Introduction
In “Japan the Model,” Paul Krugman argues that Abenomics, or the Prime Minister’s turn towards monetary and fiscal stimulus to revive Japan’s economy, is the policy that could bolster economic growth, replace the “economic defeatism,” and cure the “policy lethargy” plaguing the developed world. While advocating for Abenomics, however, Krugman left out important context for understanding the dynamics of Abenomics stimulus. Understanding Abenomics for discussion among committee members and future hearings requires a review the context of Abenomics within recent Japanese economic performance, an understanding of the lingering impact of the crisis on the remedies, discussion of the risks associated with these remedies.
Abenomics in the Context of Japan’s Economic Performance
During the last two decades, both Japan and the United States experienced massive growth in real estate prices in conjunction with record stock market values that led to financial crises . In both the Japanese crisis of the late 1980s and the US crisis in the late 2000s, falling asset prices brought financial instability and economic stagnation.
Initial Japanese Financial Crisis
Over two years from 1989-91, Japanese banks lost 36% of their net worth. Banks adapted to this new and uncertain reality through reduced lending and decreased spending, and firms responded by slashing investment and spending. This reduced Japanese GDP by 0.4% annually during the 1990s. Deteriorated balance sheets increased both the moral hazard and the adverse selection problems that are inherent to the banking industry. Banks could not sort credit-worthy borrowers from reckless ones. These crisis conditions reduce both the supply and the demand for new loans, hampering e...
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...Krugman cites shows the risk of relying on investor and consumer confidence for success. Given that Abenomics relies on election outcomes, uncertainty could undermine the policies and lead a future government to repeal the policies.
Conclusion and Take-Away
As Krugman noted, the change in direction against austerity represents a bold move towards stimulating growth in Japan. If this stimulating policy translates to economic optimism and renewed confidence, the momentum could push towards further economic growth. The challenge of overcoming doubts will remain until commitment to the policy solidifies or Japan experiences substantial signs of economic growth. In a sound bite, Abe needs to generate support for his “renewed Japan” to retain confidence and optimistic growth prospects. His political future and prospects for economic renewal in Japan seem to depend on it.
In conclusion, the current macroeconomic situation in the United States is characterized by moderate growth because of better economic conditions that were brought by the events of 2013. The country has experienced moderate economic growth since the 2008 global recession but has shown real signs of momentum. While the country is not concerned about recession or inflation, the rate of unemployment is still a major challenge despite improved consumer and business confidence. As a result, the Federal Open Market Committee or Federal Reserve System needs to adopt fiscal and monetary policy initiatives that help address the unemployment issue and promote high economic growth.
In The Return of Depression Economics and the Crisis of 2008, Paul Krugman warns us that America’s gloomy future might parallel those of other countries. Like diseases that are making a stronger, more resistant comeback, the causes of the Great Depression are looming ahead and much more probable now after the great housing bubble in 2002. In his new and revised book, he emphasizes even more on the busts of Japan and the crises in Latin America (i.e: Argentina), and explains how and why several specific events--recessions, inflationary spiraling, currency devaluations--happened in many countries. Although he still does not give us any solid options or specific steps to take to save America other than those proposed by other economists, he thoroughly examines international policies and coherently explains to us average citizens how the world is globalizing--that the world is becoming flatter and countries are now even more dependent on each other.
Nakamura, Takafusa. [1971] 1983. Economic Growth in Prewar Japan. Translated by Robert A. Feldman. New Haven: Yale University Press.
Nakae Chomin’s Discourse was published in 1887, a period that demarcated a crucial turning point in Japan’s politics and economy. The book itself suggested the great debate that the people of Japan were having in deciding the future of the nation, and draws on Chomin’s studies on Western politics in France and his journalistic and political involvements in Japan.
