-termism, liquidity, flexibility, and immense capital mobility over objectives of long-term industrialization, sustainable development, and poverty alleviation with social-welfare driven states.

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The Failed Austerity Experiment in the UK

Philip Arestis and Malcolm Sawyer

A general election in the UK is set to be held in May 2015, which will mark the end of a five year period of Conservative-Liberal Democrat coalition government. This government set in 2010 as its prime policy target the elimination of what they have tended to refer to as Labour’s deficit and “clearing up the mess.” In an “emergency budget” introduced just over a month after coming into power (June 2010), Chancellor of the Exchequer George Osborne introduced some emergency cuts amounting to £6 billion—which can be compared with a deficit of over £150 billions. Initial plans were put in place to come close to eliminating the deficit over the lifetime of the Parliament, reinforced by the Spending Review of October 2010. These plans were based on “expansionary fiscal consolidation” arguments, along with a number others. “The most urgent task facing this country is to implement an accelerated plan to reduce the deficit. Reducing the deficit is a necessary precondition for sustained economic growth. To continue with the existing fiscal plans would put the recovery at risk, given the scale of the challenge. High levels of debt also put an unfair burden on future generations. …The Government has therefore set a forward-looking fiscal mandate to achieve cyclically adjusted current balance by the end of the rolling, five-year forecast period” (HM Treasury Budget 2010, emphasis added).

It was not only that the budget deficit was to be largely eliminated over a five year period, but that it would go alongside a booming economy with the output gap (between actual output and potential output) closed. The ability of the government to achieve a close to balanced budget and a closed output gap was validated by the newly established and “independent” (of government) Office for Budget Responsibility. This was accompanied by forecasts that investment and exports would recover and grow rapidly, and this would in effect enable the budget deficit to decline and the economy to grow.

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