The Return of Depressing economics
If you take Krugman's book and any and all other articles he has written on the crises in Japan, anyone can tell that he thinks Japan needs inflation. According to him, Japan needs to print sufficient money to ensure many years of rising prices (i.e. rising by more than 3%). Given that nominal interest rates cannot fall below zero, inflation is the only way to generate the negative real interest rates that are needed to reverse the "liquidity trap" that Japan finds itself in. Japan's problem, excessive savings, is so ingrained that even interest rates of a bit less than .5% are insufficient to get firms to make use of all Japanese' unspent incomes. The only way to make them reduce their savings rate is to make their money depreciate (i.e. to eventually become worthless) if it is not spent. They are not spending due to the fact that the prices keep falling and the Japanese will hold out until the first sign of price increase. I think that at this point it is safe to say that the more an economy produces at a cost lower than it sells for, GDP in general will rise. Firms in Japan are abstaining from this production because the labor prices are to high and they don't buy machinery that will increase production because the price
government and their agreement with the farmers in the country. As seen in New Zealand, we know that monetary inflation, simultaneous with high interest rates, led to a doubling of inflation rates in 1994-96. This way prices do not get out of hand and the law of supply and demand can still dictate the price of a certain crop. But a load of cheap money may simply generate further production, more economies of scale, and more discounting. But, as Krugman noted (which I totally agree with), while savings makes sense to individuals, collectively the act of saving for retirement just exacerbates the problem of supporting ourselves in retirement. Crony capitalists follow the slogan (Krugman's words): "heads we win; tails the government loses". That is also his proposed solution for destabilizing Japan's economy and society: to make saving less desirable by inflating the money supply, therefore inducing people to consume and speculate. The savings problem is not simply one of Japanese culture. And interestingly enough o!n Thursday, October 14, 1999, that is exactly what the Bank of Japan agreed to do by announcing that they are buying back bonds. Krugman played down the rises and falls in the value of the yen as being of significance for Japan (they may be significant for the rest of Asia, which is indebted to Japan). If a firms economic advisor is allowed to step in and make predictions about the economy and when to buy, the firm will undoubtedly wait to the last moment where they think they can get any and all materials necessary for production the cheapest. In the baby-sitter's co-op people start with small, equal amounts of script and a state is reached where parents want baby-sitters (demand) and other parents want to baby-sit (supply) but there is no matching of demand to supply because the script supply (money supply) is too small (savings are too high). For example, in New Zealand, low interest rates are not boosting investment as low interest rates have done in the past.
Common topics in this essay:
Zealand Japanese,
Central Bank,
Japan Krugman,
Baby-sitters'' Co-op,
Firms Japan,
Party's Third,
Bank Japan,
Japan Japan's,
According Japan,
,
liquidity trap,
japanese government,
krugman noted,
japanese people,
central bank,
monetary inflation,
crony capitalism,
japanese central bank,
excess savings,
low rates,
proposed solution,
|
Acceptance Essays