In 40 years, Japan will need to fund entitlements for more retirees than are in its work force, but the government continues to deliver high bond yields that can 't be sustained. The stampede to issue more bonds to stimulate economies isn 't just a Japanese problem as shown by the following situations:
In the following paper I will be examining the process of economic development in Japan. I begin with their history in the Meiji period and how that effected their great success in the postwar development. Then I will go through the different economic stages of economic development in postwar Japan. I will examine the high periods and low period in Japan economics, and the factors behind these shifts in development. Last I will give a conclusion and where I believe Japan economy will be in the future.
Japan is currently in an economic recession. We can see that the value of the yen is falling; unemployment is rising, and purchasing of durable goods is down. This unhealthy state of economy has progressively become bleaker over the years.
Account for the emergence of the ‘bubble economy’ in Japan and the reasons for the country’s slow recovery from it.
Inconsistent and Ineffective Policies: An example of inconsistent policies was in 2010, when Prime Minister Hatoyama of the DJP, deregulated laws passed in 2004 that were put in place by the LDP. Three years later, today, the current Prime Minister Abe of the LDP, has a new and completely different plan to address stagnation. Again, it’s tough to see change when policies are inconsistent. Some policies have been ineffective. An example of an ineffective policies is when Prime Minister Hatoyama addressed the issue of companies hiring temporary workers with planned hiring limits. According to Richard Jerram, chief economist at Macquire Securities (Japan) limited, this policy would only exacerbated the problem. (Sieg, 2010). Another example of an ineffective policy is regulatory forbearance in the 1990’s. These regulations were designed to help ‘struggling’ ...
Posen, Adam. “The Realities and Relevance of Japan’s Great Recession: Neither Ran NorRashomon.” STICERD Public Lecture, London School of Economics, 24 May 2010
However, analyzing the Japanese economy purely through the lens of an economist seems to leave out major aspects of the argument and implies that the Japanese economic miracle can simply be explained by the market forces of supply and demand. By acknowledging the importance of government policy, which encouraged people to save money and encouraged labor strategies such as lifetime employment, as well as the fact that the Japanese people were able to cooperate well with each other, one can come to the conclusion that Japan’s economic revival was anything but luck. Thus, the economist perspective that “no miracle occurred” in Japan is not the most appropriate theory, due to its failure to incorporate other important factors into the analysis. However, I do not think that “miracle” is the correct term to describe Japan’s postwar economic success. The Oxford English Dictionary defines miracle as “a marvelous event not ascribable to human power or the operation of any natural force” (“Miracle”). While the revival was definitely miraculous, calling the Japanese economic boom a “miracle” seems to underemphasize both the roles of the government, which worked to create incentives to boost the economy, as well as the roles of the citizens of Japan, who worked together to rebuild their
In conclusion, I tried to explain what experienced in Japan during the first years of rapid economic growth in terms of its social consequences. According to my argument, I tried to show imbalances which occurred with economic development in post- war Japan. In other words, economic development cannot appear as linear social development. Post- war Japan has witnessed positive and negative social consequences after implementing economic recovery. Therefore, we can say that society cannot always embrace economic development positively. Economic transformation brings its own waves and thus society fluctuates regarding its embracement. Japanese society received its share with this economic recovery during post- war period.
Stockwin, J. A. Chapter 7: Who Runs Japan? In Governing Japan: Divided Politics in a Resurgent Economy (4th ed., pp. 46-72). London, The United Kingdom: Blackwell.
Economic recovery of Japan after Second World War can be divided into periods. As Kenichi Ohno states that 1945-1947 recovery period, Korean War in between 1950-1953, after this war Japanese economy had entered into high growth period and it basically lasted until 1970s. Throughout those years Japanese government attempted to achieve economic development with the implementing economic control and economic planning. At the second part of my research I will mention about economic development in order to have general framework what policies were implemented.
O'Bryan, Scott. 2009. Growth Idea : Purpose and Prosperity in Postwar Japan. University of Hawaii Press, 2009. eBook Collection (EBSCOhost), EBSCOhost (accessed December 4, 2011).